Proparco is collaborating with South Africa’s third largest bank by assets, Absa Bank Limited, by granting it a senior loan of $20 million to contribute to its support plan for Corporate SMEs in the context of the continuing Covid-19 crisis. 

South Africa’s small and medium-sized enterprises (SMEs) represent more than 98 percent of all businesses, employ between 50 and 60 percent of the country’s workforce across all sectors, and are responsible for a quarter of private sector employment growth – particularly among young people[1]. Before the Covid-19 crisis, SMEs were already facing difficulties, which have been exacerbated due to the pandemic.

Absa Bank Limited (Absa) is the South African subsidiary of Absa Group, one of the top four African banking groups by earnings, assets and market capitalisation. The group is present in all customer segments and conducts the majority of its business in South Africa. Absa Group also has subsidiaries in Kenya, Botswana, Ghana, Tanzania, Uganda, Mauritius, Mozambique, Zambia and the Seychelles. With more than 600 branches, 8,600 ATMs, and 9.5 million customers in South Africa, Absa has an extensive presence across the country.  At 30 June 2021, its gross loans and advances to business banking customers totalled R130 billion.

During the Covid-19 crisis, Absa was one of the first banks to announce a comprehensive support plan, the “Covid-19 Payment Relief Plan”, for its clients in corporate, wealth, business bank, private bank and retail (SMEs and individuals). The plan offered a systematic deferral of payment and was the largest provided by a South African bank.

Signed on December 17^th 2021, the operation between Proparco and Absa consists of a 20 million United States Dollars loan, dedicated to finance Corporate SMEs[2] operating in sectors impacted by the Covid-19 crisis: including construction, manufacturing, transport, tourism, wholesale, and retail.

For Emmanuel Haye, deputy head of the Financial Institutions Debt Group, covering Africa and Middle East, at Proparco: “This operation is fully in line with Proparco’s strategy to support the financial sector in its response to an unprecedented context of the crisis linked to the Covid-19 pandemic. We are delighted to start this partnership with Absa Bank, a key player with a strong pan-African presence and to be part of a much-needed counter-cyclical role.”

Parin Gokaldas, Group Treasurer at Absa, stated: “The agreement further enables Absa to provide financial support to corporate SMEs, a vital component of the local economy, as it recovers from the impact of the Covid-19 pandemic. We are particularly pleased with the agreement as we view the relationship with Proparco, a significant development finance institution in Africa, as strategically important.”   

[1] McKinsey & Company: How South African SMEs can survive and thrive post-covid, July 2020.

[2] SMEs with an aggregated annual turnover amount between ZAR 40 million and ZAR 400 million (equivalent to 2.5 and 25 million dollars)

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) recovered from December’s loss of momentum and rose to 57.1 index points in January 2022, following a dip to 54.1 in December 2021. The current level is in line with November’s reading, but above the average recorded in the fourth quarter of 2021 and reflects a strong start to the year for the manufacturing sector.

The improvement in the headline PMI was to a large extent driven by a rebound in the business activity index, up from a low 48.7 points in December to 56.6 in January. The series is seasonally adjusted, so it should not merely be a ramp-up in production after a Christmas break that boosted output. Indeed, an improvement in the (also seasonally adjusted) new sales orders index suggests that demand looked better. In particular, respondents noted a rise in export sales, which could have boosted output. Further supporting the rise in the headline index was another increase in the inventories index. The employment index, albeit still below the neutral 50-point mark at 49.2 points, was less of a drag on the headline reading than the previous month.

Generally, the PMI and most of the subcomponents rose to November’s levels following a decline in December. The forward-looking index paints an even more optimistic picture. The index tracking expected business conditions in six months’ time rose to an almost four-year high of 71.3 points – this is more than ten points above last year’s average reading. Especially amid a likely more challenging global environment of slower real GDP growth and higher interest rates, it is difficult to pinpoint a specific reason that drove the stark improvement in January. Perhaps the rapid downtick in South African COVID cases, without the necessity of strict restrictions on activity, eased some fears that future COVID waves would directly restrict output growth. With Omicron cases also peaking, or already having peaked, in many of South Africa’s trading partners, it could also be expected that export growth improves going forward as demand from the affected services sectors normalises. If sustained, the slight easing of supply chain disruptions in recent months will also be positive for the sector. Another boost to sentiment may come from a bounce back in the local tourism industry following the unwinding of travel bans, aiding manufacturing subsectors with linkages to the hospitality industry.

