While there can be no doubt that COVID-19 has wreaked havoc with markets across the world, and has also made trading foreign exchange difficult, we must not lose sight of the underlying factors, writes Sam Singh, Africa Strategist, at Corporate and Investment Banking, Absa.

COVID-19 has undoubtedly been a defining time in our generation’s history, with effects on global economies comparable in some instances to what was experienced during the Great Depression of the 1930s. The pandemic has also recalled the economic shockwaves of the Global Financial Crisis of 2008/09. One can argue that this episode is like none seen before because it hasn’t emanated from economic factors. The pandemic is also having a broad spectrum of effects on economies and exchange rates globally.

Although global risk sentiment has been a significant driver of currency fluctuations, we would also need to consider idiosyncratic fundamentals when analysing currency movements on the continent over the past year.

Factors that influenced global risk appetite outside of the headline numbers of the COVID-19 pandemic were about fiscal and monetary stimulus measures taken to mitigate the impact of COVID-19 on economies and news about a COVID-19 vaccine and trials of drugs. Later in the year, U.S elections and impending policy implications also influenced risk appetite. Once the US elections and some of the lingering noise around it had subsided, we saw more improvement in global risk appetite and the strengthening of emerging market currencies. Of course, this also coincided with progress on COVID-19 vaccines.

Not every country has a fully flexible exchange rate regime that immediately responds to market forces. In countries where a Central Bank does not intervene too much in the foreign exchange (FX) market, the impact on these currencies emanating from shifts in sentiment had been seen sooner than in countries with more managed regimes.

In some countries where there has been limited movement in currencies initially, we have still seen the effects of the pandemic on the overall balance of payments through a decline in FX reserves or some form of market dislocation. Export volumes had been reduced significantly due to lack of global demand; there wasn’t much new investment inflows and those countries that have liquid fixed income markets had also seen portfolio outflows.

Harder hit are those countries that are heavily reliant on a single commodity although it has not always reflected in the prevailing currency values. When the pandemic first hit, many countries were aware that there would be a large impact on the balance of payments and were bracing for the worst to happen. Some central banks, seeing these rapid shifts, acted quickly to limit the consequences, and not always in conventional ways as policymakers had to tussle with stimulating economic growth but also maintain a decent FX reserve buffer due to the uncertainty and duration of COVID-19.

Despite some interventions in the FX market from some central banks, most currencies across Africa have depreciated. Naturally, as a result of weaker currencies, we have seen an impact on trade. Usually, weaker exchange rates would improve export performance, but not in an environment where there is also very little global growth and demand for a large number of goods and services. For example, weaker exchange rates have certainly not increased in tourists on the continent for the many countries’ that rely on large foreign exchange earnings. Additionally, commodity-rich countries that do not have a diversified export base were not only unable to export their products due to low demand but also saw reduced investments and portfolio outflows to safe havens.

The opening up of borders, optimism around global growth and encouragement from vaccine developments should start to improve African countries’ overall balance of payments and their currency performance.

There are many reasons to be optimistic about improvements in FX markets across the continent, including the fact that many central banks are becoming more prudent and transparent when it comes to interventions that affect currencies and are improving access to foreign exchange. Countries that are negotiating financing facilities from International Financial Institutions have also sought FX reforms. This is not to say that exchange rates won’t fluctuate widely in some cases or be more stable than one would expect in others: there are also idiosyncratic factors to consider during a severe global downturn, in this case, the COVID-19 pandemic.

By Anton Harber – Wits University Professor of Journalism 

When I started in journalism in 1980, you had to be able to type, take notes at great speed, keep a tie in your desk in case you had to pretend to be respectable and dictate a coherent story from your notes on deadline while feeding coins into the “tickey-box”. It helped if you could hold your drink when you went to the bar before updating your story for second edition.

If you made a mistake, your editor would swear at you across the newsroom, tell you how worthless you were and do all they could to humiliate you in the hope you were shamed into not doing it again too often.

A few things have changed. Some of the skills journalists now use include things like OSINT, digital forensics, geo- and chrono-location, social media sleuthing and sophisticated verification tools. You need to know how to keep yourself and your data secure. How to shoot video and still pictures. Handle social media. How to deal with vast amounts of data and find the stories hidden in it. How to work across borders and collaborate with a range of experts on arcane topics. And some human resource skills are useful because you can no longer just rely on systematic humiliation as a workplace methodology.

