By Dr Roze Phillips, Group Executive for People and Culture at Absa

Remote working has been a consistent trend for some time now. In response to COVID-19, organisations have been forced to immediately develop or improve remote work policies and procedures. This has proven challenging for many businesses, especially when it comes to IT infrastructure, devices, cybersecurity and productivity.

Beyond that, though, how do these forces enable leaders – especially people leaders like human resources (HR) practitioners – to continue harnessing the full potential of people to sustain businesses and economies? Nothing will be the same again and, as such, the future of work is being rewritten; workplaces will need to be reconfigured to accommodate social distancing and other organisational shifts. Essentially, business models must adapt and adapt quickly. The question is – how should companies respond? At Absa, we’ve centred our response on protecting and empowering our people.

One of the biggest lessons during this “next normal” phase is that, to thrive, we have to learn to unlearn and then relearn. This simply means that we must break our attachment to past behaviours and lifestyles – anything that lulls us into a sense of familiarity and makes us resistant to change.

For many, remote working happened overnight, with little warning or preparation. Our business was already on a path of digital transformation, which would include remote and flexible work. Nevertheless, nothing could have prepared any of us for the onslaught of remote meetings and working from our intimate living spaces.

COVID-19 is the Great Amplifier: if something was cracked before, it is broken now. Much like the virus compromises the human body, so it has revealed the compromised state of our business models. Companies with flat structures and reduced bureaucracy have benefited from the agility of an empowered workforce. Command and control-style businesses have and will continue to struggle.

So, what is the holy grail of remote working?

Absa is focusing on three fundamentals that we believe will empower us to bring possibilities to life for our customers and our people. Our first foray into a remote work strategy emerged from a wellbeing strategy: keeping our employees safe and secure is key to protecting them and the communities we serve.

Leadership matters

History repeatedly shows that leaders – with or without titles – rise like steam during the heat of crises. The secret to successful remote work is not Microsoft Teams or Zoom: it is leadership – responsive, responsible and response –abled leadership.

In a time of disruption, the human need for ethical and compassionate leadership remains constant. Myriad emotions are invoked as we traverse our adapted working terrain – whether it is juggling schoolwork and phone calls, navigating our new “stuck in traffic” (also known as intermittent or non-existent Wi-Fi), or adapting to the blurring of work-personal boundaries.

Amid the angst of an artificial intelligence and digital takeover, human intervention is more relevant than ever. This is the moment for our leaders to spotlight the direction we need to take to flow through a new, fluid world of work.

At Absa, we understand that this will be where the gig worker and freelancer are seamlessly integrated into our strategies and structures. We understand that mistakes are inevitable in this type of innovation, but the lessons gained will be even more valuable.

We call on our leaders to entrench our CARE model as we re-energise and invigorate our teams: CONNECT to purpose, ACHIEVE through teams, RECHARGE with relationships and EMPOWER to evolve.

Mental health is workplace wealth

Mental health, as a workplace challenge, has been steadily increasing for many years as employees have struggled to cope with the rising cost of living and the threat of job losses brought on by the Fourth Industrial Revolution and the machine age. In 2019, the World Health Organisation formally recognised burnout as an occupational phenomenon, “a syndrome conceptualized as resulting from chronic workplace stress that has not been successfully managed”.

Lockdown has obliterated many of our societal norms and coping mechanisms. Coupled with the collective feeling of isolation and decision fatigue – the result of constant high-stakes choices on everything from when or where to shop to sending children back to school – we must all recognise that the next pandemic might well be that of global burnout.  And as people struggle mentally, business decision-making, customer service, innovation and sustainability hangs in the balance.

Human beings are social creatures and, while we may appreciate occasional solitude, we generally do not cope well with loneliness and isolation. We need face-to-face interaction and engagement to thrive – and innovation and progress in any organisation largely depends on collaboration and co-creation. As the lockdown restrictions are lifted, Absa will adopt a more nuanced approach to working remotely.

This forms part of our sustainable Flexible Work Strategy and will allow colleagues and their managers to agree an approach that works best for their team. It will also give us the opportunity to engage with the best talent on new terms, regardless of whether they are employed by us or not.

New talent creates new possibilities

Our human capital is at the heart of everything. It is the core of the Absa ecosystem and the motivator of our shared purpose – to stay healthy, connected, contributing and future-ready as we bring possibilities to life.

