MWANGI: Why I believe Congo will drive Equity group’s growth

Monday February 14 2022
Equity Group Managing Director and chief executive James Mwangi.

Equity Group Managing Director and chief executive James Mwangi. PHOTO | DENNIS ONSONGO | NMG


James Mwangi, the Equity Group CEO, spoke to Jackson Mutinda on the lender’s plan for regional transformation and resilience, and why Congo is the driver of the programme.

You seem very upbeat about the Congo business. Why?

The global commodity prices of the raw materials that the Democratic Republic of Congo produces are at an all-time high. That is why its current accounts position has changed from a deficit to a surplus, driven by the demand for electric cars. It has coltan, copper and cobalt, which is used in making electric vehicle batteries.

The world is going green, and the biggest driver is demand for green locomotive energy. Now 70 percent of coltan and cobalt comes from the DRC, and the highest copper quality in the world, accounting for 30 percent of the world's supply. So we can see as demand picks up, as the world wants to have zero transport-linked emissions by 2030, the demand can only go up, and prices can only go up because of constrained supply.

We believe with economic and political reforms, then the benefits will trickle down to the people. Transformation of the economy can happen within a very short time because it's enabled financially, there is political will, the population is hungry, and the economy has been opened.

DRC has for long been closed to one-to-one relations with Belgium and France. And France, for whatever reason, has always been able to close deals. DRC has reformed and chosen to join the East African Community, revive relations with its neighbours Uganda, Rwanda, Tanzania and Angola, and Kenya further.


The fact that Equity has subsidiaries in DRC, South Sudan, Uganda, Rwanda, and Tanzania, and that Nairobi is the logistics hub for DRC’s needs for health, education and trade puts us in the right place at the right time.

That Kenya Airways has daily flights to Kinshasa, Lubumbashi and Goma doubles Equity’s opportunities. Our success is because we had set up base and we had prepared. We didn't allow Covid to disrupt us so we integrated the banks and started enjoying the integrated performance culture of Equity.

What made you choose to go to DRC?

The greatest bet Equity has ever taken was to buy two large banks in DRC, one after the other. We bought the first, ProCredit Bank, two years before the transition from President Joseph Kabila. And amid that uncertainty, that political risk, we felt and we bet that the time for DRC to transition and learn from other countries to make progress was right. It didn't happen immediately.

Even after the elections took place Kabila, although not the president, retained the power by controlling 74 percent of the two Houses of parliament. And that uncertainty didn't bar us from buying the oldest bank, 115-year-old BCDC, with the largest infrastructure in the country. Fortunately, after the transaction was completed, a political miracle happened and Kabila handed over power to President Felix Tshisekedi.

President Tshisekedi adopted economic and political reforms, addressing governance issues and dealing with corruption. In the process, he won the trust of the international community. The World Bank renewed its arrangements with the DRC; America, which had suspended the African Growth and Opportunity Act reinstated it; countries like Belgium, which had closed their embassies, reopened. Then Moody's upgraded the DRC from CCC to B.

The world has referred to DRC as the miracle spot in Africa. From three days import cover, they are now up to three months cover; from deficit, they have a surplus. If you look at their momentum, they were at 4.6 percent growth last year and are predicting six percent this year.

How is Equity leveraging this growth as an investor?

That risk we took seems to be paying off big time on two accounts. One, we have the largest national banking infrastructure – a challenger status because the Congolese banks are still in their 1980s, and here is a bank with the latest technology, policy skills, competence and culture, and financial capability. It has positioned us to start with a 26 percent market share. We enjoy the economies of scale and size. DRC has challenged Kenya and is 40 percent of the bank in Kenya that we built over 38 years, in just seven years.

Now that DRC is joining the EAC, are you excited?

Yes. It's incredible: It harmonises monetary and fiscal policy, making it very easy for us to integrate the two banks because the regulation will be almost the same, the tax regimes will be the same, the cross-border customs, the movement of people, labour will be the same.