And that is where the African Investigative Journalism Conference comes in. This year (AIJC2021), in its 17^th iteration, is a hybrid (part face-to-face, part virtual), five-day gathering, hosted simultaneously in five African cities. Having started as a small local conference, it has grown into the largest annual gathering of working journalists on the continent. And for the second time, we have Absa coming on board to support the hosting of yet another conference, but this time around, in five cities across the continent. We expect at least 500 participants from about 30 countries who will choose between about 50 sessions with a total of 160 speakers.

The conference highlights African work, hopefully challenging the simplistic and ignorant view that not much interesting work is coming out of Africa. Our biggest challenge is how much there is to fit into a tight programme, and we are constantly surprised by the range and quality of work that comes to light from across the continent.

We also encourage cross-border collaboration and train journalists in the use of the array of powerful digital tools and other information resources which are now available on the internet. These skills are invaluable for stories like the recent Pandora Papers. To find and verify the stories in this vast trove of leaked documents took enormous technical skill, as did the ability to find and generate the stories hidden in them.

The Pandora Papers story was a powerful demonstration of the importance of investigative journalism to the economy. The Papers exposed not only the use of off-shore trusts and shell companies, often to hide or launder money or evade tax, but that the very people whose role it is to prevent such activity – such as lawmakers – are among those who make use of them.

In a continent where the powerful often operate with a sense of impunity, and the institutions of accountability (like the law) do not always operate effectively, investigative journalists are more important than ever to expose wrongdoing and hold the powerful to account. But to do so, they have to be skilled, resourced and independent – and the AIJC plays a key role in this.

*Harber is the Caxton Professor of Journalism at Wit University, and convenor of the conference.

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.

By Trevor Damon, Head of Fraud Strategy, Absa Regional Operations

Cybercriminals and fraudsters never take a rest and neither should you. As our world becomes more digitally focused each day, vigilance and education are key to staying safe and secure.

The impact of COVID-19 has wrecked many lives, economies, and brought about changes that many of us would not have anticipated in our lifetime. However, there have also been positives. We have learnt to value what we have, to appreciate the little things in life.

COVID-19 has also accelerated the adoption of digital technologies, with meetings that would previously have been face-to-face now being held over a plethora of online platforms that offer virtual meeting rooms. The phrase “you’re on mute” probably captures 2020 and the technological change that it necessitated better than any other.

We also used technologies such as video calling and messaging apps to stay in touch with family and friends, schooling, work, and shop. This shift to online living has not gone unnoticed by cybercriminals, who have upped their tactics to try and swindle money out of unsuspecting consumers. Untold damage has been done by cyber hackers, who show they have neither ethics nor morals and attacked as many institutions as possible, including even hospitals and vaccine manufacturers.

Part of living in an increasingly connected and digital world is understanding that our private information is more vulnerable and that incidents of cyber-crime are no longer isolated events but occur daily.

People and companies are being attacked through seemingly simple, yet vital, applications such as email, with phishing attacks continuing to be an issue, even though this is a relatively primitive form of cyber assault.

The passing of 2020 does not mean that the criminally minded will ease up. We must be more vigilant than ever about what information we share, primarily online. 2020 saw a surge in cyber-attacks, and these are expected to continue into 2021 and beyond as our digital and online presence and reach continues to grow.

So, what can consumers do to avoid becoming the victim of a cyber-attack?

Vigilance is key

Vigilance remains an essential defence, and we should never let our guard down; always be alert and conscious. We often become complacent around major holidays, such as the recent festive season, purchasing back-to-school necessities or during upcoming calendar events like Valentine’s Day, and when we are under pressure to get shopping done quickly and cheaply.

The reality is that fraudsters and cyber-criminals never rest. They are incredibly opportunistic and always evolving their tactics.

Another vital protection method is education and awareness of risks. Although banks provide tips to merchants on how to avoid becoming victims, retailers need to play their part in education, while consumers must assume greater responsibility for the protection of their personal information.

Take, for example, when shopping online; malware and phishing sites are set up with the sole intention of tricking consumers into thinking they are making a purchase through a legitimate website, but the fake site will steal login details and empty bank accounts faster than you can get on the phone to your bank.

An email will often land with what looks like a link to a legitimate website, such as popular online retailers. However, that link has been spoofed, and it directs people to a fake site, which often looks real, but isn’t.

