After plunging to an all-time low of a mere 5.1 index points in April, the business activity index of the Absa PMI survey rose sharply to 43.2 index points in May. “The increase was driven by most factories returning to production, albeit at reduced capacity, during May, after the Level 5 nationwide lockdown brought manufacturing output to a near standstill in April,” said Miyelani Maluleke. Economist at Absa Corporate and Investment Banking.

Many respondents reported that production was still well below normal capacity in May but, nevertheless, higher than that (in some case zero production) recorded in the previous month. “The sharp rise in the business activity index in May is relative to virtually nothing in April and still suggests very subdued overall activity levels,” explained Maluleke. Worryingly, some respondents indicated that whereas the lockdown regulations in May would have allowed for a further ramp-up of production, there was not sufficient demand to warrant this. Indeed, the new sales orders index did not rebound to the same extent as the output index. Furthermore, the employment index remained stuck at an all-time low, rising by a marginal 0.2 points to 26.8 in May. 

The sharp month-on-month movement in the output index in May should be visible in the official manufacturing production data as well. April is likely to see an unprecedented drop, with a solid month-on-month rebound expected in May. Assuming Level 3 (or lower) is maintained for the entire country during the full month, output should recover further during June. Indeed, the PMI’s expected business conditions index rebounded in May from an all-time low reached in April, rising to the best level since mid-2019. However, this does not mean that the level of factory output will return to where it was before the lockdown. It will likely take some time before the supply-chain disruptions are filtered out of the system and for global as well as local demand to return to normal. The risk that load shedding could reappear as the economy gets going could further hamper the recovery. It is also important to note that the South African economy was already struggling before the COVID-19 pandemic reached our shores. In early 2020, the business activity and new sales orders indices of the Absa PMI already fell to levels last seen during the recovery of the 2008/09 recession.

The increase in the output and new sales orders indices supported an increase in the headline manufacturing PMI which rose to 50.2 index points in May. However, as stressed last month, in these unique circumstances, it is better to look at the subcomponents than the headline PMI. This is not only the case in South Africa, but also globally where the supplier deliveries index inadvertently lifts the headline PMI. This subcomponent is inverted which means that when goods are less readily available than before and delivery performance worsens, this actually lifts the index. This is because in normal times, an order that takes longer to be delivered is indicative of increased demand by the manufacturing sector for inputs in the production process. “Last month, and to a lesser extent in May, COVID-19-related production stoppages disrupted the supply chain to such an extent that deliveries were slower even without increased demand,” said Maluleke.

• PMI Infographic May 2020
• Absa PMI May 2020

Absa Group has joined forces with Universities South Africa (USAf) and contributed R5 million to provide appropriate learning devices and mobile data to university students to assist with their online or remote learning.

This contribution will benefit students from six, mostly historically disadvantaged universities, across five provinces. The benefitting universities are: the Vaal University of Technology (200 devices); the University of KwaZulu-Natal (200 devices); the University of the Western Cape (200 devices); the University of Limpopo (100 devices); the University of Venda (100 devices) as well as the University of the Free State (200 devices). The receiving institutions, which by now have identified the deserving students and the extent of need, will devise their own distribution strategies.

The outbreak of COVID-19 has brought life around the world to a near standstill, with nationwide closures currently in force in 150 countries.  In a matter of weeks, the pandemic has changed education, forcing millions of learners into home-schooling and online learning. Recent data released by UNESCO Institute for Statistics shows that 68% of the world’s enrolled student population is presently staying away from schools and universities.

In South Africa, schools, vocational training colleges and universities have similarly been forced to either suspend academic activity or resort to emergency teaching via online platforms. The scale and speed of the closures represent an unprecedented challenge for the education sector, and the full impact is yet to be fully understood.

Given that the Ministry of Education, Science and Innovation has undertaken to meet the laptop needs of the NSFAS-funded students across institutions, Absa’s contribution will be channelled to assist students in the missing-middle category.