What we have realised during this transition is that bringing possibilities to life starts with protecting those possibilities – in other words, our people. HR practitioners and leaders are at the frontline of talent strategy, gracefully walking a fine line between insider and outsider.

It is no surprise that, in recent times, senior leadership has looked to HR to be thoughtful, strategic and well-informed partners. We balance strategy and execution, pairing a deep understanding of our teams’ business challenges with the ability to reframe those challenges through a talent lens. This is critical to our ability to thrive.

Our next normal

As we continuously adjust to the nuances and opportunities presented by remote and flexible working, one thing is certain: this will be our default position. The lack of office space will necessitate it, social distancing will demand it, and investments in advanced digital technologies, infrastructure and collaboration tools will facilitate it.

What may be interpreted as “real estate cost management”, is a definitive people and culture strategy that allows us freedom of choice. It provides the freedom to bring our best selves to work, enabling personalised working solutions that deliver high performance.

So, as the pessimists choose to label 2020 as the year in which the world pressed pause, let us embrace it as the year in which we learned to breathe.

Remote work is not driven by a location strategy, it is powered by a talent strategy. This is how we will reimagine our business and our possibilities.

By Shirley Webber, Head of Natural Resources and Energy, CIB

It could take up to six months for many mining companies to return to normality because of the national shutdown imposed by governments in South Africa and other countries in Africa. While the lockdown has been eased to varying degrees, it will take several months before mines restore full production.

This is because of limitations on the number of miners that can work underground or open cast operations. Some companies must organise for the return of foreign workers who had gone to their homes after operations were stopped due to COVID-19.

The shutdown has also impacted on the liquidity requirements of mining companies and those dependent on a single commodity have been particularly hit hardest. We therefore expect that their short-term liquidity requirements would have increased and will most likely remain under pressure in the next three months.

As the shutdown restrictions are gradually eased, we expect a gradual uptick in production until full output is achieved. But at this rate, we expect mining companies to return to full production over a six-month period.

However, it must be noted that during the shutdown, some mining operations, such as smelting and furnaces, were not completely stopped because operationally it is not possible to stop them without causing significant damage to them.

On commodity prices, we have not seen a significant dip; if anything, commodity prices have been holding up. Naturally, we expect some dips in prices due to the usual demand and supply factors. However, the price of minerals such as gold remain robust and while copper and palladium prices have softened slightly, we still expect a recovery in the short term.

But this does not mean we will not experience volatility in commodity prices over the next three to six months. What is not certain however is the level of volatility as the global economy slowly begins to return to normality post the national shutdowns imposed to control the spread of the Coronavirus.

The irony of the current shutdown is that South African mines have not been able to benefit from the depreciation of the Rand, which would have been beneficial for exports given the current US$/Rand exchange rate. It is therefore a rather unfortunate development that the mines are not in full production given where the local currency is now.

At Absa, we have been having operational discussions with our mining clients on issues such as liquidity support, capex and cost containment. These discussions are necessary so that we can fully understand what the mining companies are facing so that the bank can assist them properly. Such discussions are also important to ensure that we address any questions which may be raised by the credit committee when it considers applications for liquidity support.

We are therefore definitely willing and able to assist mining clients during these difficult and uncertain times facing the country.

By Vimal Kumar – Chief Executive: Retail and Business Banking, Digital and Customer Experience, Absa Regional Operations

The social re-order brought about by the COVID-19 pandemic have generated many learnings, but also still hold a great number of unknowns.

What is clear is that in terms of digital innovation and progress, we have had to compress several years of evolution into a very short space of time as everyone has been forced to adapt to managing businesses remotely and the deployment of new low contact transactional capabilities.

Austrian economist, Joseph Schumpeter, coined the phrase creative destruction, which speaks to the need to constantly destroy what you have created to build a new order– exactly what we are experiencing now.

Business models will begin to alter significantly and become smarter and leaner in order to survive and emerge stronger post-lockdown. For most institutions, this will entail the rethink of distribution structures with a focus on reskilling colleagues to support sales and advisory, while automating backend processes. There will be a fundamental shift to digitally delivered, remote and contactless banking.

What will a post-COVID landscape look like?

