The latest Absa Homeowner Sentiment Index (HSI) indicates that confidence in the South African property market has remained in line with the last quarter of Q4 2020, inching ahead 1% to end Q1 2021 at 81%.

Sentiment towards buying property has had its fourth consecutive quarter of sentiment improvement, ending Q1 2021 at 82%, the highest since the introduction of the HSI. Sentiment towards buying rather than renting also reached the highest level since the introduction of the HSI.

An emerging theme has been observed in the Q1 2021 survey – that of property renovations being leveraged to improve security. In this survey, 45% of respondents with a positive sentiment towards making renovations indicated that alterations are also an opportunity for improving security.

Sentiment towards buying property grew faster than sentiment towards selling property for the second consecutive quarter. The rally due to the low interest rate cycle on sentiment towards buying property has given way to property accumulating in value. This could be indicative of the anticipated price increases due to the widening gap between willing buyers and willing sellers.

The focus on affordability in the past few publications has been on interest rates, but what was also topical in this survey was affordability due to incidental property acquisition and ownership costs (transfer and maintenance costs). Non-property owners who prefer to rent, together with non-first time property owners have made reference to these incidental costs.

•  Absa Homeowner Sentiment Index Q1 2021 full report 

About the Absa HSI

The Absa Homeowner Sentiment Index (HSI) indicates the consumer confidence level regarding the property market in South Africa.

While understanding the overall confidence level of consumers gives us an important overall reference and hence remains important, we also measure various aspects of consumers’ confidence levels. We refer to these as “sub-indices” in this report and among these we measure sentiments about the current timing for buying, selling and investing in property.

For any questions please do not hesitate to reach out to us at  absahomeloans@absa.co.za.

Absa Group has developed a user-friendly online portal focused on providing additional opportunities for Africa’s Small, Medium and Micro-Enterprises (SMMEs) key drivers of post-pandemic growth. According to the World Bank, formal SMMEs make up 40% of GDP in emerging economies, with this number being significantly higher when informal SMMEs are factored in.

“Absa’s Procurement Market portal not only demonstrates Absa’s strategy of promoting responsible and inclusive procurement practices, but also ensures that all suppliers are aware of the bank’s service requirements; information that was not previously widely available,” comments Vusi Fele, Chief Procurement Officer at Absa Group Ltd. “What’s more, it will help us build mutually beneficial, thriving, inclusive and healthy supplier relationships.”

Absa’s goal is to promote two-way engagement and bridge the communications gap in terms of products, services, tenders and RFPs, ensuring that all relevant businesses are included. The platform will allow SMEs to access corporate supply, and at the same time enable Absa to further contribute to ongoing entrepreneurship development.

Fele firmly believes that a supplier diversity approach will assist in driving sustainability and progressively transform the bank’s supply chain. “Not only will we be able to identify suppliers that comply with B-BBEE requirements, but we will also be able to award/extend contracts to currently Exempted Micro Enterprises (EME) and Qualifying Small Enterprises (QSEs). We are also excited to welcome new suppliers to our business.”

Suppliers will be able to add their details to Absa’s database, and easily identify the procurement categories and services the bank is looking for, ranging from construction and marketing, to IT and cash management.”

In addition, qualifying SMMEs participating in the bank’s inbound supply chain become eligible for Absa’ Supplier Development Programme, which provides business support, training, mentoring, advisory and more. These businesses are also able to obtain development funding at favourable interest rates and with no or minimal collateral required, other than the committed spend contract to supply goods and services.

Fele encourages small businesses across the continent to visit the platform and sign-up. “We look forward to leveraging this portal to drive meaningful entrepreneurship development and deliver material benefits to local economic and social reform.”

The portal will be implemented across Absa’s operations, starting with South Africa next week.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose to a solid 57.8 points in May 2021 from 56.2 the month before. Four of the five subcomponents remained well above the neutral 50-point mark with only the employment index dipping back into negative terrain. In all, the average level of the PMI recorded in the first two months of the second quarter of 2021 (57 points) is well above the first quarter’s average (53.8), which suggests that the sector is on track to record another quarterly expansion. A significant annual expansion is effectively guaranteed given the extremely low base set in the second quarter of 2020.

The new sales orders index regained last month’s loss and rose to 60.5 index points in May. This was despite respondents noting a dip in export sales, which means that domestic demand likely drove the improvement. On the back of higher orders, business activity increased by a robust 8 points to reach 58.8 points in May. Inventories also improved, rising to 61.4 points during the month. However, after a surprising surge in April, the employment index dipped back below the neutral 50-point mark in May.

