Key impacts, risks, and opportunities
In a context of strong demographic growth where 40% of the population is under 15 years old and 84% of the economy is informal, the Orabank Group is careful to identify and understand the major expectations of its ecosystem, the various risks it faces in the course of its activities, and the opportunities that its business and its territory present.
Like all companies, the Orabank Group, through its activities, interacts with its social environment. Identifying and analyzing the Group’s impact on its environment is part of its sustainable development approach, which aims to reduce negative effects and enhance positive ones, both for the Group and its stakeholders.
Africa has a double burden of disease: endemic infectious diseases and Covid-19, which broke out in early 2020 on the continent. In addition, its capacity to provide critical care is the lowest in the world. Social distancing seems difficult to implement on the continent, where the majority of the population lives on less than two dollars a day and the weight of the informal economy is considerable. In 2019, the sector employed 86% of jobs, according to an ILO study. This means that the vast majority of the population does not have a formal job with a salary to support themselves on a regular basis.
The informal sector in West Africa is one of the main drivers of economic activity. In sub-Saharan Africa, 89% of female employees work in the informal sector, which accounts for 80% of total employment in the region and 55% of GDP. The irregular and low incomes of informal sector workers make them particularly vulnerable to economic shocks, including the COVID-19 pandemic, locust epidemics, or forced displacement.
Over the past two decades, output and informal employment in Sub-Saharan Africa have fallen by 5 and 6 percentage points, respectively. Informality is higher in low-income countries, fragile states, and exporting countries. Informal employment exceeded 85 percent of total employment, on average, in Benin in 2010-18. Among the subregions, the average proportion of informality was highest in Central and West Africa, at 80% and 84%, respectively, compared to 50% in Southern Africa.
Contextual Outlook 2022
According to the latest World Bank studies published in January 2022, global growth is expected to slow in 2022 and 2023 to 4.1% and 3.2% respectively, compared to 5.5% in 2021, as demand catches up and fiscal and monetary support measures are withdrawn around the world. The conflict between Russia and Ukraine is a further blow to the global economy with a more pronounced slowdown in growth and the price increases already being seen in most economies.
In the WAEMU zone, in order to meet the new budgetary needs arising from unusual shocks and to continue supporting the recovery plans initiated by member states, the Support and Resilience Bond (SRB) mechanism has been extended to 2022 for an amount of 3,459 billion, with the first launches scheduled for April 2022. This should help sustain the projected growth outlook of 6.4% for the zone in 2022 with favorable prospects expected from the agricultural sector.
In the CEMAC zone, BEAC projections are for growth of 3.7% in 2022. This growth will be supported by the non-oil sectors with the diversification of the zone’s economies, allowing for the revival of agriculture in particular, according to BEAC economists.
For Guinea, according to the IMF, the Guinean economy continues to show resilience and growth is expected to remain around 5.5 percent in 2022. This growth would be supported by strong mining production coupled with continued recovery in the non-mining sector, reinforced by the mitigation of the Covid-related disruptions and the expected repayment of government arrears.
For Mauritania, according to a Coface analysis, growth will continue to recover in 2022 as exports and domestic demand continue to improve gradually with an estimated GDP growth rate of 4.1%. Planned investments in the exploitation of hydrocarbon potential are not expected to benefit the country in 2022, as production from the offshore Grand Tortue Ahmeyim (GTA, shared with Senegal) gas field, discovered in 2014, is expected in 2023.
SYMRES: Deployment in 2017 and redesign in 2020
SYMRES (Environmental and Social Risk Management System) is the Orabank Group’s approach to managing its ESG risks. It aims to identify and mitigate potential societal risks associated with any new investment project submitted to the bank. It is intended to prevent the bank from financing projects or activities that would have a significant negative social or environmental impact, which could turn into financial or reputational risk. It was developed by the Legal and CSR Department, deployed in 2017 within all Group entities and approved by Oragroup’s Board of Directors.
SYMRES includes an environmental and social risk management procedures manual, a list of exclusions for financing requests, a contextualization of ESG risks in each country where the Orabank Group operates, an ESG risk rating tool for companies, and an analysis file to be included in contracts.
