We met Africa’s largest lender in one of the world’s most dynamic financial markets. In Dubai in June, we spoke with the Johannesburg-based Kenny Fihla, the Chief Executive Of Corporate and Investment Banking at Standard Bank, a 160-year-old institution with a footprint covering 20 African countries.
Kenny Fihla, the Chief Executive of Corporate and Investment Banking at Standard Bank, talks about renewable energy, sustainability-linked financing solutions, impacting emerging markets, and the lessons that can be replicated across the continent. More in this insightful interview with the man who started his career in the trade union movement in the 1980s in South Africa, and has been with the bank for over 18 years.
Q. In your role at Standard Bank, you have spearheaded several transformative initiatives, and have a passion for climate change and are also involved in leading renewable energy projects. With its energy deficit and energy poverty that makes Africa vulnerable, you’ve been scaling up these initiatives. Can you tell us what you have planned?
A. The demand for energy transition in Africa is huge. It is estimated that Africa will need about $1.2 trillion worth of investment to enable, firstly, energy security and, secondly, the transition away from fossil fuels into more sustainable energy. That’s a lot of money, and that amount is not readily available within the African continent, which requires then partnerships with other investors and pools of capital from outside of the continent. From a Standard Bank point of view, we have committed to originating and raising, and we’ll also put our own money – anything between ZAR250 billion to ZAR300 billion ($13.6 billion to $16.4 billion) – in the space of five years. We are already 40% of the way there, but there’s still a lot of work to be done. That’s just one institution, and given the total amount of money required, it is just not enough. We need the partnerships of a range of financial institutions to enable Africa to have energy security and transition.
The second challenge is ensuring that people who are not connected and do not have access to electricity actually get access. It is estimated that less than 50% of the population of sub-Saharan Africa has access to electricity. That’s over 700 million who do not have access. We need to provide them with reliable, cheap, and sustainable energy well into the future. We also have to look at transitional measures to enable access.
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The third element has to do with the impact of moving away from fossil fuels into renewable energy projects. Some towns, like those built around coal mines and coal-fired power stations in South Africa, will need to transition in a manner that does not create massive unemployment and poverty to those small towns. So, a just transition is key. We must undertake it responsibly so that it does not cause hardships for ordinary people. We have partnered with various players and initiated renewable energy projects in South Africa, expanding to other geographies. We have also seen the entry of players who aggregate and generate the electricity and rent out, or people pay based on the amount of electricity they use. And we call those aggregators, because people don’t have to initiate the capital outlay upfront, but rather can pay as they use. And we think that’s going to expand and cover most of sub-Saharan Africa. That solution is going to enable decentralized energy, where you don’t have to invest massive sums of money building the national grid, but you create localized grids that give people access to electricity and deal with energy poverty and energy shortage.
Q. Your mandate is to achieve a portfolio mix that is net zero by 2050, transitioning to a low-carbon economy. In emerging markets such as the DRC and Namibia, how far have these projects come in terms of realization?
A. There’s a lot of ground that has been covered. We have already enabled about 3.5 gigawatts of electricity that is under construction at the moment, in the form of solar installations, power plants and wind plants that have been developed. We’ve also partnered with a number of institutions, including governments, who are working on various initiatives, the first set being those driven by state-owned entities, where they will issue tenders, invite the private sector to build renewable energy generation, which will then fit into the grid. That has been the bulk of what we have been doing up until now. The second set relates to private companies building their own self-generation initiatives, either for their own buildings or their own plants. That portion of our work is covered in South Africa, Namibia, Kenya, Zimbabwe, Nigeria, and expanding to even more countries. We think the biggest growth is going to come from that second piece of work that we do with private companies. The third set that we do, is with companies who effectively are in the business of managing and running solar or energy generation. They can do that on behalf of government, or they can do that in order to supply to individual homes. That portfolio is also growing, and we will invite investors to come into sub-Saharan Africa, partner with us as we identify these projects; invest because we think it is good business to be done, but it also has a massive impact in terms of unlocking the economic growth potential and just improving the quality of life of ordinary people within Africa.