The purchasing price index nudged down further in May 2021, albeit that 87.1 points is still an elevated level for this series (for example, last year’s average reading was 73 points). While the stronger rand exchange rate helps to alleviate some cost pressure, prices of some raw materials and intermediate goods have risen sharply during recent months. Higher electricity and fuel prices, with another diesel price hike from tomorrow, add to the upward pressure to costs. Indeed, the recent high readings of the PMI’s price index correspond to the official producer price index (PPI) data published by Stats SA, which shows a marked acceleration for not only final factory-gate inflation but also in the prices of intermediate manufactured goods.

While current business conditions improved in May, purchasing managers turned slightly less optimistic about the trading environment going forward. The index tracking expected business conditions in six months’ time dipped to 63.5 in May, down from 67.9 in April. This could be as a result of concerns over a COVID-19 third wave. Even though government has to date adopted a softer touch to lockdown restrictions, a renewed virus-induced change in spending behaviour by consumers and firms could still hinder domestic demand. The ever-present possibility of disruptive load-shedding likely also remains top of mind for many producers.
 

• PMI May Report 2021
• PMI May infographic 2021

Absa Group continues to show its commitment to addressing critical skills development as was demonstrated during the annual Digital Academy Showcase event today.

The Digital Academy has, since 2015, equipped over 400 students with critical digital skills as participants work in simulated software development environments designed to encourage digital product innovation to meet business and industry demand. One of the initiative’s key aims is to build a workforce for the future, and students undergo training in full-stack software development.

The comprehensive training, targeted at the youth and often unemployed, is based on a shared vision of impactful digital skills and resources to build Absa’s modern technology architecture, powering the bank’s digital transformation. As part of The Digital Academy learnership programme, students are required to design solutions for everyday problems. The annual Showcase event provides students with the opportunity to demonstrate their work.

Since inception of the initiative in 2015 with The Digital Academy, 440 students have been trained, with 225 (51%) placed within Absa for six months of workplace exposure. Absa currently has 120 Digital Academy graduates working in its digital, innovation and technology function. Seventy-eight of these graduates have been placed in permanent posts; 30 are on fixed-term contracts; and, 12 graduates are currently with the bank on a learnership basis.

This year, The Digital Academy will embark on two new Unemployed Learnership programmes:

• Unemployed Learnership programme with a total intake of 40 learners 
• Unemployed People Living with disabilities (PWD) Learnership with 15 learners

Unemployed Learnership programmes will result in a qualification in systems support learnership at NQF5 level.

Absa Group Chief Information Officer Wilhelm Krige said: “Embracing digital skills remains critically important as we consider our capabilities to adapt quickly to change. At Absa, we believe in investing in people who have not had the opportunity otherwise to be a part of this digital revolution, which has accelerated rapidly because of the global pandemic.”

According to the Quarterly Labour Force Survey (QLFS), for the fourth quarter of 2020, South Africa’s unemployment rate increased to 32.5%. Furthermore, the unemployment rate among youth aged 15-24 stood at a staggering 63.2 %, while for the age group 25-34, the rate was 41.2%.

Gary Bannatyne, The Digital Academy founder, said the collaboration with Absa is vital in helping to address the challenges faced by unemployed youth. “Through The Digital Academy, we can empower young South Africans with economically desirable and sustainable skills so that they have the tools to improve their circumstances.”

Each year, The Digital Academy hosts two intakes of 20 students, who undergo training for six months. The only prerequisite for joining the programme is for students to have completed Matric, to have a foundation in coding, and a passion for technology.

Skills taught at The Digital Academy

The Digital Academy is a demand-led programme that bases ‘job readiness’ on the skills required to perform value-adding work for Absa. Aside from the foundation learnership skills, the collaboration with Absa sees learners undergo comprehensive training in:

• Full stack development (creating and understanding how a full application works)
• Aside to agile development and soft skills, the development consists of: Frontend Development (HTML/Javascript/Typescript/Angular/React)
• Backend Development (Java/NodeJS/C#/Microservices/MQ)
• Database Development (PostgreSQL,MongoDb,Redis)
• Containerisation and Orchestration (Docker, Docker Compose, Kubernetes, Ansible)
• CI/CD (Jenkins, TeamCity)
• Source Control (GIT, Mercurial)
• Basic server usage and maintenance (Ubuntu administration)

The Digital Academy students create solutions for real-world problems

Each cohort of The Digital Academy students are presented with problems or scenarios which they are required to solve. The solutions developed by the latest cohort of students included:

Stoko

Problem Statement
Investing in stocks is potentially a good way to grow money. However, it is often not a friendly process for new investors. Many enter the world of stocks without basic knowledge and lose their money. How can we educate people about stock trading in an engaging and interactive way?

