In an exclusive interview with the B&FT’s Ebenezer Chike Adjei Njoku, Ismaël Cissé, the CEO of Sirius Capital, an investment bank and management intermediary company in Cote d’Ivoire, delves into the intricate landscape of financial and business developments across the African sub-region. With a deep-rooted commitment to impact finance and the pursuit of innovative avenues for sustainable funding, Ismaël Cissé sheds light on critical issues that lie at the heart of economic growth and integration in Africa.
The interaction engages with a spectrum of pressing topics, ranging from the transformative potential of the Pan African Payment and Settlement System (PAPSS) in enabling the free flow of capital, to the dynamics of stock exchanges and the catalytic role of governments in propelling economic activity. Against the backdrop of a rapidly evolving financial landscape, Cissé provides insights into how financial services providers can navigate emerging climate and cyber risks, while harnessing the power of emerging technologies to reshape the financial horizons of the African continent.
With an acute focus on driving sustainable development, Cissé weighs in on the critical role of regional integration as a linchpin for Africa’s financial growth and global competitiveness. Furthermore, he expounds on the key themes that are anticipated to define the trajectory of financial markets over the coming decade, including the rise of Islamic finance, the regulatory landscape for crypto-assets, and the burgeoning concept of “blue finance.”
- In your estimation, does the Pan African Payment and Settlement System (PAPSS) resolve all the issues regarding the free flow of capital across the sub-region?
All SMEs, VSEs and financial institutions in the sub-region are faced with challenges linked to competitiveness, financial transparency, transaction traceability, cost control for foreign currency operations and cross-border trade.
The trend towards the institutionalization of a single market is no utopia, and the time has come for Africa to embody its free trade area.
The platform will also address the challenges currently encountered in existing cross-border payment models and unify the currently fragmented pan-African payment landscape with a pan-African instant cross-border payment solution, providing an infrastructure where cross-border payment transactions are processed within the same day without the need for an intermediary bank.
However, the PAPSS faces its own challenges. The central banks at the heart of the system will have to iron out the differences between national regulations, infrastructures, and control systems. In addition, it may prove difficult to agree on the means of settling transactions between several unstable currencies.
- Does it render the subject of a single currency obsolete?
The PAPSS is not specifically designed to address the issue of a single currency in Africa, but to facilitate exchanges between the various existing regional and national payment systems to better integrate African economies to the benefit of all.
In essence, the PAPSS would eliminate costly intermediaries abroad. The aim is to complete a transaction in less than two minutes at a low, but unspecified, cost.
All transactions carried out on this facility are subject to rates negotiated with all central banks on a multilateral net basis and on agreed settlement currencies, the parity of which still depends on international economic fluctuations and foreign exchange reserves.
This system is an opportunity to take a closer look at the probable introduction of a single currency, especially considering recent discussions regarding a potential BRICS currency.
- Borrowing from a continent-focused publication, are African stock exchanges fit for purpose? As the number of IPOs falls across Africa and smaller companies lose their stock exchange listings, what can policymakers and exchanges do to spur more activity?
Besides legal requirements, transparency and costs, SMEs are reluctant to go public for fear of opening their capital to other investors, due to cultural considerations, their size and many other reasons.
Strong initiatives are expected from African stock exchanges, such as:
- Innovation in a variety of products tailored to the specific needs of SMEs, in order to attract the interest of a large number of investors.
- Setting up a harmonized broker approval framework to facilitate underwriting of issues in all countries on the continent.
African governments can play a much bigger role by being an appropriate catalyst for less liquid markets. More precisely, their contribution can focus on the points below:
- Tax incentives for SMEs
- The privatization of some public entities to increase market exchanges.
- Redefining the legal and regulatory framework to enable the market to accommodate a range of financial assets.
- Whilst the securitisation of non-performing loans (NPLs) offers opportunities, wouldn’t the risks outweigh them? Are markets, as volatile as what we see across the continent, ready for this move?
It is widely accepted that high levels of stocks of non-performing loan (NPLs) have a negative impact on bank lending to the economy stemming from the effects NPLs have on balance sheets, profitability, management costs and capital constraints faced by affected banks.
