Following the recent monetary policy tightening in developed markets and market normalisation, many emerging markets are coming to terms with relatively more expensive money. The end of easy money and a recession for South Africa leaves questions as to what the modern treasurer looks like.
Liquidity remains low in much of Africa, with just South Africa, Kenya and Ghana recording interbank foreign exchange turnover above US$20 billion. “Liquidity is paramount for any treasurer. You need a balance between assets and liability of raising cash, policies to improve market depth and activity,” says George Kerby, group treasurer at Nedbank. Over the past decade however, advancements have been made in online trading platforms, turnaround time and cash flow management in South Africa’s financial markets.
On the regulator side, the South African Reserve Bank (Sarb) has embarked on reforms by setting up an electronic trading platform for primary dealers in an effort to improve liquidity and transparency in the government bond market. It has further plans to expand across the border into more diversified securities. In addition, the regulator has eased the level of capital controls and reformed exchange rate reporting standards. The structural reforms ranging from the ease with which investors can access their funds to the level of foreign exchange liquidity which ultimately affects investors’ ability to deploy and (or) repatriate capital.
Easing capital controls, however, remains a double-edged sword as, more recently, South Africa has felt the capital flight wrath following the US Fed hiking interest rates. The lax capital controls were evident as South Africa witnessed portfolio investment outflows of $16.4 billion in 2017 alone.
Speaking at Nedbank’s future proofing your treasury breakfast with Moneyweb, Sheetal Shah, head of Transaction Banking Sales at Nedbank, nonetheless reaffirmed her optimism for South Africa’s treasury functions despite challenging economic environments. She notes that the SA economy is still seen as the gateway to the rest of the African continent.
The bank also reiterated the role of digitisation in the treasury space as global financial systems continue to evolve. Nedbank launched ‘Nedtreasury’, some fifteen years ago, which is a real-time treasury management system that gives customers access to foreign exchange deals, cross border payments and money market products in real-time on their personal computer. This asserts the lender’s ‘digital-centric’ direction in product development. Kerby notes sternly: “Failing in the digital space is not an option. We are identifying what is coming and taking that to our clients.”
Meanwhile, a stronger US dollar and the rising global cost of capital have set the tone for a liquidity crunch with immense market volatility. “Volatility is an endemic feature of all our worlds. Sophisticated products feed volatility rather than moderating it,” said Dr Adrian Saville of Cannon Asset Managers.
With strategic partnerships in the banking taking shape and unprecedented political will across the continent, regional integration is gaining momentum and the modern treasurer will have to adopt technology solutions to bolster the treasury function of any financial institution.
Brought to you by Nedbank CIB.