“Absa’s contribution undoubtedly eliminates a major challenge for at least 1000 vulnerable students at our universities,” Professor Ahmed Bawa, USAf’s Chief Executive Officer says. “If we are to succeed in our resolve to enable every single student to complete the 2020 academic year, then providing them with these devices and data is inevitable.” 

“We have a well-established commitment to provide access to higher learning across the continent. Remote learning is now a necessity, and there are many students who do not have the means to access their education in this way. We decided to provide this additional support to students who otherwise would be severely disadvantaged during this academic year and in the future,” says Daniel Mminele, Absa Group Chief Executive.

Absa’s contribution is a response to USAf’s ongoing fundraising to assist students in distress with tuition fees, on the one hand, and with appropriate devices to help them navigate the remote teaching/ learning terrain, on the other. Additional fundraising is seeking to support much-needed capacity building in academics.

Highlights:

• Average overall score dips to 51 out of 100 from 53 in 2019, partly due to slower market activity in the first half of 2020 and stricter scoring in some indicators.
• Countries perform best in ‘market transparency, tax and regulatory environment’, scoring 67 on average.
• South Africa and Mauritius maintain their lead in the index, scoring 89 and 79, respectively.
• Namibia tops ‘capacity of local investors’, while Mauritius retains its lead in ‘legality and enforceability of standard financial markets master agreements’.
• Green finance is gaining momentum, with Nigeria, Kenya and Egypt among countries that have issued sovereign green bonds in the past year.

COVID-19 has made the underlying structure and resilience of African financial markets a more important matter for domestic and international investors, as the continent grapples with returning to sustainable growth, the Absa Africa Financial Markets Index shows. Now in its fourth year, the index, which is produced by OMFIF, has become a benchmark for the investment community to gauge countries’ performance across a range of indicators important for financial market development.

The index has expanded to 23 countries, up from 17 in the inaugural publication. The latest additions, Eswatini, Lesotho and Malawi, reflect mounting interest in the region’s potential as a source of growth and opportunity.

‘As an organisation with deep Pan-African ties we are passionate about our contribution to the development of strong financial markets on the continent, the value of which has been highlighted by the challenges we are currently facing,’ said Daniel Mminele, group chief executive of Absa Group.

‘The AFMI report is a tool that helps to anchor policy discussions between regulators, exchanges, investors and corporates on how to promote open, accessible and transparent markets, which are necessary to mobilise capital and promote investment on the continent,’ Mminele added.

Key findings:

South Africa again tops the index by a wide margin, thanks to its deep capital and foreign exchange markets. Mauritius secures the runner-up position for the second year in a row, partly because of its alignment with internationally recognised legal frameworks. Nigeria, Botswana and Namibia round off the top five. Nigeria has relatively liquid markets, while Namibia and Botswana enjoy a high concentration of domestic assets from pension funds.

On average, countries’ scores in ‘market depth’ dropped by 0.6 from last year. The withdrawal of international capital impacted the region’s stock markets as liquidity dropped in the first half of the year, hampering countries’ performance in this pillar. This decline demonstrates the importance of deepening financial markets and encouraging local participation. 

Countries’ scores in ‘legality and enforceability of standard financial markets master agreements’ deteriorated by an average of 8.1, reflecting a change in the basis for assessment introduced in this year’s edition.

Scoring for the enforcement on close-out netting rules is based on data and legal opinions from the International Securities and Derivatives Association, leading to significant changes in the marks of some countries, including Kenya, Tanzania, Namibia, Angola and Botswana.

Although the pandemic disrupted markets, it has presented opportunities for capital market development. The African Development Bank issued coronabonds in March to help finance COVID-19 response measures.

Other sustainability initiatives are gaining momentum, especially in green finance. Nigeria, Kenya and Egypt are among countries that have issued sovereign green bonds in the past year. Rwanda is establishing a green investment bank, while Uganda plans to develop a fund for post-disaster environmental restoration.

‘Worldwide, investors are urging African countries to step up efforts to improve their financial market structures as a crucial means of returning to sustainable growth. The index tracks these developments and provides clear benchmarks for progress,’ said David Marsh, chairman of OMFIF. ‘African counties can help each other by learning best practice from each other – and then implementing it.’
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Download the report here.