In an effort to create awareness around some of the typical hacks that consumers most fall prey to, Absa created these videos to show how easily consumers can fall prey to a cyber-attack without even realising it. https://www.absa.africa/absaafrica/about-us/cyber-security/

So, what should you do?

• Don’t click on links in emails, instead type in the address
• Look out for mistakes in design, such as a logo that doesn’t match that of the real company
• Look for the padlock to indicate a secure website. This looks like the padlock you would use to secure a gate
• A secure website should have the URL “Https.”
• Avoid websites asking for personal information. If in doubt, contact your bank directly.
• Avoid doing online banking or shopping in public places like internet café’s as these are high risk type venues which can leave you vulnerable to data breaches and online fraud

Two-factor (or multi-factor) authentication can be enabled on your device, and many banks offer their customers this type of security to strengthen authentication.   This means that, in addition to logging into a secure site and providing your bank account details, your bank will ask you to verify a transaction through either a one-time pin or the banking app. Absa uses a number of security mechanisms to increase customers’ online banking security and to prevent online identity theft and other threats. These include, among others, Advanced Encryption Software and 3D Secure.

Absa offers identity theft alerts on customers’ credit profile and consumers can also enquire with their local credit providers as to whether they offer this service so that they are informed when credentials are used without authorisation.

Where a customer has fallen victim of a cyber-attack, they should immediately report the incident to their bank. The bank will usually launch an investigation and attempt to try and recover the lost funds. However, if the loss is because of an action on the consumer, such as falling for a phishing scam, the bank is usually not liable, although banks will likely look into each case on merit.

To avoid the paperwork and pain that comes with fraud cases, which no one wants to deal with under the best of circumstances, never mind during a global pandemic, stay vigilant and always check out all the security details on websites.

And as the adage goes, if it seems too good to be true, it usually is.

By Liza Eustace, Sector Head of Healthcare, Construction & Hospitality at Absa Corporate and Investment Banking

It will not be an easy way back for the tourism industry in Africa post the COVID-19 pandemic. It is doubtful that, in the short to medium-term, the sector will get back to anywhere close to the levels before the outbreak of the pandemic. However, the industry has always been characterised and defined by its grit and resilience to adversity.

The one golden thread that the entire global tourism industry is clinging to is the practical and widespread roll-out of the COVID-19 vaccine, which will hopefully go a long way in restoring the fortunes of worldwide travel and tourism.

The resuscitation of the travel and tourism sector will reignite growth and sub-Saharan Africa’s economic prospects. As Africa’s overall development continues, the long-term hope is that infrastructure spend and construction related to transport, airports, ICT infrastructure and health facilities will be key spurs for economic growth. Combining competitive pricing with unique historical, cultural, and natural experiences, will serve as catalysts for Africa’s tourism potential to be fully realised.

The Shutdown

The COVID-19 pandemic saw the travel and tourism sector haemorrhage jobs at an alarming rate as international travel ground to a halt, and government and corporate travel was suspended. Domestic travel was also severely curtailed, with hotels and the accommodation sector standing closed and empty, while gaming and wildlife resorts became shells devoid of visitors. In South Africa, as the lockdown levels began to ease, we gradually saw an increase in occupancies but to fractions of normalised trading levels (20-30% and based on less than 100% of the portfolio being open). On the rest of the continent, occupancies levels were slightly higher given less stringent regulations, but overall trading for these companies has put pressure on liquidity and covenant levels for those carrying debt on the balance sheet. Whilst many listed companies in South Africa have avoided the need to raise equity, some have turned to the equity market for additional liquidity or have pursued asset sales. The larger corporates have however been resilient under the extreme trading conditions, and have benefited from strong and decisive management teams.

By the middle of 2020, at the height of the pandemic and country lockdowns, the World Travel and Tourism Council (WTTC) estimated that 100 million tourism-related jobs had already been lost globally due to the COVID-19 outbreak. An estimated 8 million of these were in Africa.

The WTTC subsequently projected that, by the end of 2020, some 174 million jobs would have been lost to the pandemic, this as devastating second waves sweep across many parts of the world, including key tourism markets such as South Africa, the UK and parts of Europe. Whilst many tourism and leisure companies have been forced into drastic cost cutting, it is not certain that when the industry is fully operational again, that all these jobs will be restored.

The Potential

Ahead of the pandemic, while Africa lagged other regions in terms of tourism potential and contribution, the sector was making slow but steady gains. According to the Council, Africa’s tourism sector employed around 24.6 million people and contributed USD169 billion to Africa’s economy, representing just over 7% of gross domestic product (GDP).

