Treasury Today Country Profiles in association with Citi

Spotlight on South Africa

South African flag

South Africa’s political and economic turmoil is creating a host of challenges for corporate treasurers operating in the country. Here Hennie De Klerk, CEO at TreasuryOne explains what is happening.

South Africa’s economy has been on the ropes of late and this has not been good for businesses.

Indeed, a recent survey by the South African Chamber of Commerce and Industry showed that business confidence in South Africa declined in February from the previous month, weakened by lower trade volumes and retail sales.

This, however, is only the tip of the iceberg in what has been a volatile time for Africa’s most industrialised nation.

The road to ruin?

The key to many issues being faced by the South African economy and its businesses is the political landscape in the country.

South African president, Jacob Zuma’s tenure in charge has been defined by a series of scandals, crises and political infighting and meddling.

In late 2015 this was all brought to a head when the country’s well-respected finance minister, Nhlanhla Nene was sacked by President Zuma and replaced with little known MP David van Rooyen.

In what was described by many at the time as a damaging move, it set in place a series of events that would only further knock the country’s economy.

As a result, private sector investment in the country has all but dried up and South Africa only narrowly avoided a downgrade to junk status by S&P, who cited its low growth as a major area of concern last year.

If 2016 was bad, then 2017 might be worse, with experts highlighting the serious need for labour market reform and stimulated economic growth. But with policy-making seemingly not a priority for the government, uncertainty persists.

Treasury challenges

Commenting on this, Hennie De Klerk, CEO, at TreasuryOne says that: “Today corporate treasurers in South Africa face numerous challenges, including currency volatility, the possibility of a sovereign credit downgrade, and more broadly the low GDP growth that the economy is currently experiencing.”

To manage these challenges, especially the currency volatility, De Klerk is seeing some corporates introducing more sophisticated hedging strategies, which allows for participation in certain currency movements.

This is not so much of a challenge for the country’s biggest companies, notes De Klerk. “These typically have well-developed and effective treasury departments,” he says.

Some of these companies could benefit from the use of more sophisticated technology and increasingly more and more are beginning to do so, thanks to the advent of the treasury cloud. “The ability to select only the modules specific to their needs also makes treasury cloud technology in the cloud a more attractive and cost-effective option,” he says.

“The MME and SME market, on the other hand, do not necessarily have such well-developed treasury teams or IT budget,” he continues. “These companies, however, remain fully aware of the risks to their businesses and are turning to experienced and educated dealing desks offered by some treasury outsourcing companies to manage a lot of the risks they are exposed to.”

An eye on the future

Although there remains a lot of uncertainty around the South African economy, De Klerk believes that this will not affect the growth of the treasury profession in the country and may even give treasurers the chance to further show their strategic worth.

“The country is stuck in a low growth phase which means that companies may need to look beyond its own borders to drive revenue,” he says. “For multinationals, South Africa is also still seen as the gateway to Africa and thus these companies will also be looking for growth outside South African borders.

“Corporate treasurers, therefore, no matter which companies they are working in, will need to become increasingly adept at operating across borders. This is a challenge, because each new region presents new challenges with regards to banking and regulatory controls. But it is also exciting because as a result, treasury departments will become even more crucial to what the business is trying to achieve.”

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