Equity Bank is a classic case study of how an empire is built

Equity Group Holdings’ announcement last month that it has bought 79 per cent of Pro Credit Bank Congo, a subsidiary of German-based multinational bank operating in the Democratic Republic of Congo (DRC) continues to broaden the horizon of Kenya’s financial and business sector in a way reminiscent of building of great empires.

A walk down memory lane reveals that all countries that built global empires did it by extending their reach beyond their natural borders. Evidence on the ground reveals that while in the past empires were built on the back of colonial conquests, the trend since the end of the Second World War has been that investments and trade have led the way.

Looked at this way, Equity Group’s foray into DRC, a nation whose population is about double that of Kenya, increases the chances that the country’s dream of becoming a regional financial, industrial and commercial hub for East and Central Africa will become a reality.

It is noteworthy that before the emergence of the top three local indigenous banks—Equity, KCB and Co-operative Bank -- foreign-registered banks operating in Kenya had no appetite for going beyond the country’s borders despite running highly profitable operations for close to a century. That was understandable since these banks had subsidiaries of their parent companies operating in these countries.

This encouraged manufacturing, trading and even technological companies established at the time to adopt the same in-ward looking growth strategies. The result was that these companies grew no faster than the rest of the economy. There is ample evidence to suggest that the country’s low wages and the accompanying low productivity may be traced to this myopic view of the continent and its potential.

Thanks to South African and West African banks and companies, their aggressive entry into Kenya woke up the local sleeping giants. Never mind the fact that two of the three were nearly on their knees due to years of mismanagement and lack of visionary stewardship at the top. Almost by chance, new management teams that took over in the late 1990s and early 2000s quickly raised the institutions from their knees and marched into other East African countries.

Moving forward, the hope is that other local banks will be encouraged to set up operations not just in the rest of the Eastern Africa region but will resolutely move across the entire continent. This will see South Africa anchoring their Southern Africa operations while Nigeria does the same for West Africa and Egypt becomes the gateway to North Africa and the Middle East.

The question that should be exercising the minds of technocrats at the Treasury and State House is how to help the banks move forward faster before their continental and global competitors eat their lunch. Perhaps, the technocrats might begin by crafting new taxation strategies that would give allowances to local institutions that set aside a reasonable amount of money to fund foreign expansions.

That might encourage local shareholders to forgo some of their annual dividend payments for the same purpose. It may be safe to bet that other businesses, especially those in the logistics, ICT and personal service sectors would follow in the banks’ footsteps giving the country a chance to build the muscles it needs to enter the global market as a purveyor of finished consumer products.

Local elite

Surely, it has not escaped these policy makers’ attention that the endemic poverty running across generations all across the country has something to do with the production and export of mainly agricultural commodities in their raw form.

The realisation that a country like Germany which cannot, and does not, grow coffee exports more of the commodity than the combined volumes of the African continent should prick the consciences of the local elite into action unless, of course, they (consciences) have been seared, with a hot iron, by their ill-gotten loot. Equally disturbing should be the knowledge that Switzerland earns more from the same commodity than Germany. Be that as it may.

The country should draw inspiration from the fact that Equity, the bank leading the pack, was established only a quarter century ago and its founders are still playing a role in its operations.

—nmbatau@gmail.com