The economic climate in South Africa is something we discuss on a regular basis. It effects the business of every company and every individual in the country. In a bid to learn more about what we can expect in 2016, Enterprise Africa talks to the head of the Banking Association.
“I think that this is going to be a tough year,” concedes Banking Association MD, Cas Coovadia while speaking to Enterprise Africa.
When discussing the current dark economic cloud that seems to have settled over the country in the past 12 months, Coovadia says that the situation is certainly manageable but requires the cooperation of the private sector and the government and there must be a clear signal for investors that the country offers an environment for business to thrive.
“It would be foolish to say that we’re not in a difficult situation. The IMF is of the view that we will grow at only 0.7%, cutting the prediction of the treasury and the Reserve Bank by a whole 1%. We have had some policy issues and some decisions around positioning in government that have combined to send out messages that do not instil much confidence in investment and business generation, given that we have a regulatory environment that seems to be making it increasingly difficult for small and medium sized businesses to operate and start,” he says.
This is coming from the man in charge of the Banking Association; the organisation that is the mandated representative of the banking sector in the country with the responsibility of lobbying, influencing policy, guiding transformation, catalysing constructive and sustainable change, and engaging with stakeholders.
The problems that are causing concern have been amplified in recent months after a drastic dive of the Rand in international currency markets, a lack of confidence in the ministry of finance and global fall in commodity prices and energy constraints in SA that have resulted in much slower growth than expected.
And now with global rating agency, Standard & Poor’s, issuing more warnings of the country slipping into junk status (along with other agencies like Moody’s and Fitch), South Africa’s traditionally robust financial sector looks set to come under some pressure as consumers feel the burden of the slow economy.
But with some hard work and collaboration, Coovadia believes that a positive solution can be found. It will take work from both sides of the industry but the main goal is that the message that SA is open for business is sent out to investors.
“I think there are a whole range of issues that we could deal with internally that could turn the situation around that we are not doing,” he says. “The latest example is the founding of the investment protection law which sends out contradictory and negative messages to potential investors.
“We have tremendous potential in the country but we are prevaricating about the thought of the global economy that we are working in. The reality is that it is a very competitive economy and, countries not too far from us, on our continent, are actually sending messages that they are open for business and they are convinced that growth in the long term is good for the economy and good for their people. We are prevaricating on that; we are not sending out clear messages and so I think that this is going to be a tough year.
“You also have to factor in that we are moving towards local government elections so the whole process will also muddy the waters – it’s a difficult situation but if there’s a willingness, particularly in government, to say that government and business needs to work together with other stakeholders, and we as South Africans need to come together and develop a common vision, I think we can do it.”
NENEGATE FALLOUT
The widely reported and widely condemned fiasco with the finance minister was just one situation where a better message could’ve been sent to international investors. Thankfully, the situation has now been resolved but a lasting impression was made on South Africa’s Rand and this type of negative catalyst is not welcomed by the business sector, especially the financial sector that thrives when times are stable and consistent.
“There was no major criticism of Nhlanhla Nene. He had been Deputy Minister for some time, he had a good team under him and then to just remove him without any reason and replace him with a parliamentary backbencher who nobody knows, without any appreciation of the impact the removal would have, is problematic and could have been done better,” explains Coovadia.
“Even now, there seems to be no rational reason as to why Nene was removed and business wants certainty and regulations that enable investment. Business will manage itself within these regulations as long as the goal posts are not constantly moving.
“Government needs to be more awake to how global economies react to what may seem to be simple acts of redeployment in our country. There is a big reaction, and to say that the markets are over sensitive doesn’t help because the reality is that business and investment will go where there is certainty, where their investments are safe, where they can repatriate dividends, where rule of law applies and where property rights are safe. If we conduct ourselves in a way that ignores that then we will have a problem. Could we have handled things better – absolutely,” he says.
The banking sector is inextricably tied to the success of the economy and the economy is also tied in closely to the performance of the Rand. Following the sacking of Nene, the Rand plummeted to a record low against the Dollar, partly due to uncertainty in the Chinese economy but also thanks to what some commentators have called undue political interference in economic policy.
