Why East African banks are increasingly eyeing DR Congo
It’s a stellar 2022 half-year performance for banks operating in Tanzania, with some profit margins already higher than what was recorded the whole year of 2020
What you need to know:
- Banks in East African Community member states are stepping up their interest in the Democratic Republic of Congo as they seek to exploit untapped potential in the newest member of the regional bloc
Dar es Salaam. Banks in the East African Community (EAC) are increasingly shifting their focus to the Democratic Republic of Congo (DRC) as they seek to exploit untapped potential in the newest member of the regional bloc.
With a population of almost 100 million people, the DRC – which is the second largest country by area in Africa after Algeria – has untapped deposits of raw minerals estimated to be worth in excess of $24 billion.
It also has 70 percent of the world’s coltan and a third of its cobalt among a range of high value minerals found there.
A study conducted by the EABC in 2019 indicated that the EAC bloc’s exports to the DRC stood at $855.4 million in 2018.
The DRC, however, remains dependent on the Tanzanian route to the sea, with Dar es Salaam Port handling the bulk of its imports and exports.
Apart from Congolese traders traveling to and from Dar es Salaam to pick/export their merchandise from/to various countries, Tanzania also exports quicklime, magnesium carbonate and glass bottles among others. Tanzania is also exporting manufactured goods particularly iron and steel, textiles as well as cereals in particular maize and rice to a number of neighbouring countries.
In Tanzania, CRDB Bank Plc has already completed all the necessary requirements to enter the DRC market in the hope that it will yield good returns,.
The Tanzanian bank - which also boasts of ten years of successful operations in Burundi - is armed with $30 million (about Sh70 billion) in capital. CRDB Bank Plc is entering the DRC market with two key partners: Norway’s Norfund Denmark’s Investment Fund for Developing Countries (IFU).
Each of the two investors has 22.5 percent stake in CRDB Bank’s DRC subsidiary while CRDB Bank Plc has a 55 percent stake.
About two weeks ago, KCB Group entered the DRC through the acquisition of a majority stake in Trust Merchant Bank (TMB). The entry made it the second Kenyan lender to enter the DRC.
KCB said it has entered a definitive agreement with shareholders of TMB with the transaction expected to close in the third quarter of 2022. Under the arrangement, KCB will acquire 85 percent of the shares in TMB while the existing shareholders will continue to hold the balance for a period of not less than two years after which KCB will acquire their assets.
Equity Group became the first Kenyan bank to enter the DRC market following its acquisition of Banque Commerciale Du Congo (BCDC) in 2020.
In April this year, Equity announced that it would inject additional capital of $100 million into its BCDC subsidiary in an effort to strengthen its [the subsidiary’s] capital base.
Lucrative
According to the CRDB Bank Group CEO and managing director, Mr Abdulmajid Nsekela, the DRC offers unmatched economic opportunities within the larger East Africa owing to its rich natural endowments, and huge population.
“Chance favours the prepared mind – so it is said. The DRC is the third most populous country in sub-Saharan Africa, and is slowly emerging from years of conflict and political turmoil. These credentials, besides the obvious opportunities in the extractives sector such as mining, are the probable reasons why investors, including banks of East Africa, have trained focus on this latest member of the EAC,” he said.
He said the admission in March this year of the DRC to the EAC did not only expand the population in trading bloc but it also increased the region’s combined GDP by 22 percent and its geographical area by 79 percent.
“Theoretically, the natural advantages have put the DRC in an enviable position to experience rapid sustained economic growth. This is the potential that most investors, including banks, are looking at - and CRDB Bank is keen to tap into these opportunities for the long haul,” he said.
He said CRDB’s entry in the DRC was part of a regional expansion strategy, which focuses on enhancing cross-border operations, banking its goal on ten years of successful operations in Burundi.
The bank, he said, was also looking up to aiding trading in countries that are perceived to be traditional trading partners of Tanzania, including Kenya, Uganda, Rwanda, Burundi, the DRC, Zambia, Malawi and Mozambique.
“As a Group, we believe – and I think it’s the case with others - that this is an opportune time to invest in the DRC, especially coming from a challenging global economy characterized by pervasive disruptions such as pandemics and conflict,” he said.
According to Mr Nsekela, the DRC provides a new market for locally produced goods, which implies a boon for the manufacturing industry, the agriculture value chain and the service sector.
“By and large, the DRC portends great prospects for banks as it opens up intermediation opportunities, especially in terms of credit services and payments,” he said.
An independent financial markets expert, Mr Christopher Makombe was of the view that banks were being attracted to the DRC because of the country’s large market size and massive opportunities.
“Being a new member of the EAC, regional banks that are looking for growth in the continent must have presence in country….It provides opportunities in trade financing, lending to large mining and manufacturing companies and transaction fees for these banks,” he said.
With the EAC Monetary Union still on the bloc’s agenda, Mr Makombe is of the view that it will eventually facilitate the use of one currency in the region.
“This makes it very attractive for banks to expand in the region to strategically position themselves for massive business opportunities that will be available as countries in the region start using one currency,” said Mr Makombe.
Senior economist and consultant Prof Samuel Wangwe said the move of the financial institutions to the DRC would create a familiar link with local traders who do business in that country, to have the services of their home banks in a foreign country.
“It will be more convenient to Tanzanian businesses and traders who do exchanges with the DRC to access their funds easily,” he said.
Additional reporting by Josephine Christopher
