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South Africa must protect competitive advantages as BRICs build ties with Africa

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South Africa should be cautious not to offer too much to firms from BRIC countries that will increasingly be more competitors than collaborators in unlocking Africa’s allure, says Simon Freemantle, economist and researcher at Standard Bank.

Ahead of this week’s BRICS Summit in New Delhi, Mr Freemantle outlines issues and risks for South Africa in emphasizing its status as a gateway to Africa and in potentially over-relying on BRICS countries for trade and investment.

The New Delhi summit is the second South Africa has attended since the original invitation by the Chinese government in December 2010.

“To be clear, South Africa stands to gain from BRICS inclusion, if not economically, then certainly in the Geo-political arena. It is better to be in than out. Yet, certain important cautions must be noted for South Africa to retain competitiveness and ensure reciprocal gain from BRIC intimacy,” says Mr Freemantle.

He argues that South Africa should take care to maintain its competitive advantages as the country has a clear vantage point from which to view and participate in Africa’s commercial unfolding.

Trade patterns clearly reflect this promise, he says. Four of the top five regions in the world with which South Africa ran a trade surplus in 2011 are African, led by SADC at R46.1-billion, but followed by North-East Africa at R8.3-billion, North Africa at R3-billion and Central Africa at R1.4-billion.

By comparison, South Africa had a trade deficit of R57.3-billion with Europe and R82.3-billion with Asia (including a deficit of R15-billion with China).

Mr Freemantle argues that it is not only the volume but also the composition of South African exports that matters: “While South Africa’s export profile to Europe is fairly balanced, the same cannot be said for China and other large emerging market partners. In 2011, of South Africa’s R103-billion in exports to China, virtually 90% were made up of commodities.”

In contrast, he highlights that South Africa’s exports to Africa are far more diverse, and lean towards goods with a value-added component. Of South Africa’s R73.4-billion exports to SADC, roughly 15% was made up of machinery, 8% by vehicles, and 6% by electrical and electronic equipment and articles of iron and steel, respectively. Around half of all manufactured goods exported by an African country to the rest of the continent are produced in South Africa.

On the back of this trade advance, South Africa’s investment footprint in Africa is swelling noticeably, building the country’s corporate footprint across the sub-continent. Almost 100 large South African corporations have substantial operations in the rest of the continent, providing profound support to their growth.

Yet, other emerging markets matter too, says Mr Freemantle. Standard Bank Group has identified the “EM10”, the 10 most important emerging markets for Africa which, in addition to the BRIC economies, includes Turkey, Saudi Arabia, Indonesia, Thailand, South Africa and Nigeria.

South Africa’s trade with Nigeria amounted to over R28.2-billlion in 2011, with Thailand at R19.8-billion, Indonesia at R11.5-billion and Turkey at R8.2-billion. Trade with Russia, on the other hand, came in at just R3.5-billion.

“When the BRICS Summit was forged it became an overtly political rather than economic entity. As such, while select strategic and Geo-political goals can be achieved on the BRICS platform, it should not encapsulate the entirety of South Africa’s emerging markets reorientation,” says Mr Freemantle.

He argues that the idea of a shift from west to east is alluring, yet simplistic. “Yes, the poles of commercial influence have widened, with Asia, Latin America and Africa becoming more prominent. But the advanced world still matters a great deal. The EU27 remains South Africa’s largest trade partner, and scope exists for broadening South African non-commodities exports to the region.”

Though China has carved out a strong investment footprint in Africa in recent years, the Eurozone remains by far the largest investor on the continent. Mr Freemantle believes ignoring these powerful economies would be naïve and shortsighted. He says countries that are able to balance the shift, to develop new relationships which complement rather than contradict existing partnerships with traditional partners, will prosper.

“There are clear areas of cooperation which can be underlined at the BRICS Summit. China has been broadly successful in lifting hundreds of millions of people out of poverty, while Brazil has had remarkable success in reducing inequality through direct government policy intervention,” he says.

“Sharing learning in these key areas could be critical, particularly as the world engages with the common challenge of climate change.”

Mr Freemantle believes agreement among the BRICS on a common position towards the Doha round of World Trade Organisation negotiations would be powerful, reflecting the might of the global south in an increasingly multi-polar environment.

“Further, negotiations for more cooperation between BRICS’ development banks, particularly if channeled into coordinating development assistance projects in Africa, could enhance efficiency and support growth.”

Mr Freemantle also expects some collaboration in the BRICS partnering in increasing the geographical reach of the Five Rs (the Rand, Real, Renminbi, Ruble and Rupee) in facilitating trade and investment.

“The BRICS are just USD1.3tr smaller than the US and will overtake the US in 2013, account for half the world’s population and FX reserves, and make-up 17% of world trade. Yet in nearly all of their cross-border transactions, the USD is the central pivot. Hence, the BRICS wants to increase the pairs against which the Five Rs can trade. So, starting amongst themselves makes sense.”
Source:  www.standardbank.com

Finance

These 5 Payments Trends Once Seemed Revolutionary. In 2021, They’ll Continue to Become the Norm

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Real-time payments – mitigating the security risks to capitalise on the opportunities

By Warren Hayashi, President, Asia-Pacific, Adyen.