After reaching an almost six-year high last month, the purchasing price index nudged only slightly lower and remained high at 88.9 points. The decline in the fuel price at the start of January might explain the slight drop in the index relative to December. If so, the increase in the fuel price, effective tomorrow, may once again put upward pressure on costs.  

• PMI January Report 2022
• PMI January infographic 2022

*Salient points

• Revenue increased 6% to R85.9billion
• Operating costs rose 4% to R47.4 billion
• Cost-to-income ratio decreased to 55.2% from 56%
• Pre-provision profit increased 7% to R38.5 billion
• Impairments fell 59% to R8.5 billion
• Headline earnings per share increased to 2197 cents from 946.5 cents
• Return on equity improved to 15.8% from 7.2%
• Group CET 1 ratio improved to 12.8% from 11.2%
• Dividend per share declared: 785 cents (no dividend in 2020)

*Note: Normalised values are reflected (stripping out the effect of the separation from Barclays PLC)

Absa Group headline earnings more than doubled to R18.6 billion in 2021 (R8 billion in 2020), well in excess of 2019 earnings, as pre-provision profit increased and as the impairments charge reduced substantially.

The improvement in part reflects a stronger than expected economic recovery in South Africa, where Absa generates most of its income. South Africa’s gross domestic product improved from a low base in 2020 and showed improving momentum for most of the year. All of the countries in which Absa has a presence look to have returned to positive economic growth during 2021.

“This is a strong set of results which reflect the benefit of, not only the improved operating environment in 2021, but also the deliberate actions that we have taken to ensure that Absa remains resilient and poised to resume our growth plans in a favourable environment,” said Jason Quinn, Absa Interim Group Chief Executive. “Our purpose-led approach to supporting our clients and communities defined our success in a tough environment while also creating value for shareholders,” he said.

Revenue growth remained resilient at 6%, or 8% in constant currency, supported by strong growth in net interest income (up 9%). Non-interest income was in line with 2020 levels, as the negative impact of Covid-19-related claims in the insurance business eroded the benefit of strong income increases in areas including Global Markets.

Solid revenue growth and cost management helped to deliver positive pre-provision profit growth over the past two years.

Absa continues to make material investments in information technology (IT), where costs increased by 19% to R4.9 billion as Absa sought to build on the gains made during the past three years in improving system reliability and stability for customers, and to strengthen security and controls.

Impairment charges were significantly lower than in the prior year as fewer customers defaulted on loans and the outlook for defaults improved on the back of improved macro-economic conditions.

Customer deposits grew 12%, supported by strong performance in the retail and business banking and corporate deposit portfolios and the closure of the Absa Money Market Fund, with a significant portion of those customers electing to migrate to Absa deposit products. Growth in gross customer advances at 7% was supported by strong growth in secured assets in South Africa, where home loans increased 9% and vehicle asset finance rose 10% as Absa continued to gain market share in these areas.

“We have come through the crisis in a strong position, having focused on managing operating leverage, building balance sheet resilience and preserving capital,” said Punki Modise, Absa Interim Group Financial Director. “These actions and our financial performance resulted in a return on equity that exceeds our cost of equity, years ahead of expectation,” she said.

Return on equity improved to 15.8% in 2021, while Absa Group’s Common Equity Tier 1 (CET1) ratio was strong at 12.8%. At this level, Absa’s capital reserves are above the Board target level and above the minimum regulatory capital requirement level.

Retail and Business Banking (RBB)

RBB earnings more than doubled as significantly lower impairment charges were partially offset by a 3% contraction in pre-provision profit, reflecting the impact of higher excess mortality claims in the life insurance business, customer fee cuts of R600 million to alleviate strain on customers, and increased performance costs. RBB operations outside of South Africa contributed to the improved performance and returned to profitability in 2021.   

Since the start of the Covid-19 pandemic, RBB has focused on being close to customers and responding proactively and empathetically with initiatives to support them. This approach continued in 2021 as customers were supported through lockdowns and civil unrest with bespoke relief measures including debt restructuring, debt consolidation and assisted asset realisation.

In 2021, the focus shifted from mitigating the financial consequences of the Covid-19 pandemic to growing the business in a sustainable and selective manner through dynamic execution of the strategic transformation journey launched in 2018. The customer franchise strengthened as reflected in key performance indicators in South Africa, including:

• a 49% increase in home loan registrations
• vehicle asset finance production increasing 24%
• new personal loans increasing 40% in South Africa
• cheque account sales increasing by 73%, which is 24% higher than 2019 levels

RBB SA is in the second phase of its 2018 strategy, focusing on smart growth. Its main priorities include improving customer primacy, making progress with digitisation and growing capital-light revenues, including in our integrated bancassurance operations. 

