By Jeff Fallon, Head of Client Coverage at BACB.
While the Coronavirus outbreak has certainly stalled trade flows and again highlighted some of the systemic challenges that continue to hamper Africa’s potential, James Cantamantu-Koomson, Managing Director, Corporate and Institutional Banking at British Arab Commercial Bank Plc (BACB), is hopeful that the effects on African trade will be short-lived, and opportunity will come forth from the crisis.
Well-accustomed to coping with pandemics with sometimes-limited public health infrastructure, African governments were impressively swift to act to curb the spread of Coronavirus during the early stages of the outbreak. Now, in light of the relatively low infection and death rates, there has been a shift in dialogue: from the social impacts of the virus, to the wider economic implications and how long-term these will prove.
There’s no doubt that the pandemic’s effects have been exacerbated by some legacy issues– such as the region’s dependence on hard currencies, lack of economic diversification and scarce foreign exchange reserves. We have also witnessed some dramatic changes in African trade and available financing over a relatively short period. With prevailing uncertainty around the severity and duration of the crisis, combined with the contraction in capital inflows, African governments have been well aware of the need to deploy their limited foreign reserves sparingly. Understandably, governments have therefore prioritised trading for essential goods– mostly energy, pharmaceuticals and food items. Ghana and South Africa, for example, closed their borders to all but these essentials, while some countries required banks to restrict import cover for any non-essential goods and commodities.
Of course, the oil-price slump in March and April worsened economic uncertainty for Africa’s many oil-exporting countries, too, and highlighted the region’s continued susceptibility to external shocks. Angola, Algeria and Nigeria were among the hardest hit. With largely undiversified economies, and without the sovereign wealth buffers available to many Middle Eastern oil-exporting countries, the temporary oil-price decline into negative territory left them exposed. While oil is now gradually recovering, prices continue to fluctuate well below budgeted estimates, highlighting the need to build resilience into the region’s economies via trade diversification.
Economic contractions have been further exacerbated by banks and non-bank lenders restricting access to liquidity in response to the crisis. While understandable that lenders are exercising caution in the current uncertain environment –and, in fact, demand for trade finance has reduced substantially for the same reason – facilitating trade flows will be integral to global economic recovery.While we remain hopeful that lender appetite will soon return, we also remain realistic: even pre-pandemic, estimates of Africa’s widening trade finance gap reached up to an estimated US$120 billion – a figure which may well increase once financial institutions re-evaluate their credit lines in the region.
Lenders that retrench into the longer-term could be missing a trick, however. Volatility has no doubt increased in recent months and delays in payments have been, in some cases, unavoidable. Corporates and financial institutions alike have had to adapt to the changed risk environment. But the increased risk factor on trade in recent months is not unique to African countries. And indeed, further defying expectations, the wave of defaults on letters of credit (LCs) that was predicted on African trade transactions has so far failed to materialise. On the contrary, BACB plc has not witnessed a single default on an LC since the pandemic began. The risk on LCs on African trade was also already very low. Between 2016 and 2017, for instance, default rates declined from 0.59% to 0.05% for export LCs and 0.48% to 0.14% for import LCs. We expect the associated risk factors on trade financing to stabilize and continue to improve during and beyond the recovery phase.
Multilateral institutions have been quick to offer their support to help catalyse the continent’s shift towards the recovery phase. The G20, together with partners such as the Institute of International Finance, have pledged to co-ordinate debt relief for Africa’s poorest countries, giving local governments additional financial firepower for sorely needed stimulus packages. Doubtless, investors with an eye on the long-term have not forgotten that Africa remains a land of opportunity. The expected worldwide economic contraction is projected lower for Africa at an average of -2.8% (with some countries maintaining some level of positive growth of between 1.2% to 2.5%) and the continent has the economic dynamism to bounce back in 2021 once commodity demand picks up.
While planning for the European Union-African Union summit in October this year may have taken a back seat as a result of the crisis, we are confident that focus will revive during the recovery phase, and the EU will make good on its pledge to build on its special inter-regional relationship with Africa. Indeed, the recently published “Comprehensive Strategy with Africa”, lays out the EU’s intentions to collaborate with the African Union on green transition, energy access, digitalisation, growth and employment, among other priorities, signalling opportunities ahead for trade in the region. France continues to have close ties with West African governments in particular and has spearheaded a significant investment drive aimed at the Francophone side of the continent.
Interest from the UK is also likely to increase as it maps out its post-Brexit relationships with the rest of the world. The UK has already committed £744 million in pandemic-related aid to developing countries. Africa’s leading Anglophone economies represent attractive targets, and the UK-Africa Investment Summit held in London in late January was a clear statement of intent, with British Prime Minister Boris Johnson asserting that the UK would strive to be “Africa’s partner of choice”.