The pandemic forced brands to transform their businesses in ways that are here to stay

After a year of such great uncertainty, attempting to predict the future may seem risky. But even as brands and retailers faced unprecedented upheaval in 2020, one constant has held true. The pandemic has accelerated trends toward digitisation—and that’s as true in payments as in so many other areas of business and society. The stark reality of needing to avoid close contact with others has driven transformations for retailers and brands in a matter of months that in the past might have taken years. In the process, behaviours and expectations have changed for good.

As 2021 begins, much uncertainty remains but we feel confident that the digital transformation of payments will only get faster. Even after the pandemic has receded and consumers have the option to go back to their old behaviours, many won’t. The rapid increase in e-commerce seen under COVID-19 will persist, especially among previously digital-hesitant consumers. Merchants can no longer assume that their digital customers are limited to younger, tech-savvy shoppers. As brands have shown flexibility during the pandemic, consumers have also come to expect the flexible arrangements to continue. On that note, these are the key trends in payments that should be top-of-mind for brands and retailers in Singapore and Asia Pacific in 2021:

  1. Contactless will extend its reach into every corner of retail

From the start, the pandemic forced merchants to find ways to minimize the amount of physical contact necessary to complete a transaction. Customers and workers alike sought to avoid handing over credit and debit cards, touching keypads, and handling cash. According to our 2020 Agility Report 58% of APAC respondents preferred to use contactless payment methods because of hygiene concerns.

Our data also showed that the use of services such as Apple Pay and Google Pay has significantly increased over the last year too. Research from Kantar reiterates this, revealing that the frequency of e-Wallets transactions in Southeast Asia rose from an average of 18% pre-COVID-19 to 25% post-COVID-19[1], indicating a shift from one payment method to another.

In the post-pandemic world, the transition to contactless will only become more widespread now that the bar has been raised among consumers for what checking out can be, from one-click payments to same-day delivery options. Not to mention, the value of QR codes has also been made apparent in anchoring a seamless experience, not just at point-of-sale but at multiple points along the customer journey too, such as viewing menus and placing orders. The pandemic may have driven the change in behavior, but the superior user experience will cement contactless as the new normal.

  1. The distinction between offline and online will fade into irrelevance

As countries went into different forms of lockdown, many shoppers were unable to enter brick-and-mortar stores throughout 2020. Unifying offline and online became an issue of survival for retailers, who quickly pivoted to make app-powered deliveries and self-pick up options a reality.

Even while most physical stores in Singapore have opened their doors to consumers again, the digital infrastructure will remain in place. Many shoppers continue to prefer the convenience of deliveries and expect the options to continue, and retailers will find they’re able to forge better customer relationships thanks to the rich data generated by digital transactions.

One of the biggest learnings for the industry is the need to rethink the traditional split between offline and online stores. With lines increasingly blurred, retailers will benefit from adopting a unified commerce approach where brand interactions on and across all channels are important.

  1. The membership model will reign in retail and also in food and beverage

The membership model is another emerging trend for 2021. Amazon Prime is a great example of this, where customers pay an annual fee that in effect encourages them to buy more from Amazon in an effort to ensure they’re getting their money’s worth from their Prime memberships. Quick-serve restaurants especially are seeking to seize some of that flywheel effect. In addition to improved incremental spend, membership programs enable QSRs to get to know their customers in ways that were never possible when they were just anonymous faces standing in line.

Meanwhile, subscription passes encourage loyalty and more frequent use. Our 2020 Agility Report found that 38% of Singapore respondents (compared to 27% in APAC and 22% in Europe) signaled their interest in using these for products, including food passes, to reduce the amount of times they need to shop. Expect to see more retailers offering memberships in 2021 as brands seek to own the customer relationship and the data that goes along with it.

  1. Installments will become an everyday way to pay

The twin forces of increased convenience and tightened household budgets have brought pay-by-installment options mainstream, a trend that will only grow in 2021. Machine learning algorithms have become more adept than ever at assessing risk instantaneously, making it easy to offer “buy now, pay later” options right at checkout. For small and mid-ticket items, shoppers know that, say, instead of paying $100 now, they’ll pay $25 per month for four months. That kind of transparency makes it easier for shoppers on the fence to commit, which appeals to merchants hoping to avoid the dreaded abandoned shopping cart.

In 2021, providers of “buy now, pay later” options themselves will start to diverge, as some focus on higher-end, multi-year agreements, while others seek to offer installment plans for shopping baskets as small as $50. For households increasingly accustomed to paying by the month for everything from streaming services to food delivery premium memberships, installment plans start to look like subscriptions that just happen to have a fixed end date.

  1. The checkout-less experience will draw shoppers back to brick-and-mortar

In 2020, the appeal of an in-store experience offering limited human contact took on a new dimension, accelerating interest in doing away with the checkout counter altogether. For instance, in Singapore, BHG is looking to expand its endless aisle offering. By using interactive screens in-store, customers are able to check on inventories across all of BHG’s stores and e-commerce platform and can opt to have items to be delivered directly to their homes.  Post-pandemic, shoppers will still find appeal in the human touch. The physical store continues to be relevant, especially in Asia Pacific and eliminating checkout counters frees staff to interact with shoppers in a more personal way, while also making lines a thing of the past.