In 2021, RBB revamped key capabilities within the customer relationship matrix, including the launch of a behavioural rewards programme – Absa Advantage – which, as a data-driven customer communication approach, has improved the understanding of customer preferences and therefore enhanced the ability to engage empathetically in all interactions. 

Social media engagement with customers has been elevated across the business as evidenced by the improvements made in the 2021 BrandsEye Net Sentiment Banking Index where Absa came out on top after being the bottom ranked bank for a number of years.

Absa also remained at the forefront of digital payment innovation with the launch of Apple Pay in South Africa, as well as contactless payments with Garmin and FitBit wearables as well as the introduction of the universal QR scan to pay functionality in the Absa app in 2021.

Corporate and Investment Banking (CIB)

CIB headline earnings increased to levels higher than prior to the pandemic, with strong growth recorded across corporate banking and investment banking and across regions. Earnings performance was supported by income growth of 10% as the client franchise grew and primary-banked client numbers increased. Improved credit performance and a 78% drop in impairment charges further supported earnings.

All core business units delivered double digit revenue growth in constant currency, with strong performance from Markets despite the high base. A 14% increase in Global Markets income was supported by solid franchise growth across both Corporate and Institutional client base.

Having completed the balance sheet led phase of its strategy and separation from Barclays, CIB is also successfully prioritising customer primacy, as well as deposit and non-interest revenue growth, carefully balancing growth and returns.

Absa made significant progress in building on existing environmental, social and governance (ESG) capabilities and in its aspiration to become an African leader in this space. Absa was the first South African bank to announce sustainable finance targets with the aim to finance or arrange over R100 billion for ESG-related projects by 2025. We also announced Africa’s first certified green loan from the International Finance Corporation, with a value of $150 million.

An active force for good

Absa actively contributed to creating inclusive sustainable economic growth in Africa, investing close to R195 million in support of communities through various education and youth employability, advocacy and thought leadership, as well as COVID-19 and Civil Unrest response initiatives.  These included, among others:

• The launch of the Absa Fellowship Programme, which aims to support the development of authentic, accountable, and ethical future leaders with the potential to play a shaping role in their respective communities in Africa.
• The Absa Cross Skilling programme, a collaboration with our CIB clients to cross-skill 238 young people after Covid-19-related job losses.
• 17,873 unemployed youth supported through technical, vocational and digital skills among others.

Absa invested in initiatives that promote fairness, equality and transparency across all our African markets. These included, among others, financial contributions and leadership support towards the Gender-Based Violence and Femicide Response Fund in South Africa.

Absa also contributed to initiatives in support of business relief for informal traders and micro-enterprises affected by Covid-19 and Civil Unrest in South Africa.

Looking ahead

The outlook for the global economy in 2022 is particularly uncertain. Events in Ukraine are acute, and sharp moves in commodity prices and potential interruptions to supply are likely to trigger significant re-assessments. Absa currently expects South Africa’s economy to grow by 2.1% in 2022, returning to pre-Covid absolute GDP levels by the end of the year. In countries outside of South Africa, where Absa has a presence, GDP-weighted economic growth of 5.3% is expected.

Based on these assumptions, and excluding further major unforeseen political, macroeconomic or regulatory developments, Absa expects high single-digit revenue growth in 2022 and return on equity at similar levels to 2021.

“While the outlook for the global economy in 2022 is particularly uncertain, we feel positive about the strong base that we have built in the past few years and how this has positioned us to deliver on our strategic objectives,” said Quinn. “We will pursue growth opportunities appropriate to the environment and shore up buffers as needed to ensure that the bank remains resilient.”

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose by 4.1 index points to reach 54.8 in May 2022. A month-on-month rebound was expected after the PMI lost more than 9 points the previous month as devastating flooding in KwaZulu-Natal and intense load-shedding hurt output and demand in April. However, the index did not recover all the ground lost (the PMI stood at 60 in March) and the average for the first two months of the second quarter is almost six points below the average recorded in the first quarter. Indeed, the average for the business activity index for April and May is well below 50, which suggests that actual manufacturing output may record a quarterly contraction in the second quarter.

A significant recovery in the new sales orders index underpinned the increase in the headline PMI during May. Domestic demand conditions normalised following the flooding, while export sales also returned to positive terrain. This suggests that last month’s deterioration on the export front was mainly caused by the Durban port disruptions rather than signalling the start of a drop in global demand for South African goods. Despite the solid rebound in demand, business activity was stuck just below the neutral 50-point mark in May. This could be due to continued load-shedding and industrial action affecting output, but not necessarily weighing on demand.