Specialist markets requires specialist banks
There’s no doubt that working in African markets requires expertise and good risk management, particularly during times of crisis. But the best results always come from partners who know their field of expertise inside-out. Indeed, nimble players with lower lending thresholds – that understand the risks – are well positioned to contribute to the next stage of Africa’s development. With that in mind, kickstarting trade flows will require a dedicated, boots-on-the-ground approach by banking partners firmly committed to clients in their core markets. All in all, the case for relationship banking has never been stronger.
The true impact of the pandemic will take some time to ascertain. But Africa’s appreciation for relationship banking remains as strong as ever, and will continue to be essential in helping the region’s economies to navigate their way out of the crisis. After all, African countries are displaying remarkable resilience. They deserve partners who demonstrate the same commitment, and remain by their side in the tough times, as well as the good.
It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak
Before Covid, 23% of people prioritised helping younger generations out financially, that increased to a third as a result of the pandemic
A recent survey* conducted by Hodge has revealed that the Covid pandemic has led to more people wanting to help younger family members financially.
A third (31%)** of those questioned said that since the Covid outbreak giving a financial gift to children or grandchildren is more important to them, compared to 23% who said it was a priority before the pandemic.
The traditional “Bank of Mum and Dad” is still very much open for financial help, with parents being responsible for 72% of the gifts, but the study also revealed that financial gifts can come from all corners of the family – including children (14%) and siblings (14%).
The survey also found that a third of people have received a financial gift from family, with those aged between 25-34 as the most likely to receive
The most popular reason for gifting money to family is for special occasions such as a quarter of gifts were given for weddings and birthdays but 11% of people have received money to help with big purchases such as cars and houses. In addition, 19% of people have received help with day to day finances, with around 14% of those receiving a gift have done so to pay off debt.
Emma Graham, Business Development Director at Hodge, said of the research: “Our study showed that, as a nation, we all want to help our family out when it comes to money. And whilst we all think of the Bank of Mum and Dad or Gran and Grandad as a traditional source, we were surprised to see that 14% of brothers and sisters are also helping out.”
The findings come from a recent intergenerational study conducted by Hodge, who interviewed over 3000 people about their attitudes towards finances and their aspirations for the future. The full research findings can be found at https://hodgebank.co.uk/2020/05/19/money-its-all-relative/.
As part of the study, people were also asked about paying back the gift, with 40% of beneficiaries expecting to pay their parents back, but this dropped to 28% if the gift came from grandparents.
From the gift donor’s perspective, 26% expect the gift to be paid back, however just 15% of grandparents expected the money back.
Hodge has produced a set of guides on how families can navigate the tricky subject of giving financial gifts within a family, as well as the considerations and steps that be families should think about taking before a gift is given, such as is it a loan or a gift and thinking about contingencies if the family member’s circumstances change. The guides can be found here: https://hodgebank.co.uk/news/
Emma continued: “It’s clear that families feel strongly about offering financial support to each other if they are able and this has increased since the Covid pandemic. Before Covid, 23% of people prioritised helping their families out financially in the next five years. Since the Covid-19 outbreak that has increased to a third of people saying helping a family member financially had become more important.
“So, it is clear that the Covid-19 lockdown and subsequent predicted economic downturn, has led to more families looking to share wealth to help younger children or grandchildren during this difficult time. Many people may look to Later Life mortgages, where many products have reduced their rates and have flexible lending criteria, to help out a loved during these difficult times.”
New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery
· Analysis of the performance of over 1,000 UK small and medium-sized businesses by Allica Bank provides roadmap for SMEs
· Regular training, an openness to innovation, and a clear vision all contribute heavily to an SMEs’ chances of success
· Allica Bank has launched a programme of free workshops to expand on the findings and support business owners
Business bank, Allica Bank has combined data and insight from over 1,000 UK SMEs with a multiple regression analysis to determine what factors most closely aligned with an SMEs’ chances of success and separated the highest-performing businesses from their peers. These ‘rules for success’ have been compiled from the research data to support British businesses as they look to chart a course to post-Covid recovery.
The full report identifies six behaviours for small and medium businesses to follow, to maximise their chances of a successful COVID recovery. The six top-line rules emphasised by the data were:
Rule 1: SMEs should regularly train staff
Of the top-performing businesses analysed, 47% provided training for employees at least on a quarterly basis, compared to just 32% of other businesses. Regular employee training was linked closely to success by the model.
Despite this, many small businesses have neglected training and nearly half (46%) of the small businesses analysed only provide training for employees about once a year or less often. This included 15% that never provide employer-funded training. This discrepancy could represent a significant opportunity for small businesses to unlock the potential of their employees and thrive in the post-Covid economy.
Rule 2: SMEs need to focus on innovation and technology
Looking again to the best performing businesses, 76% were found to either continually (39%) or often (37%) be considering new opportunities for technology in their business. This is compared to only 51% for businesses considered to be outside of the top ranks, out of which only 27% admitted to continually looking for new technology opportunities.
Rule 3: Small business must have a formal, long-term vision
Nearly two thirds (66%) of the most successful businesses in the survey had a formal, long-term vision, compared to just 50% of businesses outside the top 100. Looking to the businesses that scored the lowest on the SME Performance index, only 37% claimed to have a formal, long-term vision.