In sub-Saharan Africa, in 2018, the travel and tourism sector contributed roughly USD42.1 billion to regional GDP, with 37.4 million tourist arrivals in the prior year. This constituted about 1.6% and 3% of global totals, respectively.

Encouragingly, sub-Saharan Africa continued to show substantial growth from a relatively low base. The region was on track to have the second-highest growth rate globally for travel and tourism GDP in the decade between 2019 and 2029. Recent statistics for international tourist arrivals showed the region growing at around 6% per annum compared to the global average of 4%. Mauritius, South Africa, and Seychelles all shone on global tourism indices.

All that has, however, now ground to a halt. Countries around the world are re-instituting stricter lockdowns in a bid to curb the spread of the virus. Some markets have banned travel from countries such as South Africa and the UK where the mutated variant of the coronavirus SARS-CoV-2, named 501.v2, with a higher transmission rate, has been identified.

The Challenges

At present, and with secondary waves of the pandemic hitting numerous markets globally, travel is very much a lottery. Travellers are not necessarily afraid of the virus, although caution is still crucial. The greatest uncertainty revolves around the impact of the spread of the virus on travel plans. Your departure country is subject to specific regulations, as is your country of arrival, and both could change at short notice, as could be seen when around a dozen countries banned travel from South Africa recently.

South Africa’s International Relations and Cooperation Minister Naledi Pandor spoke for many when she recently cautioned against international travel amid renewed outbreaks worldwide. “Please note that you will be travelling at your own risk to these countries knowing the current circumstances and the uncertainty going forward.”

Travellers are wary of being stranded abroad with the sudden closure of borders or flights being cancelled and the inconvenience of attempting to recover refunds; that is a huge driver of people not wanting to risk travelling at present and will continue to put pressure on this industry until certainty prevails.

There are other factors which mean that, from a structural perspective, the tourism sector in Africa is unlikely to be the same again. One of these is that governments were significant contributors to hotel and conference bookings before the lockdown. Remote working and video conferencing, allied with government coffers’ emptying due to declining revenue and COVID-19 support spending, means that this vital source of business-driven income will likely be considerably less in future. The same can be said about corporate travel and the realisation that much of this travel can now be replaced by a lower cost online alternative.

And as operating income dissipated, so many businesses in the tourism sector were forced to cut back on workforces. It is unlikely that employment figures will hit those same heights any time soon, impacting the many livelihoods reliant on that income.

So where to from here?

Some governments have made meaningful efforts where tourism plays a critical economic role in supporting role players through aid packages and innovative policies. This aimed to shield the country and industry from renewed infections and help prop up businesses facing huge losses.

In Mauritius, for example, the government put in place a strict set of measures to ensure the virus is contained. Simultaneously, the budget has been adjusted to support the tourism sector by establishing a special USD2 billion fund via the Mauritius Investment Cooperation.

Ultimately though, the tourism industry in Africa will have to undergo a remake and a reimaging to adapt to ever changing global circumstances, and cannot ultimately rely on cash-strapped African governments to provide the support that is required to sustain themselves.

Operational costs will have to be carefully measured to ensure greater resilience in an environment marked by tremendous instability and fluidity. The industry has – and will need to continue – to cater to a greater degree to domestic tourists who can help make up the international void.

The COVID-19 vaccine will be an essential building block in the recovery, but there is no magic silver bullet, only a slow and steady build towards global competitiveness and sustainability. Much like was the case pre-COVID-19.

By George Asante, Absa Global Markets

The COVID-19 pandemic has made the underlying structure and resilience of African financial markets a critical matter for consumers of capital as well as domestic and international investors, as the continent copes with the challenges of returning to sustainable growth.

Africa needs critical mass to push it towards a state where growth, prosperity and security are the norms and not the exception. It also needs to get to the point where it can be the master of its destiny to ensure the sustainability of solutions.

The global health and economic crisis triggered by COVID-19 has brought into sharp focus the need for continuous investment into the economies that make up this incredible continent. COVID-19 has also provided us with many learnings and lessons that we cannot discount and must incorporate into the way we invest and do business in the future.

Although we are still at the bottom of this cycle of change and have only just started rebuilding after its tornado-like effects, we can begin applying key learnings. We do not want Africa to be at a point where we lose the value of learning from this pandemic and as result not make the necessary changes that will move this continent forward.