Q. Speaking of the private sector, how do you incorporate your activities with the SME sector? How are you unlocking support for them in terms of sustainability-linked financing solutions?
A. The solutions that we’ve developed cover a wide range of banking products, from giving people access to the sort of existing loans to fund solar or wind initiatives. That’s much easier for individuals, because you can use your home loan to effectively take a little bit extra in order to put solar panels on the rooftop. For small businesses, the best solution lies in the use of aggregators who can develop solutions for a specific area and get individual companies within that area to effectively subscribe and have access to reliable, cheap and much more sustainable energy over a long period of time without having to fork out massive capital upfront, because small businesses tend to run on very tight cash flows. Aggregators provide an appropriate solution for them.
Q. In practising responsible investment, how difficult is it to get multilateral, multi-stake-holder support and from governments? What are the regulatory hassles and risks?
A. The situation has improved over the last couple of years, and I wish some of the changes were made much earlier. South Africa had a limit on what people could self-generate; [it was] one megawatt. That limit effectively stopped the private sector from investing and generating electricity on their own. That limit has been removed completely in the last three to four years, and we have seen an explosion of private sector self-generation, and of investment into the energy sector within South Africa, which just shows how regulations can stall the development of a particular sector and deprive the country of access to additional funding as well as to new energy forms and new energy supply.
The second set of regulations that needed to be sort of resolved was harmonize the rules between national government, the energy department, Eskom (national power utility) as well as municipalities. There’s still a lot of work that needs to be done in that space, but a lot of ground has been covered. For example, if someone generates electricity in one part of the country, and there’s already surplus supply in that area, but the demand lies tens or hundreds of kilometers away, how do you transport or wheel that electricity to the other end? You need great infrastructure. What is the tariff regime between the supplier and the demand? And how do you know that the electricity that is supplied by a private supplier on this end will actually go to a customer who’s contracted to that supplier on the other end; what are the pricing mechanisms between the two? And what is the pricing mechanism with regards to the grid? What are the rules of dispute resolution, legal contracting and so on. All of those is being sorted out, and we think over time, those roles will settle and make it easy for integrated electricity supply that has multiple players, with the national grid providing the sort of transportation infrastructure to move from one end to the other. South Africa is slightly advanced in that regard, but we think the policy framework and rules are replicable in other parts of Africa.
Q. Do you see a point where Africa is exporting these concepts to the rest of the world?
A. I think there’s a lot that Africa can export to the rest of the world. I mean some of these bad experiences are, in themselves, good lessons. The whole concept of loadshedding, where you proactively manage demand and supply and plan when to switch off in [certain areas], is on its own, a useful experience in order to protect the grid, but you don’t want to live perpetually in that situation. And so, the second lesson is that if governments and regulators quickly remove the regulatory obstacles, you can unlock massive potential from the private sector and from your community. And South Africa is a case in point. There are about 12 gigawatts worth of electricity currently under development; that is about 20% of the installed capacity of Eskom. That’s quite a lot, and that has happened in the last couple of years, which just shows that if you create the right regulatory environment, you can unlock the potential and the power of the private sector. And there’s something powerful in that, and there’s a lesson that can also be replicated in other sectors; that government needs to set the rules, but those rules must enable society to grow and to develop, and must be aimed at tapping into the potential and the capacity of the rest of that society. The third lesson is that partnerships are a powerful way of dealing with challenges and problems that confront many of our countries. We all want to get to the best possible out come, and if we try and do it individually, unfortunately, our efforts will have limited impact, but if we align the interests of different stakeholders, suddenly, the impact is substantially bigger, and we get to the desired goal much quicker.
Q. South Africa is going through a historic phase right now after 30 years of democracy. The country has entered an era of coalition politics. From a banker’s point of view, how do you view the current political landscape?
