Five years ago a snapshot of North Africa’s banking industry would have revealed feeble attempts at changing public perception. Constituents of Algeria, Libya, Morocco, and Tunisia remained hindered from realizing their financial goals through an archaic mental block to keep their savings — what little was available — within the confines of their jalabas. Family firms served as a popular choice for a financial intermediary if an entrepreneur had the right connections and net worth. For the less fortunate individuals on the economic ladder, credit lines were few and far between, discouraged by extensive decentralization, lack of necessary infrastructure, and low net worth per head, making the majority of credit scores unsubstantial to justify extensive credit, especially to fuel business development.
Intransigent in their myopia, governments eventually reckoned that national development goals could only be realized through a paradigm shift on the subject of financial intermediaries, the most prominent of which are banks although loan officers, credit associations, and informal networks can continue to serve as middle man during the continued development of North Africa’s financial system. Across the board, countries have opened their economies, with Morocco and Tunisia enjoying trade links as members of the World Trade Organization (WTO), as well as extensive bilateral treaties and formalized trading partnerships with the European Union (EU). Algeria is set to join the international trading regime later in the year and Libya is being considered for accession in the coming years. All are opening up their economies to foreign firms, especially from Europe, as well as investment from Arab neighbors. With increasing international links, North Africa must grow its financial services industry, whether through foreign firm acquisition and rearrangements or through organic growth from current country leaders.
Fresh landscape
Today’s picture shows the changes to the landscape since earlier in the decade. Central bank figures have shown a growing monetary base and growth in commercial deposits with banks. But central bank activism is not the only area where change can be noticed. Commercial banks are looking to expand in the Maghreb and other institutions are looking for possibilities in Libya. With macroeconomic liberalization policies translating to privatization schemes aimed at filling government coffers and making industries more efficient, foreign firms are looking to get a piece of the action.
New product offerings and banking infrastructure is turning banking institutions into attractive places to store one’s capital or seek financing to fund new operations. Foreign and domestic firms alike are creating new branches, attracting new account holders and financing individual businesses. More automated teller machines (ATMs) and new product offerings, like Islamic finance products, are better engaging rural populations in saving and investment schemes. Governments will continue to support banking sector development as an impetus for growth and eventual top-down development schemes as North Africa is building social infrastructure aimed at attracting even further levels of foreign direct investment.
On the country level, Libya remains the least developed, with only recently-initiated plans to privatize financial intermediaries and a banking sector which is just beginning to shed the vestiges of the country’s economy, which was once essentially closed to most of the world until 2004. Libyan bankers have seen a tightening body of regulation in the past four years, reflecting a growing role of the Central Bank of Libya, which was once a weakened Libyan Currency Committee whose mandate was confined to ensuring the stabilization of sterling assets against the Libyan pound.
Balancing control
Heading westward, Tunisia’s economy and banking sector are being hampered in their path to privatization. With a majority of banks still in the hands of the state, Tunisia offers onlookers a market with too much government control for the moment but a tremendous opportunity in the future, especially as banks support growth industries such as tourism and textiles. As with banks in its western neighbor, Tunisia will have to wait out privatization plans and frequent delays sprouting up in the process.
Algeria presents banking analysts with the most potential as the government-wide privatization program will have large effects on the country’s financial sector. Further moves toward the encouragement of private sector development and entrepreneurship are stirring the situation on the demand side with trustworthy and reliable banks needed for credit operations. A host of banks from Europe and the Gulf are considering expanding operations in a country with known international players with more experience in the country, including Banque Nationale de Paris (BNP) Paribas, Societe Generale, and other institutions with minority stakeholders.
Anchoring the sector in the region is Morocco, which already hosts several foreign banks as well as home-grown success stories like Attijariwafa and Banque Marocaine du Commerce Extérieur. In addition to a relatively diverse banking scene, Morocco’s economy is larger but more diversified than regional rivals Algeria and Libya, who generate over 90% of their exports, and thus foreign exchange revenues, from the sale of their natural resources.
Internationally, the adhesion of North Africa with more multilateral institutions will assist in maintaining synergy between international pressure and key domestic reforms in the region’s banking climate. Fortunately, the lending policies of banks are no longer tightly constrained by national wills or the sentiments of political minorities. Unfortunately, firms must exercise extensive tact in mounting or expanding in these developing markets as no regulatory relations are yet firm enough to cement medium-term prospects.
Banking could very well serve North Africa in addressing the region-wide macroeconomic distresses, from low living standards to unemployment. By inviting international players, North Africa is essentially asking for assistance with efficiency and growth, both of which will make other industries dependent on capital tighten up their operations as lending becomes more diverse. In the long term, strong credit lines matched with strong oversight will enforce a new style of efficiency on North Africa’s firms of various sizes to better record finances, disclose earnings, and improve profitability.