Fortunately, when it comes to fluctuations in the currency price, the big banks in South Africa are well equipped to deal with changes. They employ economists, consultants and market specialists, and use industry leading technology and reporting to understand even the smallest of variations and their effect on the banks investment. But smaller companies are much more susceptible to the impacts. “The falling Rand becomes a serious problem, particularly those that import. The currency issue is more complex than just what we are doing; all markets are feeling the pain. The Rand is one of the most traded currencies in the world so Rand is always going to feel the pain of the developed world and commodity markets,” says Coovadia.
“While acknowledging some of the global issues that impact our currency, we should also recognise what we can do or should not do to cushion the Rand in the global economy. We should never shoot ourselves in the foot and worsen our own situation, we should manage internally as well as we can so that we can mitigate to some extent the pressures from the global economy,” he adds.
A CHANGING BANKING SECTOR
As we discovered in October, banks are adapting the portfolio of services on offer to clients by investing in digital technology to back up an already impressive physical network (especially for the ‘Big 4’ – ABSA, First Rand, Nedbank and Standard Bank). These companies have hundreds of branches but are keen to improve their digital online offering to keep up with demands of the younger, more impatient generation.
Coovadia and the Banking Association are firmly behind these advancement ideas and, as a member of the International Banking Federation (IBFed), can offer advice on initiatives that have taken off in other parts of the world.
“The advent of mobile service providers and other service providers that are to a certain extent intermediating with banks means that banks have to be more innovative,” he says. “If you look at our democracy, the up and coming market is the youth market. Younger people want services now, not tomorrow, not in an hour’s time; they want it while they’re on the move. They are into technology and customer culture. The banks have to respond to those demographics and there’s no doubt that you’ll see more innovation from the banking sector towards technological platforms.
“We may also see collaboration between banks and mobile service providers as these service providers use mobile payment systems which require involvement from the banks. There’s talk about some mobile service providers wanting to apply for banking licenses so the situation is quite fluid. Gone are the days where the banks are the only organisations involved in financial intermediation. There are a whole range of instruments and platforms that will allow the banks to continue to innovate, compete and collaborate. Today’s customers want these type of services and banks have to respond,” he adds.
As well as growing through investment into innovative ideas and technology, the big banks are also growing their physical footprint and moving into the rest of Africa. This is not a new idea and is attractive because of the vast amount of growth potential – it was reported last year that Standard Bank’s rest of Africa business has grown at a compound annual rate of 37% since 2010.
“The banking sector remains a very solid sector. There are opportunities in other parts of the continent and hopefully we will come together as a country and get things right because we see tremendous opportunities and the potential is great,” says Coovadia. “The banking sector remains very sound and at the cutting edge of internet processes and will continue to find different and new services to offer to customers.
“The African continent has some of the highest cell phone penetration in the world. If you look at things like M-Pesa in Kenya, that is going to be the way to go.”
Expansion in Africa had many benefits, one large one being a reduction of risk from a stagnant home market, but it is a not an easy process; after all, Africa is a complex web of differing legislation and differing cultures. This is why partnering with the experienced and knowledgeable association is key.
“There are other African associations but I don’t think there’s another as strong and capacitated as ours. We do work very closely with associations in the SADC region and we are the secretariat for a SADC banking association. We work closely with all the SADC associations through this medium,” says Coovadia.
“With the SADC association we have developed an integrated payments and settlements system which id working very well for the region. We have interactions with other associations and we do try and work together and it feels like there is an initiative under way to work together more,” he adds.
As the challenges in the South African economy escalate, those banks and financial institutions that have already made the move across the continent, and those that are planning growth in the future will certainly be able to rely on the services of the Banking Association and considering the ‘tough time’ that we all face, it’s always nice to have an experienced helping hand.
“As our members broaden their footprint on the continent, it is our responsibility to follow and see how we can service them in conjunction with associations in those countries,” concludes Coovadia.