The business activity index of the Absa PMI survey crashed to an all-time low of a mere 5.1 index points in April. The decline means that manufacturing output came to a near standstill during the nationwide lockdown, with almost all respondents reporting a decline in activity compared to the previous month. Indeed, many respondents indicated that zero production took place during the lockdown.

While some essential goods production continued during April, this was concentrated in specific subsectors. The current reading is about 25 points below the lowest level recorded during the global financial crisis, which suggests that the decline in actual manufacturing output will be well in excess of the drop recorded at the time (a 23% annual fall in April 2009). With no to little activity in the local economy, overall demand for manufactured goods also plummeted. The new sales orders index plunged to 8.9 index points in April and, like business activity, reached a record low by some margin (series since September 1999). Export sales also fell sharply in April. The employment index tracked activity lower but did not decline by the same margin as the business activity and new sales orders indices. About half of the respondents reported a decline in their staff complement. Formal-sector employment tends to lag activity trends, which means that further job losses are likely going forward.

After already slowing in March, supplier performance deteriorated further in April. In normal times, slower lead times point to increased activity and add positively to the headline PMI. However, COVID-19 related production stoppages have disrupted the global and local supply chains to such an extent that delivery times slowed sharply even without increased demand. Due to the inadvertent positive boost from supplier deliveries, the headline PMI only fell to 46.1 index points in April. This is despite unprecedented declines in the other four subcomponents and means that the headline reading does not provide a fair reflection of conditions on the factory floor in April. Most global manufacturing PMIs are affected, and in fact lifted, by this unique occurrence and the focus should thus rather be on the subcomponents of the PMI.

“The PMI survey shows the immediate, devastating impact the lockdown had on manufacturing output and overall demand. While some easing of restrictions from May should aid a slow recovery in coming months, a lot of manufacturing capacity will remain idle for some time,” said Miyelani Maluleke, Economist at Absa Corporate and Investment Banking. As a result, the index tracking expected business conditions in six months’ time ticked down further from a record-low already recorded in March.

Absa Group Publishes Sustainability Policy and Standard on Coal Financing

Absa has published its updated sustainability policy and standard for financing coal, affirming the group’s commitment as a responsible financier to address the negative impacts of climate change.

The updated policy and standard apply the Principles for Responsible Banking (PRB), which is the framework that establishes the role of the banking industry globally in helping to meet the objectives of the United Nations Sustainable Development Goals (SDGs) and the 2015 Paris Climate Agreement. Absa became a founding signatory to the PRB in September 2019.

“As a leading African bank, we recognise the impact of climate change and believe that we can play a shaping role in enabling sustainable economic and social development for the societies in which we operate.  Through this policy and standard, and by working together with our clients and customers, we will continue to integrate sustainability into our strategy and operations to drive positive change,” says Daniel Mminele, Absa’s Group Chief Executive

The accumulation in the atmosphere of greenhouse gases, especially those resulting from burning of fossil fuels such as coal, has been found to be the predominant cause of global warming and climate change. As a result, Absa will not fund new coal-fired electricity generation unless under extenuating circumstances that will be governed under strict guidelines. 

Effective immediately, projects requesting this type of funding will be evaluated using the following enhanced due diligence criteria:

• The Equator Principles;
• The OECD export credit eligibility criteria based on country, technology and plant size;
• Country commitments in their national development plans and nationally determined contributions to the Paris Climate Agreements;
• The World Bank Environmental, Health and Safety guidelines;
• A climate-related transition risk review to consider the project’s impact on water quality and availability, and air pollution; and
•  Independent advisors will assess feasible and cost-effective options to reduce project-related greenhouse gas emissions.

Absa encourages renewable energy technology such as wind and hydropower as a viable means to meet Africa’s power needs.

“We are already a leading player in financing the continent’s renewable energy, and we plan to intensify our focus on funding renewable energy projects that are environmentally, socially and economically feasible,” says Mminele.

Financing of new coal-fired industrial boilers or furnaces and projects using metallurgical coal will also be subject to enhanced due diligence.