The banking and financial services ecosystem, of which Absa forms a major part, is demonstrably part of the solution during and post this pandemic.

During the last global crisis when international financial markets crashed, global financial institutions had been at the heart of the problem, but now banks are seen by regulators and governments as key to providing financial relief and driving economic recovery programmes.

On the transactional front, customers now expect a fully immersive experience and COVID-19 is driving everyone towards a low contact, low touch economy.

Banks that remain within the traditional domain will be pushed to the margins by other competitors, intermediaries and Fintechs who previously may not have had a strong appeal with customers , but who now offer convenient solutions, seamless efficiency and a service experience that is channel agnostic.

The African banking arena will see more non-traditional competitors in financial services such as global e-commerce and tech companies such as Facebook, Alibaba, Tencent etc who will expand their footprint on the continent by deploying their global capabilities and know-how. Mobile Network Operators (MNOs) such as MTN, Vodacom and Airtel are also increasing their appetite to participate in financial services and have the capability to quickly scale up, given their significantly larger customer bases and distribution muscle.

We are moving towards a marketplace environment where various players will be forced to bring their unique solutions to the market- while sourcing other capabilities from elsewhere on behalf of customers. At this point, ownership of the customer will not be the dominant consideration but rather building an ecosystem that puts the customer at the centre.

The ability to exploit big data and digitisation are mere enablers in the new economy; the real differentiator, increasingly, is the ability to hyper personalise the customer experience and provide convenience.

Enhanced customer experience is going to be imperative and the choice of bank for customers will be based purely on maximum convenience – the ability to bank when they want, where they want, and how they want.

How has Absa been able to respond to this fast-changing landscape?

The Separation Programme from Barclays presented Absa with the opportunity to re-examine its technology stacks and architecture. Investment, over the last two to three years, has largely been allocated to technology upgrades, front-end solutions and organisation-wide automation. Our investments, amongst others, include state-of-the art cards and payments platforms, front-end teller system and a new look Mobile Banking app with world class UI/UX built on the Xamarin framework.

Separation prepared Absa to be in a better space today than many others who may have been caught unaware by this global pandemic.

Absa boasts a heritage of global best practice risk management protocols and standards and is now focusing on aligning this with building stronger remote and video-banking capabilities.

Absa’s digital journey will fundamentally create a distinct position for the bank amongst African peers.

How is this achieved?

Absa’s transition to digital came about as a result of the separation from Barclays which, in itself, held tremendous risks because what we managed to successfully complete in 36 months had never been done before, and the scale of it was unprecedented.

But, at the same time, it also created new opportunities for Absa, particularly around the use of big data to build our customer intelligence and ultimately our customer experience offering.

Simply put, utilising data to make informed decisions and do more for customers. Absa has, and will continue to invest heavily in its big data capabilities.

The bank’s digital C360 analytics platform has won significant praise internationally, including two recent awards for the Absa Regional Operations’ (ARO) Data Analytics team, for the 2019 Best Technology Initiative – Rest of the World award at the Financial Innovation Awards, and the 2020 Best use of Analytics in Financial Services at the Retail Banking International Awards.

These investments will allow Absa to hyper-personalise experiences for each customer, using data, so that each individual customer becomes unique and a segment of one for us as a bank.

Our direction of travel is very clear in a landscape with hundreds of competitors. We are building on our capabilities and solutions – even through partnerships and other service providers – and digitising journeys to deliver extraordinary customer experiences.

Ultimately, demanding loyalty is a thing of the past. In the future, banks that are customer service organisations first and foremost, will succeed.

So will that be the end of bank branches and people?

Moving to a leaner model means less back office and more focus on sales and advisory, and branches will transform but will not disappear entirely.

The future is not physical or digital, rather the future is bionic or ‘Phygital’ as the new catch word these days.

An ecosystem will emerge that will see digital experiences completely mimic what a customer would do in a branch. The ultimate aim? A single customer experience that is absolutely uniform and channel agnostic.

A large part of our success lies in taking our colleagues along with us on this journey. Most organisations fail on digital transformation because they do not include people as part of the process, so as we transitioned from Barclays into Absa, we started a cultural change where staff today are as much part of this as anybody else.

