With such an early emphasis on accounting, the transition to pure treasury has been progressive for Reddy but it is one that has increasingly fulfilled his professional interests. For him, the processes of accounting had become “mundane”.
Treasury appeared to be a deeply specialised area at first look, but it also presented a more exciting opportunity for him, being both forward and outward looking. This, he explains, enables both exposure to market change and closer interactions with banks and other third parties. “Today, it is very much about combining my finance and market knowledge and working with our partners and banks to put solutions in place to support the business.”
Although a member of the Association of Corporate Treasurers, South Africa (ACTSA), formal training has not been a major feature of Reddy’s career progression; this despite its specialist needs. “Treasury training can give you a solid grounding in the concepts but in this region, experience is more important,” he explains. He adds that it’s essential to know what the banks can do for treasuries. Indeed, whilst anyone can learn what a hedge is, knowing what can and can’t be done to mitigate currency risk in Angola, for example, comes from close involvement with key players.
With a depth of finance and accounting knowledge upon which to draw, being immersed in the region means Reddy has been able to take a hands-on approach, seizing every opportunity to keep learning in his varied commercial and banking roles to date.
Banking work, in particular, he says, has positioned him well to manage the interactions between partners, the inside view giving him at least an equal footing in many conversations. The in-depth treasury knowledge he gained within Chevron has been further refined and taken to a more granular ‘expert’ level within GE. Here, Reddy has been able to gain a more profound understanding of treasury from his corporate colleagues on a global platform.
Having worked in retail, oil and gas, banking, and now a diversified industrial setting, Reddy is able to see that whilst the treasury principles are the same in most organisations, the way the different sectors operate generates nuances for each; these must be understood if the function is to add value.
Taking the challenge
Africa is a tough region in which to operate. “It is still an emerging market, so currency volatility is strong,” comments Reddy. “Many of the local banks suffer from poor credit ratings, rendering them difficult to work with, from a risk perspective.” What’s more, he says, “the local banking environment is still generally unsophisticated”. With a largely under-developed technology infrastructure, it seems that manual processes are rife. This contributes to generally “quite poor” service levels from many local players. The markets are highly commodity-dependent too and so not only is there a limited banking product set available, any market downturn immediately puts pressure on foreign currency flows and liquidity.
With relatively high banking costs with which to contend, treasurers may find this a difficult setting in which to operate. What’s more, Reddy knows only too well that “the gate will not be automatically opened” by the authorities for every large corporate that enters the region. As such, strict rules are imposed, and documentary processes are demanding.
With multi-million dollar deals for equipment and services par for the course for GE in Africa, the challenge of navigating this different and changeable environment is outweighed by the opportunities. However, with deals of such magnitude at stake, bank finance is often required; herein exists one of Reddy’s key obstacles.
GE has a preferred-bank list based on global relationships, this being derived in part from mutual counterparty risk assessment. However, many of these banks do not have a presence in Africa. Subsequently, few are entirely comfortable with the risk presented by sizeable long-term deals in certain countries.
With a limited number of opportunities for the sale of gas turbine equipment, for example, the company is sometimes faced with the challenge of finding alternative sources of funding. “If you want to bid for local business, in many cases you must try and bid with a local bank,” says Reddy. Indeed, in parts of Africa, he adds that there is “a focus on localisation”, Ethiopia, for example, having closed its market to foreign banks.
Risk management, it will be no surprise to learn, is a vital function of GE’s Africa presence. Whenever a deal is sought, this team will carry out a detailed country analysis. This will define the maximum appetite for risk, taking into account the customer, the tenor and value of the deal, the likelihood of any guarantees being provided by the customer, and even the management team behind the deal.
There is little or no FX liquidity in the market and in recent times reliance on oil revenues has seen a country’s foreign currency inflows hit by the downturn in global market prices of that commodity. As a result, the relevant central bank has taken control of the FX market. Last years’ allocation was minimal.
Keeping up with the rules
With the possibility of regulatory and political change occurring quite quickly in some countries, the need to stay up to speed is essential. If, for example, an allocation of currency is made available by the central bank, the local team can respond if it is in the normal course of business; anything outside must be authorised by Global Treasury. For Reddy, this means ‘ears to the ground’ to ensure all opportunities are known and decisions are made in good time.