Technology is also transforming cash visibility in Africa. Save the Children International runs around 500 accounts globally. Three years ago, about 35% of these accounts were visible, equating to about half the organisation’s total cash. Following an overhaul using SWIFT (the charity is a SWIFT corporate member) and a specialist payment and reporting partner, the treasury team now has visibility of around 98% of its cash and 86% of its bank accounts (with a target to achieve 90% visibility by year end).
“We get bank statement reporting every day from banks across Africa who send MT940 over SWIFT to our TMS which we then upload into our single ERP. It’s really helped with the visibility piece,” says Collis. In Yemen, Save the Children was the first organisation to obtain MT940 reporting from some of its banking partners and lessons from Yemen were then applied to Africa.
Improved cash visibility is also feeding into the payments piece, enabling treasury to better support local finance teams with improved bank reconciliations. Citi’s Chibesa describes burgeoning corporate demand to digitise receivables and receivable processing in line with the move away from cash and demand for visibility. Pre-pandemic, treasury processes relied on a combination of manual inputs and digital and non-digital formats that didn’t support real-time information and incurred operational costs, she says.
Save the Children is in the process of introducing local ACH payment capability executed via its central payment TMS platform, continues Collis. In the past, the local, in-country accounts payable team would generate a payments file and upload it locally into their electronic banking platform. Now it is routed through a secure, central architecture sitting between the organisation’s ERP and TMS payments system in a journey that goes via SWIFT to the NGO’s main banking partners in London. From there it is routed over the main banking partners’ networks to local branches in Africa and executed as a local payment. “We are about a third of the way through this process,” says Collis. “We are trying to get as much control and visibility as we can over our payments and funding. It is all about trying to minimise our balances and reduce the risk of local currency balances.”
Africa’s treasury landscape is being buffeted by the macro environment. Treasury Today interviewees report a spike in demand for physical cash pooling to enhance cash visibility and reduce the cost of borrowing as interest rates rise across the continent. Elsewhere, corporates are increasingly focused on the cost of capital and more efficient ways to raise working capital in the short term. It is leading to demand for strategies that lever payables, says Chibesa. “We see demand for strategies to extend days payable in a low-cost strategy that passes the cost of borrowing down the value chain,” she says, noting an uptick in demand for hedging strategies, notably from Africa’s own central banks. Elsewhere she reports tightening capital controls, especially in Central Africa, have sparked treasury fears of trapped cash. “Corporates have to adjust from a governance objective built for this reality,” she says.
Meanwhile enduring treasury challenges like access to liquidity and FX volatility are front of mind for corporates. Companies rely on FX reserves to import goods into Africa, yet hard currency reserves are low: dollars from traditional sources like Kenya’s tourist industry have been hard hit by COVID-19 while countries and corporates are paying more for imports because of rising prices. “Hard currency availability in East Africa, especially Kenya, is soft,” says Standard Chartered’s Rathore, adding that corporates are finding it difficult to take hard currency out of Nigeria.
Unlike a typical corporate which seeks to take cash out of its African subsidiaries, Save the Children’s flows are the other way – putting money into Africa. The charity converts its income in donor G20 currencies (typically dollars, krona, euros or pounds) into local currencies to spend on the ground. Almost all the organisation’s FX management is done centrally with a clear focus on tightly controlling local in-country cash balances to minimise risks to donor funds (for example, FX devaluation risk can quickly erode the organisation’s spending power on the ground).
This tight local country liquidity control is facilitated by a fortnightly funding cycle, resulting in Save the Children holding little cash in country compared to most corporates, explains Collis. “In some rare circumstances, we might hold cash for a couple of months which exposes us to the risk of devaluation, but trapped cash is not really an issue as we are constantly spending on our humanitarian programming locally,” he says.
Still, inflation adds another layer of complexity, reducing the purchasing power afforded by favourable exchange rates. “We spend a lot of time working out how to get better visibility and reporting to our donors and stakeholders related to FX devaluations and issues around the convertibility of FX,” says Collis.
Other stubbornly familiar challenges continue to blight Africa’s treasury landscape, particularly for international NGOs working in higher risk locations. Correspondent banks are increasingly thin on the ground, says Collis. Although paying banks that instruct local banks in, say, Somalia to make a payment remain stalwart partners, correspondent banks in the chain that only receive a small fee but are subject to costly and cumbersome compliance from the paying bank, are becoming scarce.
“For higher risk locations, it’s easy for banks to say no,” says Collis. “Some of the funding chains are getting thinner and stretched and in some places correspondent bank relationships are getting thin on the ground. We haven’t got to the point where we can’t fund our higher risk locations, but it is getting worse and trending this way,” he says.
As technology becomes more pervasive across African treasury, so cybersecurity is pushing centre stage. Interviewees report a spike in demand for treasury protocol for when an attack happens.
For corporates with treasury operations on the ground, Nairobi appears to have the edge over Johannesburg as Africa’s leading treasury centre. The Kenyan capital benefits from a young, tech savvy workplace, a favourable regulatory system and easy access to Europe, concludes Chibesa. For some MNCs, rather than setting up locally, running African operations out of Dubai increasingly ticks the box in a hybrid model or shared service centre overseeing and supporting African payments flows, tracking payments and collections. Wherever the location, African treasury is united by a common thread: the need to update regional strategies for a fast-evolving market on the ground.