Solution
The Stoko application will allow users to create a demo account to trade using stock data. The users will receive a predetermined amount of stock to start. They can then buy and sell the stock in an attempt to make a profit. They will be educated with explanations of the basic terminology of stock trading, and the importance of investing in local stocks.

Fin-Knowledge

Problem Statement
Investing in stocks is potentially a good way to grow money. However, it is often not a friendly process for new investors. Many enter the world of stocks without basic knowledge and lose their money. How can we educate people about stock trading in an engaging and interactive way?

Solution
The Fin-Knowledge app is for financial institutions that are required to know the target audience for their products. The app allows users to test their financial literacy and better understand their financial literacy level. The app then provides data analysis based on people’s financial literacy so that the institution understands the current customer demographic base better.

Watercooler

Problem Statement
In the new remote working world, companies and employees are missing out on communication avenues that are available in a physical shared workspace. For example, serendipitous meetings of colleagues from other departments while at the canteen. Sharing of ideas while passing people in a corridor or elevator. The loss of a strong company bond between employees. How can we use technology to solve this problem?

Solution
Watercooler is a software application that fills up the social connection gap caused by the COVID-19 pandemic as most employees work remotely. It allows employees of the same company to connect using video and voice in rooms where people can virtually “Stand by the watercooler” and have social interactions with people that are in “that company”.

LinkSkills

Problem Statement
There is a large disconnect between the skills that people are looking for in many industries, and the skills that are being taught to people in the education sector. In the IT sector, there is constant change in skills that are required as new technologies emerge and technical demands change. How can technology be used in order to understand the demand from industry better, in order to train for these skills specifically?

Solution
LinkSkills provides a way for companies to tailor-make the skills they are looking for in people they wish to hire through a series of questions and feedback, some mandatory and some optional. This data is then analysed and is represented in a way to better understand the needs of the IT sector, in order to link the skills that are taught and the skills that are needed.

Absa Group raised US$500 million (R7 billion) in a landmark offshore Additional Tier 1 (“AT1”) hybrid capital bond issuance on 20 May.

Absa’s issuance represents the first ever US dollar-denominated Basel-3 compliant AT1 issue in the international capital markets from Africa. In April 2018, Absa priced its inaugural US$ Tier 2 capital issuance, another successful transaction which introduced the group to the international credit markets.

The 20 May transaction attracted investor demand of approximately US$3bn, more than seven times the target US$400m size that Absa had originally targeted. The overwhelming demand prompted Absa to increase its issuance to US$500m.

“Similar hybrid capital issuances have typically attracted oversubscription of around two to four times the deal size, suggesting that Absa’s AT1 issue was exceptionally well received by the international investor community,” said Deon Raju, Absa Group Treasurer. “What was particularly pleasing was the participation of over 200 global investors with the bulk of the transaction being placed with fund managers across the UK, Europe, Asia/Middle East and US, which has significantly diversified the Group’s investor base,” said Raju.

“We believe that the success of this transaction is testament to both the strength of Absa’s financial profile as well as the appeal of the South African banking sector to foreign investors, relative to other international regions,” said Jason Quinn, Absa Interim Group Chief Executive.

Following a strong first quarter trading update, the transaction was announced and marketed in virtual format, via a global investor call supplemented with a combination of individual and group meetings. More than 50 investors participated in the virtual meetings, from key centers across the globe. The positive investor feedback during the roadshow validated Absa’s confidence to formally launch the transaction on 20 May.

The issuance advances Absa’s ongoing capital management strategy, demonstrates its commitment to optimising its capital structure, diversifies its capital investor base and maintains the Group’s presence in the international capital markets.

“Absa has welcomed the pragmatic approach taken by the South African Prudential Authority in relation to Directive 2/2021, which has effectively allowed banks to access the international capital markets for AT1 capital, using terms which are closely aligned with the ZAR-denominated issuances in the domestic market,” said Raju.

Absa has been appointed as a mandated lead arranger, senior lender and hedge provider for one of South Africa’s largest Concentrated Solar Power (CSP) tower projects. The 100 MW CSP tower project, which uses molten salt technology and has 12 hours of thermal storage, will be built in the Northern Cape Province in South Africa at an estimated cost of R11.6 billion.

The CSP tower project, which is being developed by ACWA Power of Saudi Arabia, forms part of the South African Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). It is believed to be one of the first such CSP project-financed transaction with molten salt central receiver technology in South Africa.