Presidents Uhuru Kenyatta and Felix Tshisekedi have a unique personal relationship. They have signed seven bilateral agreements, including protecting investments. Now, that broadens trade, and Kenya has signed agreements that allow Kenya Airways to fly into the major cities in DRC. Kenya has opened two commercial attaché stations in Goma and Lubumbashi to facilitate cross-border trade. So, we seem to have been in the right place at the right time when things were happening.

Last year, the biggest growth came from DRC, both in profit and in balance sheet, exceeding 50 percent in both. We have had a proactive approach in positioning ourselves -- like spending Ksh300 million ($2.6 million) to take 300 Kenyan business people, led by two Cabinet ministers, on a trade mission to explore the opportunities in DRC late last year. We are a trusted broker, because we know both sides and we have no interest other than in their success. We gave the Congolese the impression that this is a bank that cares, and the Kenyans that this is a bank that has their interest at heart.

The growth of Equity will most likely now be driven by DRC, and I guess that in the next five years, Equity DRC will be bigger than Equity Kenya.

What’s your growth plan?

We want to disrupt value chains. Value chains can be the agents of development. So we have a plan -- a transformation plan for East and central Africa. We are talking to investors like Elon Musk of Tesla and telling them that instead of importing cobalt, why not set up a factory in DRC for the electric vehicle batteries? Why can't he also make copper wires there instead of sending copper ore to China from where he imports wires?

We have also chosen to be the bank for agricultural transformation. And we have decided that our loan book will move from three percent to 30 percent in agriculture. We will help farmers through the entire value chain: from production to aggregation, to logistics, to manufacturing to export.

Second, we believe that the world will not quickly recover from the disruption of the global supply chain, so we have decided to establish local and regional supply chains. And that explains our journey to DRC. So, our approach is no longer Kenyan. It is making this region an economically viable market of 380 million and help it industrialise.

We learnt a lot from Covid. We had Ksh1.7 billion ($15 million) to support Kenyans and we decided to supply them with PPE. But we couldn't get them globally so we decided to hire McKenzie to train our manufacturers and we trained 120. Now, Kenya is not only self-sufficient, but also exporting PPE.

We have set aside Ksh500 billion ($4.4 billion) for our transformation plan. We have mapped about five million small and medium-sized enterprises, who we want to populate the various supply chains, whether it’s manufacturing, agriculture, clean energy and services, and we believe each of them will provide five direct jobs and five indirect ones. So, in five years, we’ll have 50 million jobs for the youth in East and Central Africa, and we’ll have reduced our import bill maybe by 60 percent. We have signed the six UN agencies to train the SMEs. The MasterCard Foundation will also train the 50 million youth.

It seems Kenya will benefit a lot from this plan.

We want investors to know the best areas to set up operations. We have mapped Mombasa because of its global logistics hub status. Kisumu, we feel, should be an industrial hub because of transport by waterways and removing traffic on the road. There is a petroleum pipeline there. So we have funded a company to build four barges, which can carry four million litres of oil at once. The oil is pumped into barges and transported to Kampala via Lake Victoria.

So we want industrial logistics, pharmaceuticals, food processing, value addition but, most important, convert minerals in DRC to final products. And we don’t have people to do it because they will be frustrated by brokers. We want people like Musk to do it so that he doesn’t import cobalt and copper but batteries and wires from DRC at the same price he’s been buying them from China.

The DRC will then become a huge economy and the wealth will trickle down to the population, who can now get power and other utilities.

The mining is in the eastern side and you can’t supply the market from Kinshasa so it is easier to transport goods from Nairobi. That's why we felt Kisumu would be the best hub.

We will fund Kenya and Rwandan airlines to take care of the logistics. That is what we are calling the resilience plan, which will take us roughly five years.

We have also devoted $2 billion to the Ugandan oil. We want the Kenyans who were frustrated by Tullow Oil and who had bought equipment to become subcontractors. So we will give them $2 billion for local content. We may have missed the (East Africa Crude Oil) pipeline but we will do the value chain supply and early works.