The purchasing price index edged down for a second month after reaching a record high in March. The further tick down seems to mirror what is happening globally. Input cost inflation measures from the (flash) PMIs for the US and Europe also showed a moderation in May as raw material inflation seemed to be cooling. However, as is the case in South Africa, the levels remain high, signalling that while it may have peaked for now, (global) input cost pressure remains significant.

The index tracking expected business conditions in six months’ time increased notably in May. The index rose to 63.3 after averaging 55.4 in the preceding two months. It is difficult to point to a single factor to explain the improvement, but optimism that cost pressures at the start of the pipeline have peaked may explain some of the improvement. Furthermore, South Africa has moved through its fifth wave of COVID-19 infections without the necessity of renewed lockdown restrictions. This suggests that future COVID waves may also not directly hurt production capabilities. The recovery in export performance and tentative signs of better functioning supply chains may have also buoyed sentiment.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) fell sharply to 50.7 index points in April 2022. This is the lowest level of the PMI since July 2021 when unprecedented looting and rioting shook local production and demand. As was the case then, the decline in the headline PMI was due to a sharp drop in the business activity and new sales orders indices, this time amid devastating flooding in parts of KwaZulu-Natal (KZN). This led to facilities in several manufacturing sub-sectors being forced to temporarily halt production to assess damage and address transport issues of staff. Even factories not directly affected by the flooding may have seen a drop in demand. In addition to the shock to domestic business conditions, respondents also noted a sharp drop in export sales. It remains to be seen whether the drop in exports was due to the temporary Durban harbour closure and other logistical constraints related to the floods, or whether this is due to a deterioration in external demand. While normal harbour operations resumed after a few days, export deliveries will remain strained for some time due to significant backlogs and limited availability of vessel space.

Delving into the PMI subindices, the business activity index plunged to 39.6 index points in April. This suggests a sharp monthly contraction in manufacturing output at the start of the second quarter. Even businesses not affected by the flooding, either directly or indirectly, had to grapple with stage four load-shedding during the month. The new sales orders index was another big drag on the PMI, with the index falling deep into negative terrain. Both business activity and new sales orders fell to the lowest level since the looting shock in July 2021.

The headline PMI was prevented from falling into negative terrain (i.e., below the neutral-50 mark) by the inventories and supplier deliveries indices holding up in April, although both declined relative to March. Given the deterioration in business conditions, a surprising result was that the employment index was the only major subindex which improved in April. The index edged back above the neutral 50-point mark to 51.5 points. This suggests that respondents already looked past the disruptions in April. Indeed, the index tracking expectations of business conditions in six months’ time held up well. The index even improved slightly, to 55.7 index points.

There was some relief on the cost front: the purchasing price index declined after reaching a record-high level in the previous month. The rand exchange rate was, on average, unchanged compared to the previous month, but the Brent crude price came down slightly, which may cap the magnitude or limit further increases in petrochemical prices.

Johannesburg, 13 April 2022: Proudly African bank Absa, in partnership with the South African National Association for the Visual Arts (SANAVA), officially opened applications for the 2022 Absa L’Atelier, inviting artists from across the African continent to enter.

Since its inception 36 years ago, the Absa L’Atelier has showcased and continues to invest in some of the finest young artists from the 12 African countries where Absa has a presence.

“With this year’s theme ‘From start to L’Atelier’, we are calling on our continent’s fearless creators to take a step towards taking their finished artworks to the world by entering the Absa L’Atelier. This competition will once again provide an opportunity for visual artists to respond and make their voices heard. We are committed to putting the basic building blocks in place to ensure that young artists from across the African continent can reimagine their futures and bring their possibilities to life,” says Dr Paul Bayliss, Senior Specialist Art Curator at Absa Group.

The Absa L’Atelier has built a legacy, providing the next generation of young African artists with the support, recognition, and exposure they need to cement their burgeoning careers.

Due to the ongoing COVID-19 pandemic, the Absa L’Atelier was re-envisioned in 2021. “The pandemic forced and challenged us to do things differently. In our efforts to lead the charge in being digitally progressive and making sure that artists still get the opportunity to showcase their work, we went entirely digital. For 2022, we have continued to work on improving our digital system and user-experience” says Dr Bayliss.

The adjudicators of the competition select 3 artists as ambassadors of the competition who will each receive a laptop, data and exposure to intensive virtually hosted mentorship and masterclasses geared towards upskilling and enabling them to take their careers to the next level.