By Vimal Kumar, Chief Executive: Retail and Business Banking, Chief Digital Officer and Customer Experience at Absa Regional Operations (ARO)

When a crisis of the magnitude of Covid-19 strikes, it is our role as a responsible lender to put forward various immediate and medium-term solutions to proactively combat the downturn it brings. As an African business, we have sought to position ourselves so that we can offer not just tangible relief in this time of distress and global upheaval, but also true value in an ever-changing world.

For any indebted individual or business, servicing debt during such difficult times is a source of angst. Absa reacted swiftly to the pandemic by designing, offering and implementing smart solutions and offering significant financial respite during these times.

Relief measures have included repayment breaks, moratoriums on capital repayments and the waiver of fees on interbank transfers through internet banking and bank-to-wallet transactions, among others.

A payment holiday – which also defers the tenor of the repayment – is just one option available and is primarily designed to offer immediate relief and ensure a continued cashflow for a household or business facing financial hardship, while at the same time protecting credit worthiness. The option to exercise a payment holiday is a conversation between the customer and the lender based on the profile and individual circumstances of the client.

All of this has been done in consultation with regulators and governments acknowledging that we need to navigate the Covid-19 crisis together.

These solutions have been carefully thought through to assist those most in distress during the initial wave of the Covid-19 economic slowdown. Although we live in an era of social distancing, geographically segregated interaction, and government-enforced lockdowns, our technology and the array of digital products we offer have enabled us to continue to serve all our customers efficiently and effectively.

Leading digitally

It is inevitable that a post-Covid-19 world will see us emerge into a more digitally-driven space. Absa is actively driving the roll-out of digital infrastructure and offering our customers more innovative solutions. Customers can bank in a variety of ways: internet banking, apps, e- and mobile commerce, and contactless payment capabilities.

One of the key pillars of our growth is to build a scalable, digitally-led business. When we launched the new Absa brand across Africa, we spoke about “bringing possibilities to life”, and we are stretching digital boundaries to meet and, indeed, exceed the needs of our clients in a rapidly evolving landscape.

Our digital transformation towards a low-touch, low-contact future is accelerating at a fast pace. In driving this, we will make banking and ways of payment cheaper for all our customers. We are already seeing a massive surge in digital use and pick-up by customers in all our regions, which reinforces our conviction that we are on the right track.

It is increasingly evident that the bank of the future will be known not for the products it sells, but for the creativity, agility and openness to co-creating solutions with clients and partners. Everything we do speaks to our ability to find solutions to our customers’ needs – this is even more relevant at a time when our very concept of ‘normal’ is being challenged and revised constantly.

Support for SMEs

One of the things we are very conscious of is that small and medium enterprises (SMEs) are vital to economic growth across Africa, and we need to support and nurture the entrepreneurial energy and innovation in that sphere. We further recognise that the informal economy needs to be as much protected as the formal economy, because this makes up a large portion of employment in Africa.

Therefore, we ensure that our SMEs and our business banking customers benefit from our relief programmes during these turbulent times as much as our individual customers. There is no doubt that when the time comes to rebuild our economies, SMEs will play a leading role in spurring such efforts.

According to the World Bank, Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries where SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. SMEs represent about 90% of businesses and more than 50% of employment worldwide, while formal SMEs contribute up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included. https://www.worldbank.org/en/topic/smefinance

Acting responsibly

We have been heartened as a banking institution by the responsible behaviour of many of our customers who have continued to service their debt as their situation allows, which is a very positive story in these uncertain times.

Our customers see us as a bank that is responsible and willing to assist; that offers help when they are truly in need. Yet they have adjusted their thinking and behaviour to the existing environment and are responsibly only calling on us when they really need us.

Absa has a balance sheet in excess of almost R1 trillion and is well-positioned to withstand financial storms, and as a significant bank on the continent, we play a big part in ensuring stability to financial systems, as well as being able to offer clients and customers a reassuring sense of stability and confidence.

But more than what we represent as a continental banking institution, Absa is also Africa, and the essence of caring for others underpins everything we do. Our commitment to helping save lives and contributing meaningfully to the fight against this coronavirus pandemic has seen us make substantial donations to national governments and various Covid-19 relief efforts.