Yes, securitization is useful for limiting the impact of non-performing loans, but that’s not a good enough reason if the regulatory framework and risk mitigation are not adapted. The subprime crisis has just shown that the harmonious development of this technique requires better supervision of the market and practices.
- What specific initiatives should be undertaken to ensure climate finance is more than a buzzword?
Governments and financial institutions can create financial incentives for environmentally friendly activities, banks can help to shift investment patterns towards low-carbon alternatives.
For example, banks can offer lower interest rates or longer repayment terms for loans to companies that invest in renewable energy or energy-efficient technologies.
Green financing tools such as green bonds, green loans, sustainable bonds, sustainability-linked loans and debt-for-nature or debt-for-climate swaps will need to be better structured and adapted to the economic context prevailing in the sub-region.
The integration of sustainability criteria for pension funds and insurers operating in Africa can be a major stimulus for climate financing on the continent.
The development of Public-Private Partnerships in the climate sector could help to achieve government targets for sustainable development.
- How can financial services providers effectively address emerging climate and cyber risks in Africa?
Central banks should revise the frameworks for their refinancing operations to incorporate cyber risks, climate risk analytics, possibly applying larger haircuts to assets materially exposed to physical or transition risks.
The financial sector can play an even more fundamental role, by mobilizing the resources needed for investment in climate change mitigation (reducing greenhouse gas emissions) and adaptation (building resilience to climate change), in response to price signals, such as carbon prices. In other words, if policymakers implement policies to price in externalities and provide incentives for the transition to a low-carbon economy, the financial system can help achieve these goals efficiently.
Protecting the financial sector and securing global advances in financial inclusion not only depends on their own systems, but also requires a system-wide approach to security. Governments and financial services providers need to collaborate within their jurisdictions as well as with peers around the world to exchange intelligence and support each other in fighting cyber criminals. Actors with more capacity will need to provide their weaker peers with support, because doing so will provide benefits in terms of reciprocity and will help safeguard these actors’ own systems and the public’s confidence in the sector.
- How will growing and emerging technology shape the African financial landscape?
Financial inclusion is a major economic and social challenge worldwide. Digital technology is increasingly being used as a lever, notably through financial technologies. These technologies are undergoing significant development, and Africa is no exception.
FinTech covers a wide range of fields. They range from mobile payments to crowdfunding, savings management, insurance and credit, online financial advice, neo-banking, and cryptocurrency. It must be said that FinTech is one of the driving forces behind Africa’s technological growth. It accounts for $3.2 billion or 63% of funding. Except for Andela, the five African companies to become unicorns in 2021 are all Fintech companies (Flutterwave, Opay, Wave, Chipper Cash).
Africa faces unique challenges in sectors such as healthcare, agriculture, transportation, and energy. Emerging technologies like AI have the potential to address these challenges and drive innovation. For instance, AI-powered telemedicine platforms can improve access to healthcare services in remote areas, while precision farming techniques can optimize agricultural practices and increase productivity. By developing and implementing AI solutions tailored to Africa’s specific needs, global multinationals can make a significant impact and create transformative change.
- What, in your estimation, is the single most important step needed for continent-wide financial development?
Regional integration is probably one of the most important steps the continent can take to resolve its market paradox. Africa’s population exceeds 1.2 billion and is expected to reach 2.5 billion by 2050; despite this, our markets are small and fragmented, and have no chance of competing internationally without a sense of collective purpose. In this way, intra-African trade will increase our competitiveness in world trade.
- What themes do you anticipate will define financial markets in the sub-region over the next decade?
Several financial products can be developed across all our markets on a continental scale, such as:
- The inclusion of Islamic finance and the structuring of products adapted to all African marketplaces.
- The emergence of regulations for crypto-assets.
- Blue finance refers to a segment of sustainable finance based on all investment or project financing mechanisms linked to the sustainable and profitable exploitation and distribution of marine resources, with a view to preserving the environment.
- The launch of public real estate investment companies (REITs)
Ismaël Cissé is the CEO of Sirius Capital, an investment bank and management and intermediation company (MIS). He is passionate about impact finance and innovative approches to generate sustainable sources of financing to achieve development aims. He is also interested in the role of finance in the transition towards a more sustainable and integrated African economy.