The country’s banking system will be integral to encouraging diversification and developing small and medium sized enterprises
The Republic of the Congo is pursuing an ambitious program of modernization to develop its economic infrastructure and is reforming the country’s banking services to drive change.
President Denis Sassou Nguesso’s strategy to propel development, known as The Path to the Future, through a series of infrastructure projects has been designed to ensure inclusive economic growth and has already involved spending CFA500 billion ($820 million) a year on projects.
However, a key strand to the plan is the effort to improve people’s lives by developing access to banking services, and is part of its efforts to diversify the economy from a dependence on oil revenues. Although oil still accounts for 70% of the country’s GDP, around 80% of its public revenues, and 90% of its exports, the relatively strong performance of non-oil sectors softened the blow of the drop in revenues over the past 12 months when prices fell sharply. This resilience is what lies behind the World Bank’s positive outlook for the country, which is set to experience an average growth rate for the next few years up to 7%.
Sylvie Dossou, a representative for the World Bank in the Republic of the Congo, said in a recent report on the country that government-driven developments could help to improve social conditions.
“This report is an important aspect of the World Bank’s program in the Republic of the Congo, a country that has boasted a considerable boom in oil revenues for nearly a decade and is now engaged in an ambitious program of rehabilitation and economic infrastructure building, but whose social indicators have previously been slow to improve,” she says.
Key to sustaining this growth – and the efforts to build its infrastructure and diversify its economy – is the Republic of the Congo’s banking system, which is being improved both internally and on a sub-regional level. As the banking sector becomes more inclusive and develops outside the main cities to reach rural populations, it is hoped economic growth will be transferred across the country, while also providing more opportunities to foreign investors.
Congo is one of six members of CEMAC (Economic and Monetary Community of Central Africa), whose aim is to promote sub-regional integration. The CEMAC members’ common currency, the Central African franc, is pegged to the euro, currently at a rate of one euro to 656 francs, and is seen as an asset, not least because it facilitates international money transfers and eliminates exchange rate risk.
However, the Republic of the Congo and its neighbors have similar issues regarding banking, as Gilbert Ondongo, Minister of Economy and Finance, explains.
“Three main causes of financial exclusion are commonplace, including the low level of national income and the real GDP per capita, the underdevelopment of financial services, and the difficulties of accessing banking services,” he says.
Mr. Ondongo is now looking to revamp the country’s banking system to provide access to all, and build on the HIPC (Heavily Indebted Poor Countries) initiative in 2010, which relieved his country of almost 50% of its external debt. That allowed it to redirect the savings, which were subsequently reinvested into the social sector and developing infrastructure projects, and as a result, the country’s financial outlook rapidly improved. Ratings agencies reflect the success of these projects with the country graded B+ by Fitch and Ba3 from Moody’s, and its wider outlook is widely considered to be stable.
Part of the reason for this stability is that sub-regional integration has had advantages that go beyond a single currency. The free circulation of goods and people is yet to become widespread, but it was noted by the CEO of Banque Postale du Congo (BPC), Calixte Médard Tabangoli, as a key aspect to future prosperity.
“One speaks no longer of a market that reaches 4 million inhabitants of Congo but a market that comprises the CEMAC countries, meaning about 45 million people, which is a lot more significant,” he says.
“Opening up supports the integration of investors and entrepreneurs of different countries, above all with the realization of projects of regional integration, which connect all these countries.”
Providing a backbone to investment is the Republic of the Congo’s banks. Since the sector was liberalized in 2000, the number of firms has increased to 13, with companies competing on service quality and sales dynamism. There is also considerable investment in customer relationship management, innovation, and individualized training programs. Making clients feel welcome and raising their confidence in banks has become a vital element to encourage entrepreneurship and the development of small and medium-sized enterprises (SMEs) in the country.
Republic of the Congo has also put in place multiple reforms to promote SMEs and improve the business climate in the country. Its goal is to move up in the World Bank/International Finance Corporation’s “Doing Business” ranking, which classifies countries according to the ease of doing business. The Republic of the Congo ranked 178th (out of 189) in 2015, up from 185th in 2014, and the country has already made a range of changes to business and tax legislation to encourage investors and entrepreneurs.
Developing the SME sector is set to be highly significant in the country’s quest to diversify its economy and will rely on banks such as BPC to address traditionally low levels of uptake and provide secure havens for foreign investors.
The use of new technologies and innovation is also playing a part in modernizing the sector and has helped to improve access to banking services. Such initiatives include Internet banking, text alerts, and ‘mobile money’ services, which are all becoming available to the country’s population, not just its urban elite.
Many of these developments are being driven by firms such as BPC. That bank, in particular, has two goals: increasing financial inclusion and financing the economy. The bank was formed in March 2012, and opened to the public in January 2013, having been created from the national post office’s former savings bank that was dissolved in 2001. It is 80% owned by the Congolese state (the Ministry of Finance) and 20% owned by SOPECO, a postal and savings company. Its capital is around CFA10 billion and fiscal transparency is high: internal controls are in place, there is an audit committee, the board of directors assures good governance, and audits are performed by Ernst & Young.
Banque Postale du Congo’s aim, tying in with the government’s wider targets, is to provide banking to remote areas and lower-income people. Opening an account is free, while basic financial services are also provided, such as bank account identification documents, wire transfers, check cashing, deposits and withdrawals at counters and at ATMs.
Clients can also access accounts remotely from the Internet, are given bank cards and check books, and are able to use currency exchange services – again key offerings that are designed to further entrepreneurs and business investment.
The bank is also working on providing customized services tailored to clients’ particular needs and provides the payment of salaries to certain public sector workers, who represent around 14,000 clients.
While bank branches remain rarely seen outside of Congo’s large cities, post offices are prevalent. BPC’s branches will share space with nearly 50 post offices, which are present in the most remote areas of the country. The bank has new, modern headquarters in Brazzaville, and has opened 13 branches of its own, with its presence set to extend to the entire country. It has also worked on developing reliable information and telecommunication systems that enable it to serve its clients and to be interconnected across the country.
The firm is also attempting to work alongside companies by offering short and medium-term financing, funds transfer as well as payment operations. By welcoming all and providing tailor-made financial services, it is attempting to revamp its operations to ensure they provide inclusion to the population and enable further growth of the economy.
Creating a positive team spirit is one of the four core values of the BPC, whose president extols acting through a collective effort, in a network, and in cooperation with partners so that clients have a satisfying experience. Working closely with the customer, developing banking innovation, and acting responsibly towards the environment and the population are also key aspects of the bank’s operational code.
With revenues and client numbers almost doubling in the company’s first two years of operation, to CFA38.1 billion and 33,179 clients, and with deposits and loans tripling in the same period, the latest results are encouraging and suggest that the banking sector will offer a set of very tangible rewards to the country’s economy.