Societe Generale Securities Services (SGSS) is pursuing a more active presence in Africa, with recent announcements that it will offer custody services in Ghana and Tunisia. Philippe Huerre, head of international department at SGSS, discusses Africa’s financial markets and SGSS’ prospects there.
SGSS has made two recent announcements regarding its network expansion in Tunisia and Ghana. Why has the time come to expand in Africa?
PH: This is a strategy which is driven by our clients’ needs and that meets SGSS strategy to expand on markets where Societe Generale has a strong historical presence. The African continent is undergoing rapid growth and many international players are more and more interested in investing in those markets. Therefore we are just accompanying our international and local clients’ development.
Our intention is to take a market share of local potential clients since locally we do not have many competitors. Local competitors are generally not at the standards of quality required by international investors. We already have many industrial partnerships; there are also a few clients showing interest in bonds.
This region will see great GDP developments in the future, and SGSS is positioning itself to be ready for the economic booming which is about to happen and to seize the growth. SGSS is providing a new custody platform in line with international standards to provide custody to retail and corporate locals as well as international institutional investors.
In this region, what services and markets does SGSS foresee the most growth in?
PH: I would say the traditional services in emerging countries or pre-emerging countries, starting with custody clearing settlements, FX services linked to settlement and custody, and also fund services.
Taking example of the other emerging markets where SGSS is present we also see a huge appetite from our international clients for M&A related products (custody of participation, issuers services…) as well as state bonds related solutions in these markets. For the local clients in those markets, the focus is more on having a strong trustee and depositary functions to help them develop local investments or pension funds.
In Ghana, the development of pension funds is also supporting the activity. In Tunisia, local actors are mainly focused on local corporate and retail services.
What has happened to volumes in the region?
PH: Nowadays equity markets are often limited in terms of number of listed companies and the liquidity does not always enable huge transaction volumes. However, bonds market and M&A related transactions are booming. Mainly because of the high interest rates available compared to mature markets or direct investments made by foreigners.
What are the obstacles for investors?
PH: In emerging markets, the main issue is risk. Some investors seem to think it is easy to invest once there is local custody; but sometimes the local places are not able to provide detailed and timely information as well as operational standards and procedures into line with international standards and regulations. procedures into line with international standards and regulations. However, the creation of the African and Middle East Depositary Association (AMEDA) of which SGSS is now an associate member tends to show that those markets are on the way to implement the best practices found in mature markets to their local infrastructures.
What differentiates SGSS?
PH: SGSS is part of Societe Generale group, which has a strong historical presence in the region. For instance, in May, Societe Generale celebrated its 100-year presence in Morocco. SGSS is present in Morocco, where it is one of the leading players in the securities services industry. In sub-Saharan Africa, SGSS has been established in Johannesburg since 1991. SGSS’ true local vision of the markets combined with the Group’s networks and infrastructures help us better serve our clients.
As for liquidity, having local retailed banking capacities in those markets allows SGSS to have the ability to ensure smooth FX transactions and cash repatriation even if the local USD liquidity is quite scarce.
Societe Generale having subsidiaries in all major African countries, it enables SGSS to quickly open a market if we see interests by some of our clients. Our goal is to become a leading securities services player in the region.
What are the obstacles for providers?
PH: As I previously mentioned, the lack of foreign currency liquidity in those markets might be an obstacle for providers having only securities operations and no global banking presence in the country. Furthermore the relatively limited volume of business might also discourage some providers to set up a local structure. Finally I would say that political or regional instability might prevent players to decide to set up a local structure. At SGSS we see our implementation in Africa as a continuation of our policy to accompany the future development of the continent and we will do all we need to allow our clients to benefit from the future growth of the region.