How did Equity Group beat Covid blues to turn a good profit last year?

Incredibly, in the two years of Covid, Equity doubled its balance sheet from Ksh600 billion ($5.3 billion) to Ksh1.3 trillion ($11.4 billion). We managed, with our shared prosperity model, our social engine, to build enormous trust capital with the people. We gave them three years to repay loans. It meant we trusted them even when we didn't know what the future held. We bet on the survival of their businesses and, in return, that trust has now encouraged them to consolidate their banking needs. That is how we managed to grow twofold within a Covid period.

Our loan book last year grew by 30 percent, from 26 percent the previous year. We made provisions the previous year, but last year we didn't have to make any. It was the best year in the history of Equity, and it created the momentum for bank to position itself above any other in the region.

You are struggling in South Sudan. What are the challenges there?

We entered the South Sudan in 2009 and in four years, we had become the largest bank there. It was the subsidiary that was able in one year to pay Ksh1 billion ($8.8 million) in dividend. But, in 2013, war broke out and it affected trade.

The conflict between South Sudan and Sudan almost made oil exports impossible because Sudan decided to take $26 per barrel as shipment or pipeline fee. Then oil prices went below $30. So, essentially, South Sudan was making nothing and the economy became suffocated. The tensions and political disagreements intensified. The international community seemed to lose hope, funding dried up and the people gave up.

The economy ground to a halt, setting off a microeconomic environment where inflation went all the way to 800 percent. And it was inflationary losses recorded in our books because of the exchange rate, which moved from three South Sudanese pounds to the dollar to 540 pounds to the dollar.

So you can imagine the imported inflation in a country importing 90 percent of its requirements.

Our strategy was to bring down the bank to maintenance and we reduced our branches from 13 to three, and the staff from 480 to 80 just to maintain the licence. There seems to be hope but we have taken a wait-and-see stance. Every year we are hopeful that it will be better.

You had plans for Ethiopia. Does the current political crisis over Tigray bother you?

We not only had plans for Ethiopia; we had started implementing them. We opened a representative office there, but we were shocked by the turn of events.

And the situation has been getting worse, with countries like America imposing economic sanctions. That has not helped because it's a country that requires support. It started reforms like liberalising sectors like the telecoms. We were optimistic the banking industry would be liberalised. But, given the situation, I think everybody is just watching. This is a country that has never been colonised, so it has not had the turbulence that most of the countries in Africa have had. So, there are questions whether it has inbuilt resilience. The worst part of this situation is that it is an internal implosion. Will people forgive and forget? We have learnt our lesson from South Sudan so we will not rush in.

As a business leader, do you do have any fears about the looming leadership transition in Kenya?

I have been privileged to observe and participate in seven election cycles. My confidence in the Kenyan population and institutions was enhanced in 2017, when the presidential election result was nullified by the Supreme Court and the country still held together. The judicial system was able to stand its ground. The electoral commission was able to conduct a repeat election, and that gives me hope that our constitutional order and governance structures have muted electioneering shock risks.

The second aspect is that our economy is now not heavily driven by the public sector; the private sector has become bigger in terms of economic activity. And so the private sector can influence the politics.

Again, the capacity of the population to engage and reason is different from the past. Social media platforms have allowed engagement and people can debate issues. I've also seen our politicians shifting to issue-based campaigns. They are talking about the economy. So I see that the population will drive people-centred politics, hence the Kenya Kwanza, One Kenya Alliance and Azimio la Umoja movements.

Lastly, there’s the misfortune of Covid. Kenyans lost two years and I don't think they are prepared to waste another. So I'm not as worried as I would have been in past elections.

What are your key growth areas in the coming financial year?

There are two things that we have realised we have advantage of. One is our size. We have become a systemic organisation so we can be an influencer in the financial industry, we can negotiate with the regulator, we can negotiate with the government. So, what we see is growth in the operating environment, which we can significantly influence.