We believe in getting things done, and in helping people find a way to get things done. And in these extraordinary times, we also understand what it means to be African: that our common humanity and our compassion towards one another in the spirit of ubuntu, is what will ultimately carry us through and be the panacea in this fight against this pandemic.

By Marie Jamieson, Head of Marketing and Corporate Relations for ARO (Absa Regional Operations)

In 2016, when Barclays PLC announced it was reducing its ownership of Barclays Africa Group Limited to a minority shareholding, the opportunity arose for an organisational re-set, allowing the Bank to take control of its own destiny and look to a whole new future in Africa, says Marie Jamieson, Head of Marketing and Corporate Relations for ARO (Absa Regional Operations).

Two years later in 2018 we launched our new identity for Absa Bank South Africa, and for the Absa Group overall. This marked the official start of a new era for us; an era characterised by even greater commitment to being an important part of the African growth story.

Our separation from Barclays gave us the opportunity to roll out a whole new brand; one which reflects our uniquely African identity, and unites all our entities across the continent behind a single brand and purpose.

Our rebranding was an extensive and consultative journey executed over the period of more than a year. We didn’t automatically start from a place that assumed we would simply roll out the Absa brand across all other countries in Africa. Instead we kept a very open mind. We undertook a substantial research and had more than 130 000 conversations with customers, shareholders and other stakeholders in all our markets. We also spoke to more than 4 400 colleagues across all our countries so that they actively played a role in the co-creation of our new brand. The result was that we elected to go with the Absa brand. But importantly it would be a refreshed, re energised, and a totally new Absa brand.

At the same time, this journey allowed us to redefine what we stand for. Our colleagues were also instrumental in defining our new organisational purpose ‘to bring possibility to life’; plus our new values. In the past, these had been decided by a small group of people in a board room in London.

Our new brand reflects our unique African identity. Our logo was inspired by rich insights from across our continent.  While our primary colour is a passion red, our brand embraces a full spectrum of colours, all reflective of the African land and skies, as we go through the day into sunset.

For our brand marketing campaign, we invented a new word, Africanacity. For us, this epitomises the uniquely African ability to always find a way to get things done, no matter what. We see this trait everywhere across the continent. We love it. It inspires us to always find a way to help people get things done; to realise their goals and ambitions, whatever they might be.

What was so fantastic was to see how each of our countries embraced our new brand and all its distinctive assets; but also how each market translated it in their own way, injected their own local insights, unique voice and flair into it. So yes, definite consistency, but so richly diverse and locally nuanced.  Which again is the epitome of our African continent.

Importantly, a brand change isn’t just about marketing campaigns. This was about changing every single touchpoint that makes up the brand… our new branch design, our new ATMs, our new uniforms, our news cards, everything is fresh and modern. Every step of the way we were looking for innovation. For example, our new cards are vertical, rather than the age-old horizontal format that was built for an era when a card was placed on a little gadget for a paper based imprint. Nowadays, you insert your card vertically into a POS machine or an ATM, yet that old convention of horizontal format persists. Another way we broke with convention was by embracing our spectrum of vibrant colours across our card estate, infusing some fresh personality rather than the conventional expected metallics.

But while we were all excited about what we were going to change into, one of the biggest marketing challenges we faced was how to transfer the equity from 100-years of the Barclays brand into this new Absa brand.

Strategically, even before we officially changed our name, we leveraged the Absa Group brand to allow the Barclays’ countries to become familiar with the Absa name and identity. We started linking the two brands in all campaigns from the end of 2018. We launched a campaign in every country, showcasing the credentials of the Absa Group, but which signed off by saying ‘Proudly serving you as Barclays’. At the same time, all our Barclays work carried an endorsement line ‘Part of the Absa family’. This way we were not only able to create awareness ahead of time, but also to reassure and instil confidence.

We knew we also had to build emotional connection, and so one by one, we converted all our big sponsorship properties to Absa even before we had officially launched in each country. The English Premier League, the Magical Kenya Open, the Zambian Cup, the Maputo Marathon, to name a few, they all helped us connect with people’s passion points and build  brand affinity ahead of launch.

