Offshore offerings come of age with holistic services
By Tunde Macaulay, Head of Business and Commercial Banking: Africa Regions and Offshore
Since the Covid-19 pandemic, macro-economic challenges in Africa have led to the reduction of capital inflows that drive the productive economy and in some instances the exit of global multinationals. As the focus shifts from internationally driven investments to intra-African business activities, as well as increased entrepreneurial activity across the continent, financial services providers are rethinking strategies relating to offshore services for clients.
There is also a shift away from offshore services that were primarily aimed at high-income individuals interested in consolidating and growing personal wealth through offshore locations to services aimed at local corporate clients. This capability enables African corporates and family-owned businesses to manage onshore and offshore capital, mitigate foreign currency and liquidity fluctuations for their businesses, preserve generational wealth, harmonise their operations across multiple jurisdictions and optimise procurement processes to achieve economies of scale.
The impact of this shift and the growing demand for offshore banking from across Africa became apparent for Standard Bank when the negative influence of African macroeconomic and regulatory environments on businesses became apparent in capital erosion due to currency devaluation and increased costs of operating in multiple locations on the continent driven by different regulatory environments and requirements in its clients’ countries of operation.
This created new opportunities for the broadening of offshore capabilities and demand for the offshore preservation of capital and for advisory services by entrepreneurs and family-owned businesses. Another identified concern of large family-owned operations was the change of business operating models from patriarchal and matriarchal entities to corporate structures as management shifted from one generation to another. With this generational shift, it became apparent that there was a need to solve for the implementation of corporate governance structures through the provision of fiduciary services – such as the setting up of trusts and companies to manage complex family structure/dynamics, complex succession planning, multiple-asset classes and assets in different jurisdictions and entrepreneurs at any stage of business creation are better equipped to face marketplace challenges in what had become more complex, digitally led marketplaces.
Because of the enabling of large family-owned African businesses, a significant number of them have outgrown their roots and become part of the growing trend for businesses to cross borders and become multi-jurisdictional companies benefitting from burgeoning intra-African trade opportunities.
With this growth has come an awareness of the advantages that politically stable offshore financial centres such as Mauritius, the Isle of Man and Jersey offer in preserving capital and establishing corporate structures that facilitate centralised treasury and procurement operations.
Among the comprehensive services now routinely sought are offshore escrow services for African mergers and acquisitions transactions, fiduciary advisory services emphasising long-term investment strategies, and corporate and commercial banking solutions supporting multicurrency transactional accounts and foreign exchange needs.
Creating regional headquarters or an international holding company has also facilitated cross-border expansion, which has offered several advantages, including the simplification of international transactions, ways of managing different currencies, and the unlocking of global investment opportunities. Three other critical advantages of a holding company structure are:
- The ability of businesses to consolidate accounts and cashflows into one central offshore location, which eases the provision of capital in the form of debt that can then be distributed to subsidiaries across different markets as needed. This simplifies processes and prevents clients from applying for facilities in multiple jurisdictions to meet their lending requirements.
- The consolidation of procurement for companies operating in different countries, which increases negotiating power and cost savings, streamlines processes and minimises risk.
- The creation of a centralised treasury, which serves as a strategic hub within a business, streamlining financial operations and enhancing efficiency. By consolidating cash management, risk mitigation and cross-border transactions, businesses can achieve further cost savings, ensure greater visibility and design consistent policies. Whether managing funds across markets or preserving wealth, a centralised treasury is pivotal in optimising financial processes.
In conclusion, the key to offshore operations is to facilitate services that meet the requirements of a dynamic, ever-changing business environment. As African markets become more integrated and the free flow of goods, services and capital is entrenched throughout the Africa Continental Free Trade Area, the operating environment will undoubtedly see more African companies explore the opportunities offered by neighbouring countries and consider the benefits offered by offshore expansion. As Africa’s largest bank operating in 20 countries, Standard Bank will be ready for the challenge.