Rule 4: SMEs should broaden their customer reach and find new markets
Of the top-performing businesses, 65% of these have overseas customers compared to just 40% of the worst performing businesses. Among the best performing SMEs, over a third (34%) identified international expansion as one of the top three drivers for their success.
Rule 5: SMEs need to develop reinvestment plans
22% of the best performing SMEs reinvested some of their profits into the business in the past three years with an average 9% of profits being redeployed. Tellingly, this is nearly double what other businesses admit to reinvesting in their business (5%).
Rule 6: SMEs should engage with local business organisations and networks
Of the top 100 SMEs, 30% had obtained external credit to expand over the past three years (compared to 24% of other businesses). Meanwhile, only 16% of all other SMEs had engaged with local enterprise partnerships or growth hubs in the past three years (compared to 23% of the top 100 SMEs).
Chris Weller, Chief Commercial Officer, Allica Bank, said:
“All small businesses are different, as are all small business owners, but one trait they share is an innovative resilience. Whilst the coming months and years will undoubtedly continue to present extreme challenges, there is no doubt that small and medium sized businesses across the UK will rise to meet them head on.
“To give them the best chance to succeed, though, they need to be equipped with the right tools. There is certainly no silver bullet or panacea for every small business, but as this study has found, there are a number of common factors found in the most successful businesses that allow small enterprises to thrive and that they can consider individually for their business.
“This research has identified common ‘rules for success’ that speak to every aspect of running a business, not just the financials. Once we saw these results, we wanted to use them to help small businesses begin to re-build and prosper, by outlining common factors and then examining how best they can be practically applied to businesses in all sectors of the economy.
“Small business owners and their employees have been hit hard by the crisis, but they have the drive and resourcefulness to breathe new life into the economy and bring energy to post-Covid Britain. Our commitment at Allica Bank is to give them the support they need to do so, every step of the way.”
The full report contains a wealth of additional data and insight into each of these topics. As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.
New research finds that financial wellbeing should be at the heart of banks digital experiences as the UK enters recession
MullenLowe Profero have today launched a new report focusing on two communities who will be hardest hit by the recession: 18-25 year olds and small businesses. These communities need financial wellbeing support at the core of an increasingly digital relationship. MullenLowe Profero partnered with Censuswide to survey 1,004 18-25-year-olds and 504 small businesses.
Concern around financial shocks is harming individual’s wellbeing
The survey finds the ability to absorb financial shocks being the critical worry affecting wellbeing and 40% of 18-25-year-olds are sometimes afraid to look at their bank account.
They are seeking financial education to relieve worries
With over two-thirds of respondents demanding financial education in order to find peace of mind and 40% of 18-25-year-olds state that thinking about their money has a negative impact on their wellbeing the report highlights the audience are open to more active support from banks. 60% of the audience feel banks should help them have the capacity to absorb a financial shock.
When our bank is in our pocket reminding us of our anxieties, is there now a duty of care to support our wellbeing?
The survey finds that the digital experience is now the number one reason for choosing a bank for 18-25 year olds.
With this shift in digital preference, people are expecting banks to play a bigger role in wellbeing. 58% of those worried about their money want banks to help them take control.
More than half of 18-25 year olds agree that a bank’s role is now to:
- provide education on money management
- help them keep on top of financial goals
- help them save enough money to cope with the ups and downs of life
People are feeling closer to local communities, but there is a gap in how brands should engage communities in a digital world
Half of 18-25 year olds agree that in the last few months the importance of their local community to them has increased. 40% agree they’ve engaged more with their local community in recent months. There’s a tension between how to engage a community as 60% agree they prefer a bank with better digital tools over a bank that offers more local branches. However, 60% feel banks need a branch presence to support local communities.
The importance of Global Wellbeing rises
Over half of 18-25 year olds agree that the events of the last few months have made them seek out brands that do better for the world. The research findings show that what they want most is to be recognised for their positive behaviours. 56% of the audience highlighted that they would find rewards and benefits for purchasing ethically and sustainably most useful.
Banks digital experience today lack empathy
In this time of reset, the survey found a third of customers and small businesses are considering changing banks in the next year as a result of the impact of the pandemic. The report concludes that brands that will win will champion financial wellbeing in the digital experience through empathy and emotional intelligence.
For the full report, get in touch with MullenLowe Profero at [email protected]
Howard Pull, Head of Digital Transformation Strategy at MullenLowe Profero, said: “Our findings are a wake up call for digital innovation in banking relationships. With digital experience being the number one choice for selecting a bank, there’s a huge opportunity for banks to support individual wellbeing at scale by understanding and responding to our goals and anxieties to build better money habits.”
The research was conducted by Censuswide, with 1,004 18-25-year-old current account holders and 504 small businesses with business bank accounts and annual revenues up to £2m between 23.06.2020 and 29.06.2020. Censuswide abides by and employs members of the Market Research Society which is based on the ESOMAR principles.
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