Growth economies take centre stage in new financial order

Global report confirms changes to Africa’s financial map

A new report from international legal practice Norton Rose Group has highlighted the role that growth economies are playing in worldwide business. Growth economies, like Africa, are now taking centre stage, not simply as destinations for investment, but as sources of business and of capital in their own right.

The report is the result of an extensive survey of financial institutions throughout the world, taking into account the opinions of more than 200 organisations across five continents. It’s the seventh edition of the survey series from Norton Rose Group, which began in 2007.

The raw numbers show that the attention of the world’s financial institutions is firmly on growth economies. Whilst few will be surprised that Asia is identified as the primary business driver in the short, medium and long-term, Latin America is also highlighted as a particularly strong short-term opportunity, with the Middle East and Africa standing out as key markets in the medium and long-term respectively.

The Sub-Saharan region has been growing at 5.6% per annum over the past decade containing 6 of the 10 fastest growing economies in the world since 2000. Africa represents a large market with 840 million people with USD1.9 trillion in purchasing power, most of which is largely unbanked or not part of any formal banking systems.

Riza Moosa, director and head of banking at Norton Rose South Africa commented:

“There is a clear recognition by close to half of the respondents that Africa has the strongest long term opportunities for financial institutions – the biggest percentage of all regions outside Asia. The business activity of South African companies also reflects an optimism evidenced by their expansion plans into Africa, even in the shorter to medium term.

“In tracking industrial and mining companies searching for resources in Africa, large international banks servicing these companies have seen the need to be present in the countries of operation and close to their clients.

“Whilst regulation varies greatly in each African country with different degrees of governance, the entry of foreign banks (lead in part by the South African big four) has meant that regulators have to quickly assess the need to tighten controls and regulation.

“Despite the dominance of the French banks in West, Central and Northern Africa and the East predominantly the domain of the English Banks, there are many opportunities for new entrants with an ability to service these markets effectively.”

Respondents also repeatedly fed back that the historical flow of capital from West to East is no longer the overriding trend. Indeed, growth markets are now sources of capital and not just an area of growth. This is a trend backed by the series of Western companies who have sought to raise capital on Asian stock exchanges, including Hong Kong and Singapore, in recent months.

Respondents were also acutely attuned to the flow of capital between growth markets and understand that the traditional financial centres such as New York and London may now have a different role to play in this arena.

The survey also found:

* The enforcement of legal rights in growth markets is a major concern for survey participants, most notably in Africa (62%), Central and Eastern Europe (56%), the Middle East (47%), and South Asia (60%).

* Similarly, foreign ownership restrictions are highlighted as major barriers to doing business in South Asia (63%) and the Middle East (42%).

* Political instability has emerged as a primary concern to financial institutions, most notably in connection with Africa (70%), and the Middle East (62%).

* 42% of survey participants see the Global Financial Crisis as having created more opportunities than problems. This figure rises to 52% in Australia and 64% in Asia Pacific.

* 70% of survey participants believe global regulatory standards as proposed by the G20 are unachievable.

* 65% of survey participants reported that their boardrooms have become more focussed on risk procedures since 2008