Some of the critical learnings relate to the need to create an enabling environment for financial market participants. This is to make it easier for financial markets to play the role as an efficient platform for mobilising resources to power the continent’s growth and prosperity, as well as facilitating trade within the continent.

It is also important to note that Africa will be on the wrong path if we think we can progress as individual countries without the need to work together. The reality is that the continent can do a lot more from a scalability perspective and through leveraging the different strengths of respective countries through cooperation.

From a capital markets perspective, the starting point for working together will be the harmonisation of market infrastructure, legal frameworks, regulations and market practices, with a purely African lens, to accelerate the road to scale. In the context of recent de-globalization, a call for Africa to work together will be bucking this trend, but this is probably the best way to position the financial markets to drive initiatives like Africa Continental Free Trade Agreement.

Harmonising the financial markets landscape requires a detailed diagnostic tool to understand the underlying factors that have, so far, kept this continent from reaching her potential in terms of attracting its fair share of investments from both local and foreign investors alike by answering the critical question of ‘What is it that is holding us back’? Armed with this data, the continent can move faster to reform in a way that helps us shape our future.

That’s where the Absa Africa Financial Markets Index comes in. Now in its fourth year, the Index, produced by the Official Monetary and Financial Institutions Forum, has become a benchmark for policymakers to gauge countries’ performance across a range of indicators important for financial market development, focusing on six fundamental pillars:

• Market depth
• Access to foreign exchange
• Market transparency, tax and regulatory environment
• Capacity of local investors
• Macroeconomic opportunity
• Legality and enforceability of standard financial markets master agreements

The research is a development index focused on the financial markets and works as a benchmarking tool that tracks the maturity of respective financial markets, as well as the openness and ease of accessibility of financial market products to suppliers of capital or investors, as well as people who consume capital.

This year, the impact of COVID-19 had a dire impact on markets, the economy, as well as the health of citizenry, and that can be seen in the declining liquidity that we’ve seen across financial markets.

At the start as well as during the height of the pandemic, global investors pulled back from the continent, which reduced the amount of liquidity available in different securities. At the same time, we saw local investors move out of certain type of products into more cash, as they looked to preserve liquidity and cash in the short term, given the volatilities and vulnerabilities that the pandemic was drawing.

The Index has proved its worth, because its key take-outs allow for better planning from a regulatory and policy making point of view, as well as crucial insights that will aid countries to rebuild economies faster.

Key benefits

Primary findings from the 2020 Index show that the average overall country score dipped to 51 in 2020 from 53 in 2019. This score, which is measured out of 100, declined partially due to slower market activity in the first half of 2020 and stricter scoring in some indicators.

The good news is that countries performed best in the market transparency and tax, and regulatory environment pillars, scoring 67 on average across these two metrics.

Also, worth highlighting is the fact that green finance is gaining momentum, with Nigeria, Kenya and Egypt issuing sovereign green bonds in the past year. This is not surprising, given the emphasis being placed on environmental, social and governance (ESG) issues now. Together with Rwanda establishing a green investment bank and Uganda punting a post-disaster environmental restoration fund, this all translates into a growing maturity among African financial markets.

The Index pulls together all the sub-markets into one benchmark, allowing governments to see a holistic view of where they are in terms of being able to attract domestic and international investments.

This pinpoints areas that policymakers need to focus on to reform markets at a faster pace than has been done historically. Instead of having to do all the groundwork and develop an understanding of the issues so they can determine how to fix them, this is now readily available to them.

Perhaps one of the biggest advantage countries are seeing as an output of the Index is that individual regulators can now track the knock-on effects of regulations on the financial market’s ecosystem, beyond the subsector they directly regulate. Before, the impact of regulatory actions in one submarket on another was not independently and transparently tracked. For example, the Egypt and Nigeria equity markets have benefited greatly from recent reforms in the foreign exchange markets which subsequently spurred economic recovery and development.

There is no doubt that we will see more financial volatility as the result of the pandemic, and this is unlikely to be the last of such global shockwaves. However, Africa’s rapidly maturing and strengthened financial markets bode well for our ability to withstand such stress tests, as we can pull together to attract our fair share of both domestic and international capital, for the greater good of all Africans.

Although the past year has been difficult for many of us, things are starting to look up, writes Fehmida Motara, Head of Retail Products, Absa Regional Operations.