A CSP tower plant generates solar power using mirrors (heliostats) to concentrate a large area of sunlight onto a small area (the receiver). Electricity is then generated when the concentrated light is converted to solar thermal energy.

Absa’s Shaun Moodley, Resource & Project Finance Executive, says the Redstone CSP Project, to be built about 30km east of Postmasburg in the Northern Cape, will be one of the largest renewable energy investments in South Africa under REIPPPP. Moodley says Absa will participate in the overall senior debt financing package with approximately R1.5 billion of senior debt term facilities for the project.

“An important feature of the Redstone CSP project is that it will have 12 hours of full-load energy storage which will enable the CSP power plant to reliably deliver a stable electricity supply to more than 200 000 South African homes during peak demand periods, even after the sun has set,” says Moodley.

He says at least 2 000 direct jobs will be created during the construction phase, of which 400 jobs will directly benefit the local community, while over 560 jobs will be created over a period of time once the power plant is fully operational. Moodley says the socio-economic benefits of the project will also extend beyond job creation, because up to 40% of the required equipment and materials has to be procured locally.

Construction will take about 33 months. Thereafter, the power plant will be progressively commissioned to reach 100% of design capacity, which should be finally achieved over 365 consecutive days within a three-year period after the Commercial Operations Date (COD).

“Overall, one can see that this is a very important project not only from an energy perspective, but also in the form of both direct and indirect job creation. Absa is pleased to have been appointed as a mandated lead arranger for this project. We have strong appetite to finance commercially viable renewable energy projects in Africa and we have already established a track record in this area,” Moodley says.

“Absa has been a leading financier of renewable energy projects in Africa and we have so far arranged and provided more than R50 billin of financing for more than 30 such projects and we certainly have appetite for more, whether it is wind, solar PV, solar CSP, or biomass,” Moodley says.

Absa to Transform Finance and Procurement Processes in SA Following Successful Roll-out in Kenya

Absa Group says a programme that was initiated to transform finance and procurement processes as part of its digitisation journey has made significant progress as its Kenyan operations switched to an integrated, fully cloud-based solution last month. The programme will go live in South Africa next.

The programme, named Owari (signifying interconnectivity), is an initiative to ultimately standardise and transform Absa’s financial reporting and procurement processes across the 14 countries in which the group operates.

“Financial reporting and vendor processes are typically complex and onerous processes for multinational companies with legacy systems,” says John Annandale, Absa’s Group Financial Controller. “We are migrating all Absa entities onto a back-office finance and procurement template solution on fully integrated platforms, enabling us, longer term, to standardise and automate these processes,” he says.

Absa Group’s primary ledger as well as group reporting and consolidation will ultimately move to the new solution, improving controls and reducing risk by consolidating all financial data across finance, risk, and treasury functions.

The Owari programme delivered an integrated general ledger solution by integrating a SAP S/4 HANA enterprise resource planning system on AWS with Coupa, a Software as a Service (SaaS) spend management solution, in Kenya. The end-to-end solution is fully cloud-based, rather than residing in on-premises data centres. This means that the solution can be accessed online at any time from any location. Absa is increasingly adopting cloud-based computing in lieu of on-premises data centres, based on scalability, cost and efficiency benefits. 

“Establishing the new integrated solution, and as a fully cloud-based service, was a great challenge,” says Ebrahim Samodien, Chief Information Officer in the Absa Group technology office. “Many companies have struggled to transfer finance processes to the cloud as it is challenging from a data, technical and regulatory point of view. Owari was successful in Kenya as a result of the approach we took and the software and technology choices we made.”

Africa’s first certified green loan to Absa Bank Ltd, announced today by the International Finance Corporation (IFC), will increase funding for biomass and other renewable energy projects in South Africa. The loan will also support the country’s power sector and economic recovery from COVID-19. IFC is a member of the World Bank Group.

IFC will provide Absa, one of Africa’s largest financial services groups, with a loan of up to $150 million to support the bank’s strategy to expand its climate finance business and help South Africa meet its greenhouse gas reduction targets.

The loan is the first certified loan in Africa that complies with the Green Loan Principles. This means that lending by Absa for green projects will be disclosed, improving transparency and encouraging other banks to follow the principles. In addition to the loan, IFC will provide technical advice and knowledge sharing to help the bank develop a green, social and sustainable bonds and loans framework.