A. I think it’s an interesting scenario, we live in interesting times. But if one looks at what has been happening globally, coalition governments are not new. They have been in existence in many of the European countries for quite a while. Some of them are much more stable and better functioning, others are stable but dysfunctional. And so, we would want to gravitate towards a more stable and better functioning coalition government and South Africa has had a history of a government of national unity after its first democratic elections, where President Nelson Mandela went out of his way to create a government of national unity, despite the fact that the African National Congress (ANC) had the majority. Now we’re forced by circumstances, because no party has won a majority in parliament, but there are some positive things that have come out. The ruling party has accepted that it has lost its majority, it has endorsed the outcome of the election, and is managing the transition in a responsible manner that is something extremely positive and good for Africa and for the developing world. Secondly, there’s engagement across political parties, and the initial reaction from some of the major parties has been extremely positive, with all of them committing to work in the interest of the country, bar one or two who have objections for their own reasons, but by and large, most political parties have committed themselves to working together in the interest of South Africa with a view of stimulating economic growth and ensuring that the will of the South African electorate is respected. I think that alone demonstrates a high degree of maturity, and it’s something that must be cherished.
So, I’m far more optimistic about the future of South Africa. Of course, it will bring new dynamics, it will change the rule of the game, but I think it’s going to have much stronger checks and balances, and if managed properly, it could actually stimulate massive economic growth in South Africa and send a very positive signal about the art of the possible, if people rise above their petty political differences and act in the interest of the country.
Q. As a bank, how are you leveraging AI, blockchain, and other new technologies in the world of financial services?
A. The financial services industry is in a process of continuous change. We have seen the emergence of new technologies, of much cheaper forms of providing banking services. Old banks have convoluted IT infrastructure, more like spaghetti, with massive risks and a lot of manual work in order to try and pull things together, but technology has enabled the simplification of many of these services. Payments now have become easily acceptable, covering a range of players, even beyond banks; the cost associated with those services has become significantly cheaper, and blockchain is providing an avenue to modify that even further and also reduce inefficiencies and improve the effectiveness of financial institutions. We’ve also seen the use of technology which enhances the leveraging of data. Banks are sitting on a massive amount of data on the basis of client behavior and so on; that data is not currently being optimally used to benefit clients, to anticipate what their needs are likely to be and proactively offer solutions best suited for them. Suddenly, with AI, we can do that, and we have started to do that as Standard Bank in some of our product offerings. But of course, there are also risks that come with AI; AI is dependent on the data you have, the historical patterns, and if those historical patterns were discriminatory, we are likely to have discriminatory practices being perpetuated now by machines, because they are picking up on those data and patterns and using them to develop new solutions… You also need, therefore, a human being to work with machines in order to look out for discrimination for inherent practices that may not be fair and equitable across your entire time with the client base.
Q. We’re in Dubai, known for its digital economy and for being a leading hub for attracting foreign direct investment. What lessons can be learned from the city’s success? You have a presence here at the Dubai International Financial Centre. Please tell us about your association with the United Arab Emirates (UAE).
A. I see a lot of potential the African continent can derive from the association and interaction between corporate funds from the UAE and the Middle East, broadly speaking, with opportunities in the African continent. We spoke about the energy transition and the amount of capital required. This region has well-established sovereign funds and entities that have the capital and are looking for opportunities. Our office here seeks to make those connections so we can leverage what we don’t have and offer clients, as well as investors from the Middle East, opportunities that sit in the African continent, which have significantly higher return and massive growth prospects into the future. The second-most important lesson here is about the leadership, demonstrated by the UAE’s President as well as other leaders. It’s unbelievable, where a place not endowed with arable land, not endowed with minerals, and not endowed with a large population, has been able to transform itself into a significant hub that connects the Middle East to Europe, to Africa, to the Americas, to Asia… The transformation is unbelievable, which just shows the power of leadership and of having a proper vision and being able to execute that vision with diligence, discipline and consistently, over a period of time.
Updated on August 30 2024; Kenny Fihla has now been appointed as the Deputy Chief Executive of the Standard Bank Group and Chief Executive of Standard Bank South Africa. His responsibilities will include the Group’s Africa regions and offshore businesses.
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