There can be no doubt that many of us have been negatively affected by the coronavirus pandemic. Although it is difficult to say just how deep this impact has been, what is certain and is borne out by key data numerics, is that consumers are tightening belts – whether forced or by design – and also opting for consumer channels that are safer, easier and cheaper.

The pandemic certainly accelerated evolving trends in the market, such as a growing shift to online shopping and facilitated by digital channels, with many of these changes in consumer behaviour look like being cast in concrete for the foreseeable future.

The spending slowdown

Despite this acceleration of trends, the current economic uncertainty has led to consumers being unwilling to splurge on non-essentials, and to save money wherever possible.

This has had a material impact on spending and spending patterns and notable events on the retail calendar such as Black Friday, and Christmas shopping saw a noticeable downturn in sales volumes last year compared to past periods.

Although there have been many negatives, COVID-19 has forced many individuals to adopt a fiscally prudent attitude to saving and their medium-term finances.

At some banks, there has been reduced card revenues for Point-of-sale transactions, indicating that people are swiping cards much less often and are, instead, saving. Additionally, the shift to using online channels to approach banking should result in cost-savings at a branch level over time.

The roll-out of vaccination programmes across the continent will help revive economic activity as sectors, particularly travel, leisure and tourism, a key revenue generator in Africa, begin to rebound.

Yet it is fair to say there is still a great deal of economic uncertainty linked to the COVID-19 pandemic, and it will take some time before we can say that the situation is back to anywhere near what it was before.

To entice consumers, retailers are looking at deeper discounts to ensure increased customer traffic and ultimately transactions. Yet despite many retailers sacrificing margin to boost volume, consumers will generally be reticent to spend at levels exhibited in previous years, which has the unintended consequence of slowing down economic activity at a time when economies are desperate for a pick-up.

There remains the risk, however, that the extent and lure of the discounts in discretionary categories may convince some consumers to engage in potentially reckless spending behaviour, which they may come to regret in time.

What to spend on

Although every consumer has a different profile, most would do well to increase saving efforts and hold off on additional spending, particularly on expensive discretionary items.

If you do spend money, go with purchasing the essentials and always keep in mind a “worst-case scenario”.

For those who are financially secure, there are likely opportunities for relatively good deals.

But often, paying down debt in a low interest rate environment, as is now the case in many African states, is the best way to spend money. It makes sense to take advantage of low interest rates to reduce debt levels and future interest costs as much as possible. If your home loan or vehicle payment was a certain amount before rate cuts, keep paying that amount so that you trim your debt faster.

Done in a methodical and disciplined manner, this will help create the financial freedom down the line to be able to spend on wishlist items.

Changed behaviour

We have seen a marked increase in the use of digital channels as people increasingly consume services and products this way and this is an uptake we expect will remain in a post-COVID world.

There is also a clear reduction in trading on discretionary goods and cutting back on holiday spend – not least because of the large-scale shutdown of air travel as well as resorts and hotels – and many consumers have structurally adapted to spending more time in the home. This has, unsurprisingly, led to a rise in home entertainment expenditure, along with an increase in the sales of electronic products which support a work-from-home orientation.

Grocery purchases are also being delivered more often now, as people generally seek to avoid malls and large crowds, and traditional retailers are increasingly adapting to this trend to meet the evolving needs of consumers.

The pandemic has undoubtedly fast-tracked changes that may otherwise have taken years to manifest.

The eCommerce segment has seen a marked increase in some markets, despite the devastating economic impact of the pandemic which cost a significant number of jobs and hit consumers hard, and the growth in online shopping is a trend we are likely to see replicated across the continent.

The big picture

Companies and financial institutions have generally responded to the shifting sands by tightening lending criteria as gross domestic product forecasts across Africa have declined substantially over the past year.

While the extreme effects of COVID-19 are largely starting to dissipate as the phased roll-out of vaccines take place and economies are slowly recovering, the uncertainty for corporate and small and medium enterprises’ financial outlooks remains material, which has ramifications for consumer spending patterns.

Barring a major unforeseen global event, the situation will be better over the coming year. Retailers and financial institutions should use this time to fully understand the changed landscape and how best to meet the needs of customers in this new normal.

Consumers should similarly use this time to entrench financial discipline, build up healthy credit scores, as well as financial buffers, and to save towards next the next major shopping days at the end of 2021.

By Heidi Barends, Co-Head of Sustainable Finance, Absa Corporate and Investment Banking (CIB)

The world is clearly seeing how quickly a disaster can escalate when not globally coordinated and when no decisive action is taken to fight a crisis, as happened with the Covid pandemic.