Absa will continue to finance existing coal sector clients while supporting them to transition to more sustainable business models. Greenfield coal mining projects will not be financed unless they meet Absa’s enhanced due diligence criteria.

Absa will add standards for financing other climate-sensitive sectors in due course.

Absa and the African Development Bank Group (AfDB) have signed a US$ 250-million Risk Participation Agreement (RPA) which, when fully utilised, is estimated to mobilise over US$ 2 billion worth of trade business over three years.

The RPA was signed on the side-lines of the 2019 African Investment Forum (AIF) held in Johannesburg.

This facility, through a 50:50 risk sharing approach, will help to promote broad-based economic growth on the African continent through increased facilitation of import-export activities of African corporates and small and medium-sized enterprises, and increase intra-Africa trade and regional financial integration in line with the AfDB’s High 5 strategic priorities.

The RPA enables Absa and AfDB to equally share the risk of issuing trade finance facilities to African banks who have been unable to access trade finance support, due to a number of multinational banks exiting the continent through de-risking.

“Intra-Africa Trade is crucial to harness the potential of Africa, which boasts 60% of the world’s arable land and an abundance of resources. AfDB and Absa are Financial institutions which are intimately involved in the provision of financial services to support these flows.” says Temi Ofong, Deputy CEO of Absa Regional Operations and Chief Operating Officer, Absa Corporate and Investment Banking.

Carmel Kistasamy, Head, Global Development Organisations at Absa Corporate and Investment Banking says the agreement will benefit many African banks and their clients who have been unable to access trade finance after the 2008 financial crisis. Kistasamy sees demand for trade finance coming particularly from sectors such as agriculture and manufacturing.

She says the investment spending gap for Africa’s development continues to widen with latest estimates of between US$ 130 – US$ 170bn per annum. Small and medium-enterprises, which are seen as drivers for economic growth and job creation, require significant funding to expand their businesses and the private sector has a key role to play in cross border investment.

George Wilson, Head of Institutional Trade Finance at Absa Corporate and Investment Banking says AfDB has played a crucial role in assisting with reducing Africa’s trade finance gap.

“Not only does their involvement directly address their developmental mandate, it greatly expands the reach and capacity of Absa’s continental Trade Hub and has the potential to practically broaden the access to trade finance and developmental growth in Africa. We see this as a key stepping stone for even more impactful trade finance collaboration with the AfDB into Africa.” says Wilson.

“This deal is the result of what happens when you have the bravery to imagine and the will to get things done and we look forward to working with the AfDB to bring our clients’ possibilities to life.” says Ofong.

The rapid spread of COVID-19 infections across the world is the most serious public health challenge the world has faced in decades. While social distancing and movement control measures imposed by governments are proving to be an effective tool to contain the spread of infections, it is the burden on public health systems and the materially negative impact on ordinary people that make this a potential human tragedy.

Following the commendable example set by several African heads of state and political leaders in Absa’s presence markets, who have decided to make monthly donations from their salaries to public efforts to combat the virus, the executive directors and prescribed officers of the Absa Group have decided to make similar contributions in their individual capacities.

These are the Group Chief Executive, Daniel Mminele, the Deputy Group Chief Executive, Peter Matlare, the Finance Director, Jason Quinn, the Chief Executive of Retail & Business Banking SA, Arrie Rautenbach, and the Chief Executive of Corporate and Investment Banking, Charles Russon.

These executives will forego 33% of their monthly salaries for the next three months and donate these amounts to both the Solidarity Fund as well as the Group’s COVID-19 community support programmes. Colleagues at all levels of the organisation will be encouraged to consider making donations in line with their own personal circumstances.

“Having made an initial contribution of R10m to the Solidarity Fund, and to other programmes across several countries in which we operate, and delivered comprehensive customer relief programmes, the Absa Group is also in the process of expanding our efforts to make further contributions in all the markets in which we have a presence. The scale of the challenge requires that we work together to find solutions that can help us fight this massive threat to public health and our economic prospects,” said Daniel Mminele, Group Chief Executive of Absa Group.