“In addition to the masterclasses and mentoring, the artists will have a collaborative exhibition in the Absa Gallery which will open in November 2023. This will then travel to their respective countries in 2024. They will also have an option to take up a solo exhibition within a five-year period within the Absa Gallery. To us and our partners, the Absa L’Atelier is no longer just about giving artists an amount of money but affording them with the skillset to develop and thrive as artists in a forever changing world,” explains Dr Bayliss.

The most deserving South African artist aged 25 to 35 will be eligible for the Absa L’Atelier Gerard Sekoto Award, made possible through the Absa and SANAVA’s partnership, with the Embassy of France in South Africa, the French Institute of South Africa (IFAS), and the Alliance Françoise network in South Africa.

“These artists are the future of African contemporary art, and we are very proud to be part of this project. For over a decade, we have been supporting this award which grants a talented young South African artist an amazing opportunity; to expand their horizons with a 3-month artistic residency at the Cité Internationale des Arts in Paris and gain greater international exposure as a result. The artists are inspired and inspire. They learn, and they teach. They explore, and exhibit, allowing people in France and elsewhere in Europe to learn more about their individual style and vision.  In doing so, we hope to create a true dialogue between our two countries,” says Aurélien Lechevallier, Ambassador of France to South Africa.

SANAVA President, Dr Avitha Sooful, commends the enduring partnership between Absa and SANAVA, aimed at creating a positive impact in the African visual arts scene for years to come. “Our partnership with Absa has grown from strength to strength and it bodes well for the development of African artists whose work will influence the continent’s creative economy, now and in the future. With this year being our 36th year of existence, we hope to double the number of entries from our continent’s young and fearless creators, and we call on all artists to act on their art and become part of the Absa L’Atelier legacy,” concludes Sooful.

Absa Group has also been recognised at the 2022 Webby Awards in the Arts and Culture category for the Absa L’Atelier. The Webby Awards, hailed by The New York Times as the “Internet’s highest honour,” was established in 1996 and presented by the International Academy of Digital Arts and Sciences (IADAS) to honour excellence across digital media. This year, there were nearly 14,000 entries from 70 countries worldwide. From tens of thousands of global entries submitted, fewer than 12% were selected as nominees.

“Nominees like the Absa L’Atelier are setting the standard for innovation and creativity on the Internet,” said Claire Graves, President of The Webby Awards. “It is an incredible achievement to be selected among the best from the 13,500 entries we received this year.”

To vote for Absa L’Atelier, please visit vote.webbyawards.com. Voting will remain open until Thursday, 21 April 2022.

For further information about the Absa L’Atelier, please visit https://latelier.absa.africa

Absa Purchasing Managers’ Index (PMI) increased for a third consecutive month.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) increased for a third consecutive month to reach 60.0 in March, up from 58.6 in February. The sustained improvement in the headline PMI bodes well for the continued recovery of the manufacturing sector after it was dealt a blow in the third quarter of last year. Indeed, the PMI suggests that the sector should record a robust quarterly expansion in the first quarter of this year.

Further improvements in new sales orders, and in turn business activity, underpinned the increase in the headline PMI. On the demand front, export orders remained positive (albeit losing some ground) while local demand may have benefitted from the recovery in the tourism and hospitality sector and normalising business conditions in general. Despite better output, the employment index dipped below the neutral 50-point mark once again.

While orders and activity remained robust in March, sentiment among respondents about future business conditions turned decidedly less optimistic. The index tracking expectations in six months’ time fell by 14.4 points to 55.1. This was the biggest single month decline since November 2008 (at the start of the global financial crisis). To be sure, the level of the expectations index remains well above recent lows seen during the height of the pandemic. Respondents are likely worried about the stagflation (lower global growth and thus weaker demand for South African exports, as well as a further rise in domestic input cost pressures) impacts from the war in Ukraine.

Indeed, a striking outcome of the March PMI survey was on the price front. Like many of its international counterparts, the purchasing price index of the Absa PMI surged in March. At 95.9, the series reached the highest level since the BER started publishing the series in 1999. The surge in the oil price is a key driver of the increase, but prices of food, fertiliser and other raw material inputs are also rising rapidly. As flagged last month, the risk is that these prices remain high(er) for longer as the war in Ukraine drags on and sanctions on Russia are possibly intensified. In the very least, over the short term, the hefty fuel price hike expected next week will add additional pressure on costs. Furthermore, supply chains remain strained with (temporary) lockdowns in China amid a surge in COVID-19 cases disrupting global trade flows and possibly also exacerbating shortages of key inputs.  

• PMI March Report 2022
• PMI March infographic 2022