The battle to combat climate change also demands global cooperation so that no country is left behind, since we all share the same skies. And although Africa generates less than 4% of the world’s carbon footprint and bears very little blame for climate change, it already suffers the brunt of the damage with floods, famine, droughts and plagues.

“No region in the world has done less to cause climate change, and no area is more affected by it than Africa,” said Mark Carney, the United Nations Special Envoy on Climate Action and Finance. Carney was speaking at a high-level panel discussion hosted by Absa, one of Africa’s largest diversified financial services groups, to ensure that African voices are heard ahead of COP26, the UN Climate Change Conference to be held in Scotland in November.

The event, titled Road to COP26: Opportunities, Challenges and the African Transition to Net-Zero, was held in partnership with the Group of Thirty (G30), a global body of economic leaders from the public and private sectors.

The world generally sees Africa as needing solutions to be imposed from outside, when many of its problems can be solved from within. Carbon offsets, for example, could generate enormous income, with the Congo Basin rainforests alone sitting with three years of sequestered carbon emissions it could sell to companies striving to reach Net-Zero carbon emissions.

Yet, the carbon emission market is still not operational, and needs pushing forward at COP26. “This is a service to humanity, and we must find some way of remunerating that,” said Dr Vera Songwe, Executive Secretary of the Economic Commission for Africa. That would give African countries an incentive to preserve their forests to protect the planet.

The carbon offset market could become one of the most important new financial models that are needed to fund greening initiatives in emerging markets. “Ninety percent of the demand for those offsets will come from advances economies and 90% of the supply will come from developing economies, including in Africa. This is a market that could scale quickly to $100 billion per annum,” Carney said.

More than 125 countries have committed to Net Zero carbon emissions by 2050 as governments increasingly respond to the demands of their citizens. But Africa undeniably lacks the finance to fund a transition to greener infrastructure and power, so developed nations must share the financial burden of transitioning to Net-Zero.

Songwe pointed out that Africa still needed to put 70% of its infrastructure in place, creating an opportunity to leapfrog to new, renewable and sustainable technologies. But many countries – South Africa included – still depend on fossil fuels for economic growth, employment and government revenues – and having fuel to power their development takes priority over how clean it is.

Yet governments could be convinced to invest in greener fuels by tying it in with job creation, Songwe believes. She quoted compelling research by Oxford University conducted in South Africa that found renewable energy and sustainable transport infrastructure could create 420% more jobs than fossil fuel solutions.

During previous COP gatherings, the developed nations have committed to transfer $100 billion a year to emerging nations, while other sources of income such as the Green Development Fund also drive their transformation. However, the problems are too numerous and expensive for public sector funding to support alone. Much of the burden will fall on private financial institutions, and organisations like Absa have a large role to play by developing innovative funding solutions to support this journey.

“The simple truth is that the transition we wish for will not happen without a massive infusion of cash and additional resources,” said Tidjane Thiam, Chairman of Rwanda Finance Limited. Each country must develop its own predictable and credible strategy for achieving Net-Zero emissions and must involve the private sector in a very significant way, he said.

Thiam said a strong political will was needed to implement more public-private partnerships and to establish regulatory reforms so foreign investors could be sure their investments wouldn’t be expropriated, or contracts reneged on.

Another key goal should be supporting small local businesses in Africa, so they become successful. The first thing foreign investors look for is a solid base of strong local enterprises, and if they don’t exist, it implies that the regulatory environment is not conducive to doing business, Thiam said. If foreign investors cannot find local partners to work with, they will stay away.

The panelists agreed it was important to encourage home-grown African investors to support green initiatives in Africa, because they would not flee with their money in times of crisis like first-world investors tend to do. Again, that’s an example of the need for African solutions to mitigate a global crisis.

Absa has a target of financing or arranging R100 billion for environmental, social and corporate governance (ESG) projects by 2025 and has arranged financing for 46% of projects under South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) programme. The bank invests in these projects because they make good business sense and deliver appropriate returns, and Absa’s aim is to help its clients achieve sustainable growth aligned to the climate change goals.

The requirement for all companies to step up their green initiatives will inevitably increase in the months and years ahead. Carney, of the United Nations, believes that companies should be obliged to address sustainability and climate change issues in their financial reporting. So far, 34 large African companies already do that voluntarily, proving that while Africans bear little blame for climate change, some of us are determined to reverse it.