I’m often asked what were the main factors contributing to the successful implementation of our Brand and name change programme. The biggest positive was that we had a new brand that everyone was proud of and passionate about,  and the biggest challenge was managing the level of complexity. We had 220 projects across 10 countries, so military-precision planning was the order of the day. With so many opportunities for things to go awry, relentless tracking across every single component, in every single project, across every single country was key. But the real killer app was the Absa teamwork. We called it Absa Africa United. The desire to get things done, and done right, meant that everyone was not only invested, but totally passionate about their delivery. This meant that people were always quick to respond, agile in their solutioning and absolutely always prepared to go the extra mile. Without this we could never have delivered as seamlessly as we did.

When the big launch day came we were ready. And we rolled out to customer support and market positivity that, three years before, we could only have dreamed of. We knew that this was just the beginning. That we still had a long journey ahead of us but we had a meticulous plan. Then, what felt like two minutes later (it was actually a few weeks later), Covid 19 hit.

As we all know, a brand lives in the now. It lives in the minds and hearts of people. It has to be agile, responsive and always relevant. In an environment where a roll of toilet paper suddenly costs more than a barrel of oil, where lives and livelihoods become a balancing act, the best laid plans fall by the wayside. Guided by our purpose, our one north star, we had to ask ourselves “what do people need us to be right now?” And then we had to adapt accordingly.

Our role in society is more important than just selling products and services. When a brand behaves well, the numbers will follow. We immediately set about focusing our efforts on being part of the prevention messaging; to help spread the word and empower people to protect themselves, their families and our communities. And as hygiene becomes a new differentiator; we quickly re-engineered our branch protocol to include all relevant safety measures, e.g. social distancing, regular cleaning, sanitising, masks, etc.

And of course, we have accelerated our digital agenda. It was always front and centre for us, but now it takes on even more importance because it’s not just for us, it’s for the safety of our societies.

By Bulelwa Soyamba, Head: FX Options Sales, Absa CIB

As one of the most liquid foreign exchange markets in the world and the gateway to the African continent, South African businesses need to understand developments in the global foreign exchange (FX) markets to plan for the future.

South African corporates felt the unforgiving effects of the Coronavirus several weeks prior to the official lockdown on 26 March ‘20, as disruptions in business activity emerged worldwide at the onset of global markets lockdown. At a time when the market had all eyes on US-China trade war, COVID-19 lockdown restrictions were enforced setting off global supply-chain disruptions.

Global supply chain disruptions in the form of shipment delays, logistics hurdles, and an unquenchable demand for resources necessary to complete certain production cycles had dire effects on revenue and growth for corporates.

The price action in the wake of COVID-19 saw the oil price plunge to historical lows, with the US Crude Oil Benchmark trading below zero.

Emerging market equities and FX markets felt the worst sting as global investors flocked to safe haven assets as trade shocks took hold. The Rand plunged to new historical levels against the dollar to only find some solace around R19.35/$ from opening the year around R13.93.

Source: Absa Research

Winners and losers

Given this backdrop, most corporates have been stuck in-between a rock and hard place as the initial wave of COVID-19 triggered liquidity constraints and the ability to raise short-term funding has become a serious hurdle. Predicting and managing cash flows efficiently has become nearly impossible for treasurers due to shipment delays and disruptions in the production cycle.

It goes without saying that businesses or sectors that are classified as providing essential goods and services, would have performed better.

According to Absa research, top performing sectors where productivity levels have been slightly up included the agriculture, communication and water. Mining, manufacturing, construction, retail and tourism have been hit the hardest.

The shift to alternative hedging instruments

In an effort to manage FX exposure, local importers seem to have shifted their focus away from longer term hedging instruments to trading mostly in the spot market. The accelerated pace at which the Rand initially plunged made it impossible for corporates to formulate a strong medium-long term view on the direction of the currency.
Following the South African Reserve Bank’s (SARB) decision to increase dynamic FX hedging tenor from 6 months to 12 months, a large number of importers were seen taking advantage of the new regulation amendment and were able to lock-in attractive forward rates towards the end of 2019.

While the importer hedges in place may have attracted significantly positive mark to market as the Rand weakened, most corporates were unable to fully utilize the contracts due to shipment delays during the global lockdown.

Importers who had entered into medium-long term FX contracts prior to lockdown at fairly attractive rates have faced a number of operational challenges and some had to close-out at prevailing market rates, taking profit and boosted cash-flows because of the inability to utilize the contracts due to shipment delays. This may provide short-term relief but as lockdown restrictions begin to loosen up and activity picks up, the corporates have had to purchase currency at prevailing [expensive] market exchange rates.

