By Vimal Kumar, Chief Executive: Retail and Business Banking, Digital and Customer Experience, Absa Regional Operations
The COVID-19 pandemic has affected every sector of society across the globe, with everyone impacted from an economic, health and social perspective. While the majority of people have focused on stability and job security during this period, affluent and high-net-worth individuals (HNWI) saw an erosion to their personal net worth as economic activity and investments deteriorated during the pandemic.
As individuals tried to remain as liquid as possible during this period, some of the key trends reflected were the shifting of deposits to secure banks, while automation and digitalisation were further embraced to offer customers the convenience and flexibility to manage their investments at their convenience.
How has COVID-19 affected investors?
The tremendous uncertainty has caused cascading waves of destruction across global economies, and impacted many in the high-net-worth individual (HNWI) and affluent brackets.
COVID-19 has affected all parts of society. In comparison to the working class, where the focus is holding onto jobs, high net worth individuals have been heavily impacted due to the wealth destruction that is occurring. Investors are seeing erosion in personal net worth and a good percentage are worried about consumer confidence due to the global recession, job losses and reduction of investments into economies.
Industries such as real estate, stock markets and mutual funds have suffered significant depreciation. Individuals who leveraged off investments during periods where the economy was stronger are feeling the pinch in many ways trying to keep themselves as liquid as possible. A few of the ways we are seeing this happen is through delaying investments and shifting cash holdings from local to foreign currency.
One of the key trends we are seeing is the significant movement in balances and deposits to secure banks such as Absa demonstrating confidence in the financial sector. Unlike the global financial crisis of 2008 where financial institutions were part of the problem, during COVID-19 banks were part of the solution.
Absa was one of the first banks to respond in the way of relief and payment solutions for all customer segments including suppliers, vendors, SMEs and our high net worth individuals. Through collaborating with stakeholders to build and grow economies, we are ensuring sustainable recovery of this economic downturn. Along with other banks, we have been playing a crucial role in facilitating the movement of funds and ensuring government programmes are utilised effectively, as well as passing on regulatory changes such as lower lending rates very quickly.
Where to from here?
There is a great opportunity for Africa to create an intercontinental supply chain framework. The over dependence on single commodity exports and raw material into the rest of the world is what exacerbates an economic crisis in a continent like Africa.
The free trade agreement is coming at the right time and should spur the movement of commodities on the continent. However, there is a need for governments to come together to shift the conversation to one where the African continent also starts to become a manufacturing hub creating growth and wealth.
Creating the regional trade networks gives Africa the right opportunity to step into becoming more self-reliant because the upcoming trends will see regional trade routes and continental trade routes strengthening while global supply chains begin to weaken.
The macro-economic picture – the bad and the good
Economic forecasting is difficult in an environment that is so fluid, as proven by the second wave of COVID-19 infections which is now sweeping across large parts of Europe. Questions arise as to whether countries or areas should go under lockdown again and what the economic impact of such decisions would be.
How a country will come out of the pandemic will depend on the economic conditions of that country going into the pandemic. Those that were in a deteriorated condition, will likely to be in a devastated state by the end of the cycle.
Such countries may look to debt waivers as a short-term relief option. Whatever the benefits, the long term affects for these fragile economies far outweigh the positive. When countries seek debt waivers, their external ratings drastically drop in the eyes of investors and trading agencies causing them to become less attractive and lead to more expensive investments in the future.
There have been recommendations made to see the G20 consider converting debt into equity in projects instead of a blanket waiver of liabilities. It then allows more buy in from investors and the countries benefiting from the programmes are not required to service the debt but rather build equity.
The second easy go-to option for countries, but which is equally as damaging, is to print money in a bid to stimulate the economy. Printing money can work in certain instances where a country and its economy is strong enough to support such a measure, but in many cases – particularly for fragile economies – this can spell doom as hyperinflation takes root.
The new normal
We still have a long way to go as we adjust to navigating the complexity of the COVID-19 pandemic. However what is clear and evident is that the pandemic has resulted in the banking and financial services sector shifting to a much leaner and optimised way of engaging and managing customers’ needs and expectations. We have further embraced automation and digitalisation in our efforts to offer our customers the flexibility and instruments to manage their investments at their convenience.
The COVID-19 pandemic has impacted everyone on the continent, but it has also presented windows of opportunities for exploring new growth avenues and the potential to rebuild even stronger.
There are no easy paths or get-rich-quick schemes on the right path to managing wealth. Be clear of your risk appetite, seek advice of experts and taking a long term view often looks past short term market highs and lows.