In response to governance expectations for better application of the ESG risk management system, and in view of the increase in potential reputation and image risks, not to mention the risks of regulatory non-compliance, it was essential to strengthen the system, particularly in order to support our corporate clients on the road to sustainable development. Risks are regularly observed in ESG areas (social or environmental regulatory non-compliance, non-compliance with administrative procedures, etc.) and our account managers need to be made more aware of these risks and their impact. In addition, a lack of education among company managers has been noted, as they are not very aware of CSR issues.
In 2020, the Orabank Group undertook a review of its extra-financial risk mapping to align and put into perspective its CSR strategy with its strategic development orientations. The ESG risks that the Group may potentially face have been identified and addressed to reduce their scope and occurrence. A complete list of risks has been drawn up according to the different themes addressed in the international reference frameworks recognized for their relevance (TCFD, GRI/SASB, COSO ESG-ERM, WBSCD, UN-PRI, ODD, and). COSO and WBCSD have published a guide for the implementation of ESG risk management systems. This methodology is being applied in the Orabank Group’s ESG risk review project.
Orabank has taken the decision to follow the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures) to improve its climate and energy policy integrated with the Group’s CSR strategy. This 2021 Integrated Report includes a review of program implementation and progress toward climate goals, including green growth. An in-depth review of the impacts, risks and opportunities on the Orabank Group’s strategy as well as the resilience actions the Group has put in place to address these risks has been conducted.
Of the Group’s portfolio, 44% is represented by large companies and 29% by SMEs, making a total of 73% for companies that are the priority target of the SYMRES redesign. A steering committee comprising 35 members of the Group’s departments (Executive Management, Risk Management, Treasury, Sales and Marketing, Legal and Litigation, Credit and External Communication) has been set up and has met to implement a three-stage action plan:
1. Analysis of the opportunities related to the United Nations Sustainable Development Goals;
2. Study of the sectors excluded from the scope of its portfolio;
3. Prioritization of the ESG risks of the Orabank Group and the main sectors of activity of its corporate clients.
Strengthening governance and risk management
The Orabank Group Risk Manager is responsible for overseeing ESG risks and opportunities. The members of the Board of Directors and the Chief Executive Officer of the Group are regularly informed of the deployment of the Group’s strategic actions in this area. The year 2021 was marked in particular by the strengthening of the governance and risk management system through the ongoing development of automated management tools, the approval of amendments to existing systems, training and support for entities, the monitoring of commitments and the management of various crises (health, socio-political).
During the year, 28 Risk Committee meetings were held within the Group and on the recommendation of the Oragroup Risk Committee. Among the proposals presented, the Oragroup Board of Directors approved the update of the Risk Management Policy Manual, the Oragroup Preventive Recovery Plan (in accordance with Circular No. 001-2020/CB/C on the implementation of the Preventive Recovery Plan), the amendment of the credit risk management policy relating to the introduction of the requirement of calculating the weighted risk and the consumption of equity capital when initiating credit application files, the annual update of the Oragroup SA Emergency Financing Plan and the Treasury Department’s policy and procedure manual.
Work has also been carried out to strengthen the credit risk infrastructure, such as regular updating of the portfolio monitoring dashboard menus, the preparation of periodic reports or specific credit portfolio analysis reports, periodic monitoring of commitments and the preparation of reports including early warnings on portfolio quality, and the effective implementation of the GEFOP equity management tool, which calculates the consumption of equity capital and the impact of any new credit risk on the solvency ratio of each Group entity in accordance with the regulations in force in its area of presence.
Outlook for risk management in 2022
In fiscal year 2022, work will continue on the implementation of the 2021-2022 roadmap, the main objective of which is to improve the effectiveness of the existing risk management system.
Phase 2 of the ESCALATE project will also be launched. It will consist of the implementation of a module dedicated to operational risk management reporting. In addition, particular emphasis will be placed on the culture and management of social and environmental risks following the overhaul of the current management system. Lastly, periodic controls and monitoring of credit portfolios will be stepped up, with effective coordination of the surveillance system.