Event Report - MFW4A/AfDB Central Africa Financial Sector Dialogue

Jul 29, 2019

Making Finance Work for Africa (MFW4A) and the African Development Bank (AfDB) brought together government officials, representatives of central banks, financial institutions (international and national) and private sector stakeholders in Libreville, Gabon, from 29 to 30 January 2019 for a policy dialogue to accelerate financial sector development in the Central African region.

The meeting aimed at:

(i)           Providing an overview of current reforms in the Central African financial sector;

(ii)          Identifying priority areas and actions, including innovative financial instruments, where Development Finance Institutions (DFIs) can strengthen their contributions to financing the real economy; and

(iii)         Promoting the inclusion of these initiatives in the strategies of regional and international development institutions.

Like most economic sectors on the continent, the Central African financial sector faces many challenges, as well as many opportunities to ensure its development.

Financial sector challenges in Central Africa

  • Enlarging financial products and services offer

The major challenge facing the Central African financial sector is the densification of the offer of financial products and services. Despite the expansion in the number of credit institutions, the progress made in the microfinance sector, the establishment of a financial market and the restructuring of the insurance sector, it must be noted that supply is very insufficient. With one of the lowest credit-to-GDP ratios in the world (15% in 2017), significant financing needs remain to be met for various types of customers. Therefore, financial sector players must innovate to adapt their offers and move away from the current "standardisation" of financial products and services.

  • Increasing corporate financing, including long-term financing

The banking sector, the main source of financing for the region's economies, is unable to meet the strong demand for corporate financing. Many of these companies struggle to access the resources needed to make productive investments. The availability of resources adapted to long-term projects remains one of the major challenges to be met in this area. However, the banking sector, which does not really have enough resources, does not take enough action to access regional and international financial markets. For their part, the sub-region's financial markets are failing to play their role in mobilizing long-term savings. In addition, the Development Bank of Central African States (BDEAC), created to finance development projects in the member countries of the Central African Economic and Monetary Community (CEMAC), remains, after several restructurings, characterized by limited financing capacity.

  • Making financing accessible to SMEs/SMIs

While large companies, mainly subsidiaries of multinationals, have less financing problems, SMEs/SMIs are facing many difficulties in benefiting from facilities to finance their operating cycle. Access to long-term financing is therefore more than unlikely, if not impossible. In order to finance this segment of their customers, banks have many requirements, particularly on guarantees. In the end, SMEs/SMIs, in their quest for resources, have to manage their businesses with prohibitive interest rates or financial assistance that is inappropriate to their needs. These constraints are among the main causes of SMEs/SMIs bankruptcies. Indeed, SMEs' access to bank and non-bank financing must be improved to support their development and their gradual integration into the formal sector.

  • Further developing and professionalizing the microfinance sector

Central Africa’s rural populations face enormous difficulties in accessing financial services provided by the banking system. Microfinance is a viable alternative to improve financial inclusion. However, it is underdeveloped in the region countries with the largest proportion of the population. Cameroon alone accounts for three quarters of the regional microfinance market. Support for microfinance expansion in countries of the sub-region, mainly in the Democratic Republic of Congo (DRC) and Sao Tome & Principe, should promote better financial inclusion in the region.

  • Supporting economies in transition

Dollarizing of an economy is an important challenge for the financial sector, in particular, and the economy, in general. The recapitalization needs of credit institutions due to the deterioration of the local currency against the dollar, coupled with the withdrawal of correspondent banks in countries in transition due to regulatory requirements to combat money laundering and terrorist financing, undermine the banking system’s viability. Mobile Money is an alternative for the development of the financial sector, but requires the right infrastructure for its proper functioning. Development partners should assist States in transition to address the vulnerabilities of transition economies, particularly where structural weaknesses and an infrastructure gap persist.

  • Reducing the cost of financial products and services

The cost of financial products and services remains relatively high in the region. Despite some measures taken by public authorities (providing some basic financial services free of charge; calculation and publication of global effective rates (TEG) and usury rates), the desired reduction in the prices of financial products and services is still not effective.