Where clients did not close-out unutilised maturing contracts, they entered into expensive FX swaps which allowed them to extend the contract to a later date. Traditionally, where corporates encountered shipment delays, exchange control regulations permit for funds to be kept in a customer foreign currency (CFC) account for only up to 30 days in order to preserve the value of the funds without encouraging foreign currency hoarding.

Our extensive knowledge of these markets has proven invaluable to Absa clients over this period.

Macro policy response

In response to the COVID-19 pandemic, a number of economic initiatives have been implemented across the globe by Central banks, financial institutions and other regulatory bodies. In South Africa, the government injected a R500 billion stimulus package with R200 billion of this package allocated as a loan guarantee scheme to assist businesses remain afloat.

On the back of this, local banks were able to offer loan repayment holidays to struggling businesses. The SARB so far has cut interest rates by 275bps to historical lows in order to support growth and give some relief to consumers from interest loan repayments. In addition to this, the SARB embarked on a Government Bond Purchasing program via the secondary market in order to reduce excessive volatility. Across the African continent, Central Banks have illustrated a strong commitment and are doing as much as possible through tax relief and growth incentives.

So what has worked well?

COVID-19 has changed the way that the world works and highlighted the importance of adopting technology in order for business to survive.

What worked well when it came to seamless FX execution and cash flow management was Absa’s cutting edge technological system called Absa Access and “Docusign”, a secure digital app that makes it possible for clients to sign and approve documents anywhere.

Digital trade execution and payment platforms like Absa Access will continue to be relevant and complementary to our clients’ businesses.

In terms of future themes, I expect the global economic environment to remain relatively weak for some time and businesses funded mostly in foreign currency denominated debt to remain vulnerable to currency fluctuations. Managing cash flows will take precedence more than ever as global supply chain disruptions and uncertainty continue to dominate

In conclusion, I think as the world economy sails through this clouded period, corporates will look for FX hedging instruments that offer guaranteed protection against adverse movements in the currency while giving them the flexibility to take advantage and participate in favorable market movements.

By Shirley Webber, Head of Natural Resources and Energy, CIB

Absa Corporate and Investment Banking (CIB) Head of Natural Resources Shirley Webber has predicted that the current reduced demand for oil and refined products as a result of national lockdowns in South Africa and across sub-Sahara Africa could last at least six months.

Webber says national shutdowns have affected and reduced demand for both fuel and refined products, primarily because of less traffic on the roads, and no passenger flights being allowed following the closure of many international borders. Oil companies have not been able to make up for this reduced demand by selling to customers operating in essential services as large sectors of economies were shut down because of the lockdowns.

“We expect that this reduced demand scenario will persist for some time with pre-covid consumption levels being reached at the back end of 2021 . How oil companies and traders will survive during this period will largely depend on their operating models,” Webber says.

She says the cash-flow of oil companies has, as a result, been affected by reduced capacity at refineries because people have been buying less fuel and oil products due to restrictions on travel in many countries. In response, the oil majors have had to reduce their refinery capacity to save costs and preserve cash-flow by between 25% and 40%. Some had also slashed their capital expenditure budgets by as much as 30%.

Webber says one of the key learning lessons of the COVID-19 induced shutdowns for oil and mining companies is the importance of risk management, especially when it comes to hedging strategies to protect their balance sheets against currency and commodity price volatility.

“For example, we have seen the oil sector hedging their production at between US$60-US$90 a barrel in some instances. Had they not done that, they would have been in serious trouble with the current price which has fallen significantly and unlikely to recover for a while based on current trends and developments,” she says.

Webber says another important lesson is to ensure access to adequate liquidity facilities on the right commercial terms, such as tenor. Absa has been engaging with its clients to understand their liquidity requirements and how they are managing under the current stressed economic conditions. She says reduced demand can put pressure on cash-flows and balance sheets, which emphasises the importance of a company having ready access to a standing facility which can be used during times of trouble.

“What is important is that the terms of such facilities have to be favourable and not too onerous on the business because there is balance you need to strike in order to preserve both the business and your ability to operate under stressed scenarios such as these we are witnessing globally,” she says.