The second thing is optimising the economies of scale. Equity now is a Ksh1.3 trillion ($11.4 billion) balance sheet company, so it gives you capacity to grow in efficiencies. I'm optimistic that in the next five years, our cost-income ratio will be below 40 for the Group.

In terms of transformation, we see ourselves growing to a challenger bank by setting the pace of the bank of the future. The leading area of growth is digitisation: The application of the Fourth Industrial Revolution, and, given a capital base of Ksh200 billion ($1.8 billion) and a liquidity of 64 percent demonstrates our position to execute efficiently to create a challenger bank for Africa.

The other is growth in redefining banking. Equity innovated the shared prosperity model with a twin engine in an economic and social model and a high-volume, low-margin business model. I see that model, having received global recognition as a super brand and the fifth rated banking brand in the world, it tends to give us confidence that we can now scale. So, I can see Equity being in 15 countries by 2025, leveraging technology to give virtual banking and converting banking to a 24-hour business by compressing both geography and time.

The last one is impact. Equity’s economic social engine has grown and has a spend of $530 million. With the size and profitability of Equity network, I can only see ourselves going up and that is why we can branch out to get our medical students, the ones we sponsor to university, to run Equity Afya clinics. We have decided to transform agriculture with those who studied veterinary medicine and agricultural economics; we are setting up Equity agro dealers so that we can change agriculture from the inputs stage.

Who are your partners in the growth plan?

Our major partners are the MasterCard Foundation, the UN, 16 development banks led by the IMF, IFC, African Development Bank, Team Europe. So far, they have committed $140 billion in long-term funding to support these initiatives so that commercial banking goals can be short-term, and long-term lending is taken over by these global development banks.

The other one is the Commonwealth. We have 19 countries who are members of the Commonwealth and we have agreed to meet during the Heads of State and Government meeting in Rwanda in June to see if we can become a regional trading bloc and become the first to enter the African Continental Free Trade Area under the ambit of the Commonwealth.

The UN has allowed us to set up an office in the resident co-ordinator’s office in Beijing to co-ordinate South-South co-operation to bring Asia to Africa. Then we have an office in New York to co-ordinate American initiatives to support Africa.

And last is the International Chamber of Commerce, which is bringing car manufacturers to DRC. So that has become our biggest source of mobilising global capital.

We are lucky that the governments of the six countries have signed on the plan. Kenya wants to be a service country, Uganda is in oil and gas and agriculture, Rwanda is services focused on MICE, financial services, light manufacturing, and DRC wants to do mineral processing and lead the global energy.

There is investor from Australia with whom we’re working closely to lead the way in implementing the INGA dam, his greatest focus being hydrogen so that power costs are low to allow manufacturing in DRC.

Private-public partnership may be the biggest driver of success because it ticks into governments’ mission for cross-border trade and everything. So, everybody’s interests are aligned for once.



James Mwangi, 60, is an accountant, career banker, and entrepreneur. He is the group managing director and group chief executive officer of Equity Group Holdings Plc.

He has won several awards, including the G8 Global Vision Award, 2007. He was named among the Top 50 Emerging Market Business Leaders and the 20 most influential people in Africa in 2011; the World Entrepreneur of the Year by Ernst & Young in 2012; the Forbes Africa Person of the Year in 2012 and was recently named in the Bloomberg 50 list of people who defined 2019 globally.

He is an honoree of the 2020 Oslo Business for Peace Award, also described as the ‘Nobel Prize for Business’.

Mwnagi serves on several international bodies as an adviser and was appointed to the Nairobi Advisory Board of Columbia Global Centres.

He is a member of the continent-wide PACT initiative, a Board member of the Economic Advisory Board of the International Finance Corporation (IFC), The Mastercard MEA Advisory Board, the Africa Leadership Academy in South Africa, the Global Alliance for Food Security and Nutrition.

He is also a guest lecturer at Stanford, Columbia, MIT, Harvard, IESE and Lagos Business School where Equity Bank Business Model is a case study.