  • Promoting financial literacy

Governements, with the undoubted support of other regional actors (Central Bank - BEAC, Central African Banking Commission - COBAC and financial institutions), must take vigorous action to improve  the population’s financial literacy levels and help them make relevant choices regarding financial services. Given the increasing development of financial innovation, financial education has become, more than ever, a prerequisite for better financing of the economy through broadening of savers’ base and reducing credit risks induced.

Multiple Opportunities in the Financial Sector in Central Africa

  • Availability of a payment systems infrastructure and financial information centres 

BEAC has set up a modern payment infrastructure (SYGMA and SYSTAC) to facilitate the rapid settlement of regional and international transactions through the financial system. The Central Bank has also undertaken other actions to reduce information asymmetries by deploying financial information centres (central balance sheet office, central risk bureau, and central payment incident and credit information bureaux) useful in the decision-making process of banking and financial institutions, including risk reduction. The availability of payment infrastructure and financial information centres is therefore an important aspect in the development of banking activity in CEMAC.

  • Existence of a regulatory framework and structures conducive to SME/SMI financing

The Central African countries have put in place a favourable regulatory framework for the development of certain specialised financing for SMEs/SMIs, such as leasing. Such measures should be exploited by the banking system and the microfinance sector to expand leasing activities and thus increase access to financing for SMEs/SMIs. In addition to regulatory incentives, national authorities also need to set up support structures for SMEs/SMIs (agencies in charge of technical assistance, capacity building and supervision) and set up loan guarantee funds for this particular clientele.

  • Adoption of national financial inclusion strategies

Some CEMAC countries have already developed a national financial inclusion strategy to promote the population's access to basic financial services. This recent effort must be deepened and amplified in order to broaden financial services offer and better meet the population’s specific needs, in an improved legal, regulatory and fiscal environment. States’ commitment to inclusive financing exhibits significant support for the development of the financial system. BEAC is preparing to support States by developing a sub-regional strategy, as part of its 2017-2020 Strategic Plan, with the support of development partners (including the AfDB and World Bank).

  • Financial digitisation opportunities

Through the digital channel, new partnerships are being developed to carry out financial transactions not linked to a bank account. Aware of these developments, BEAC and COBAC recently adopted a regulatory framework conducive to the development of payment institutions. They also revised the provisions on the organisation and control of electronic money issuance activities in CEMAC; a segment of activity in which several credit institutions and mobile telephone operators now operate.

  • Merger of the two CEMAC stock exchanges

The effective implementation of the October 2017 decision of the Heads of State on the merger of CEMAC financial markets and the establishment of a single central depositary entrusted to BEAC should, in the coming weeks, help to boost the CEMAC financial market’s role in mobilising savings and financing productive investments. Technical partners should be more actively involved in the completion of this merger and the emergence of a dynamic capital market

  • Enlargement of the monetary and economic zone

The integration of Sao Tome & Principe and the Democratic Republic of the Congo into the monetary and economic zone would help to facilitate cross-border trade and make financial integration more efficient.

Conclusion

Technical and financial partners expressed their readiness to support the States in the implementation of reforms; to increase their support to financial institutions for private sector financing, including SMEs/SMIs; and to mobilize more resources to promote green financing – aimed at accelerating financial sector development and economic and social progress in Central Africa.


Presentations

Some of the presentations made in French during this regional dialogue are available below:

- Intervention by Mr Aboubakar Salao, in charge of the merger of CEMAC's financial markets, BEAC (FR)

- "From Inclusion to impact: the consequences of financial sector development to improve people's lives (FR) "

- "Opportunities and risks on remittances markets in the Franc Zone" (FR)

- Presentation by Mr Issofa Ncharé, Secretary General of CIMA - Developing the insurance market in Central Africa (FR)

- Presentation by the Caisse de Dépôts et Consignations (CDC) from Gabon (FR)

- Presentation by Mr Marc Daubrey - CEO Green Invest Africa: "Green Finance in Central Africa (FR)"

- "Financial Stability - the BEAC Experience" (FR)

- "Financial Stability - Lessons from BEAC" (FR)