“Africa’s green transition requires considerable mobilization of funds,” said Jason Quinn, Absa Interim Group Chief Executive. “The agreement with IFC bolsters our funding available for green projects and strengthens Absa’s position as a leader in financing renewable projects in South Africa,” he said. Absa is the leader in arranging financing for South Africa’s Renewable Independent Power Producer Programme, having structured and arranged financing for approximately 46% of projects concluded under the programme to date.

“Financial institutions and the private sector have an important role to play helping South Africa to rebuild greener and more sustainably from the impact of COVID-19,” said Adamou Labara, IFC’s Country Manager for South Africa. “By increasing funding for renewable energy and climate smart projects we can help South Africa strengthen its climate change resilience and increase climate change adaptation.”

South Africa has set the goals of reducing its greenhouse gas emissions by 42% by 2025 and its reliance on coal by 2050. Today, 90% of the country’s electricity is generated by coal-fired plants. 

IFC estimates that there is a $588 billion investment opportunity in climate mitigation across selected sectors in South Africa between now and 2030. The project with Absa is in line with a climate initiative IFC launched in January 2020 to help financial institutions in South Africa, Egypt, Mexico, and the Philippines to mobilize private sector financing for climate mitigation and adaptation projects, and help align financial-sector strategies with Paris Climate Agreement targets.

In South Africa, financial institutions are critical sources of climate finance, with commercial banks currently providing 67% of the financing for renewable energy projects.

This is IFC’s fourth investment dedicated to green finance in South Africa’s financial sector.

Following three consecutive months of improvement, the seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined slightly to 56.2 index points in April from 57.4 in March. Despite the modest pullback, the index is now about 2.5 points above the average recorded in the first quarter of the year and about 26 points above the April 2020 reading recorded during the strictest phase of South Africa’s lockdown. 

Encouragingly, for the first time since early 2012, all five subcomponents of the PMI were in positive terrain. Even the subcomponent most often trailing below the 50-point mark, the employment index, managed to increase to well above 50 in April. It is too early to tell whether this points to a sustained improvement in job creation in the manufacturing sector, but it is a positive development nonetheless.

Business activity continued to increase in April, albeit at a much slower pace compared to the previous month. The index fell back to 50.8 points in April from 56.1 in March. New sales orders remained robust, although also increasing at a slightly slower pace than in March, with the index declining from a solid 60.4 points to 58.7. Purchasing managers continued to report improved export sales. Export-orientated manufacturers could continue to benefit from the global economic growth recovery, which is expected to accelerate through the remainder of the year. Indeed, led by a booming US economy, prospects for the global economy have brightened further of late. This could, in part, explain why respondents turned notably more upbeat about expected business conditions in six months’ time. The index rose to a three-year high of 67.9 index points from an average of 58.5 points recorded in the first quarter of 2021, and a dismal 27.3 points seen this time last year. Furthermore, although the risk of a third wave of COVID-19 infections remains present, relatively low increases in new local infections during the month may have also underpinned the recovery in sentiment. This does mean that should virus metrics turn less favourable, sentiment could sour once again.

Another factor that could quell sentiment is the continued increase in cost pressures. The purchasing price index came down slightly from a five-year high reached in March, but remained elevated. The rand exchange rate strengthened slightly compared to March, which could have helped with the costs of imported raw materials and intermediate goods. However, this was countered by a sharp increase in the fuel price at the start of the month. Prices of some key input goods have also trended upwards of late and with a low COVID-induced base set in 2020, annual producer prices are set to increase markedly in the next few months.

• Absa PMI April 2021
• PMI April Infographic 2021

Absa Group Limited has appointed Deon Raju as Chief Risk Officer, with effect from 1 June 2021. Deon is currently Absa Group Treasurer, primarily responsible for the liquidity risk, funding, capital, and non-traded market risks of the Group.

He has been with Absa for more than 20 years, having held roles in Enterprise Risk, Finance, Investment Banking, Credit Portfolio Management and Global Markets. He is a seasoned banking professional with deep institutional knowledge of the Group, as well as extensive and diversified banking experience in business, finance and risk management. 

Raju is a Chartered Accountant and a Chartered Financial Analyst. He holds a BCom (Honours) from the University of Natal and is currently completing an MSc in Finance at the University of Michigan (Dearborn).

“Deon’s experience adds to the strength of the Group’s executive leadership team, and his appointment speaks to growing talent from within our Group,” said Jason Quinn, Absa Interim Group Chief Executive. 

Parin Gokaldas, who has also been with our Group for almost 20 years in a variety of senior roles, will take over from Raju as Group Treasurer. Gokaldas, currently head of Treasury Execution Services, will report to Punki Modise, who has been appointed Absa Interim Group Financial Director.