In 2021, more stores will find various ways to make checkout a less prominent part of how people shop in-store. Multiple providers are creating their own versions of checkout-less experiences, where instead of going to the counter, customers will scan their items with their phones’ cameras, pay via app, and head out the door—a combination of increased trust and decreased friction that helps cultivate customer loyalty. In the case of Love, Bonito in Singapore, if customers are unable to find a particular item in store, they can go to an iPad within the premises, buy it online and have it shipped to their homes.

Across the five trends, this paradigm shift in the retail sector is underpinned by the under-tapped potential of technology to elevate the customer experience. Looking ahead in the new year, we expect retailers to increasingly harness digital solutions. Not only does this streamline operations, it also gives retailers the flexibility to pivot in line with changing preferences, and provide a seamless consumer journey across multiple channels.

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Finance

Bitcoin heads for worst weekly loss in months

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Bitcoin heads for worst weekly loss in months 1

By Tom Westbrook

SINGAPORE (Reuters) – Bitcoin wavered on Friday and was heading toward its sharpest weekly drop since September, as worries over regulation and its frothy rally drove a pullback from recent record highs.

The world’s most popular cryptocurrency fell more than 5% to an almost three-week low of $28,800 early in the Asia session, before steadying near $32,000. It has lost 11% so far this week, the biggest drop since a 12% fall in September.

Traders said a report posted to Twitter by BitMEX Research https://twitter.com/BitMEXResearch/status/1351855414103715842 suggesting that part of a bitcoin may have been spent twice was enough to trigger selling, even if concerns were later resolved.

“You wouldn’t want to rationalise too much into a market that’s as inefficient and immature as bitcoin, but certainly there’s a reversal in momentum,” said Kyle Rodda, an analyst at IG Markets in Melbourne, in the wake of the BitMEX report.

“The herd has probably looked at this and thought it sounded scary and shocking and it’s now the time to sell.”

Bitcoin was trading more than 20% below the record high of $42,000 hit two weeks ago, losing ground amid growing concerns that it is one of a number of price bubbles and as cryptocurrencies catch regulators’ attention.

During a U.S. Senate hearing on Tuesday, Janet Yellen, President Joe Biden’s pick to head the U.S. Treasury, expressed concerns that cryptocurrencies could be used to finance illegal activities.

That followed a call last week from European Central Bank President Christine Lagarde for global regulation of bitcoin.

Still, some said the pullback comes with the territory for an asset that is some 700% above the 2020 low of $3,850 hit in March.

“It’s a highly volatile piece,” said Michael McCarthy, strategist at brokerage CMC Markets in Sydney. “It made extraordinary gains and it’s doing what bitcoin does and swinging around.”

Second-biggest cryptocurrency ethereum intially slipped to a one-week low on Friday before rising 6% late in the Asia session to $1,177.

(Reporting by Tom Westbrook; editing by Leslie Adler & Simon Cameron-Moore)

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Finance

Oil prices fall as China’s surging COVID-19 cases trigger clampdowns

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Oil prices fall as China's surging COVID-19 cases trigger clampdowns 2

By Sonali Paul and Koustav Samanta

MELBOURNE/SINGAPORE (Reuters) – Oil prices dropped on Friday, retreating further from 11-month highs hit last week, weighed down by worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer.

U.S. West Texas Intermediate (WTI) crude futures dropped 53 cents, or 1%, to $52.60 a barrel at 0445 GMT, after slipping 18 cents on Thursday.

Brent crude futures fell 45 cents, or 0.8%, to $55.65 a barrel, erasing a 2 cent gain on Thursday.

Recovering fuel demand in China underpinned market gains late last year while the United States and Europe lagged, but that source of support is fading as a fresh wave of COVID-19 cases has sparked new restrictions to contain the spread.

“Indeed, investors are struggling to see through short-term pain for long-term gain heading into the weekend as COVID case counts in China are the most significant demand concern for traders,” Axi chief market strategist Stephen Innes said in a note.

The commercial hub of Shanghai reported its first locally transmitted cases in two months on Thursday, and Beijing is urging people not to travel during the upcoming Lunar New Year holiday, when tens of millions of urban workers typically head back to their villages.

A seasonal boost to China’s gasoline demand that is typically seen during the New Year holidays will be moderated by the tightened restrictions this year, consultancy FGE said in a note.

“We now have some data on vaccine rollouts, which show that acceptability is a bit on the low side, so pace of implementation may be slow… There may well be a bearish momentum developing (in oil markets),” said Sukrit Vijayakar, director of energy consultancy Trifecta.

The market is awaiting official oil inventory data from the U.S. Energy Information Administration on Friday, after industry data on Wednesday showed a surprise 2.6 million barrel increase in U.S. crude inventories last week compared with analysts’ forecasts for a 1.2 million barrel draw. [API/S]

(Reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by Ana Nicolaci da Costa & Simon Cameron-Moore)

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