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AFRICA – A GROWING AND LARGELY UNTAPPED E-COMMERCE MARKET

James Booth, Head of New Business Development at PPRO

Many business-minded people think they know Africa, but much of our current ‘understanding’ is frankly wrong. For example, how big do you think Africa is?

Would it surprise you to discover that you could fit nearly all of Europe, the continental United States, China and most of India within Africa’s boundaries? Did you know that Africa’s combined GDP for 2017 was above US$3 trillion, but that this was concentrated in specific areas, rather than spread evenly among all of the continent’s countries? Did you know that Africa has a population of around 1.2 billion people and this is set to double over the next 30 years? Few people appreciate just how vast and diverse Africa is.

The truth is that Africa is now emerging as a hotbed of opportunity, but in a very distinctive way. The continent has a rapidly-growing and youthful middle class, with an appetite for good quality products, rapidly and conveniently delivered – just like their western counterparts. But in most other ways, Africa is utterly unlike the west. Businesses entering African markets can reap rich rewards, but only if they use very localised approaches to payment, delivery and marketing.

How do Africans shop online?

Africans, largely unburdened by a history of formal banking and credit card use, have embraced technology – particularly mobile/smartphone technology– with gusto, using it to develop their own payment and purchasing methods. This has removed many of the previous barriers to e-commerce and is fuelling growth that mirrors the early days of the dot com boom in more developed regions, offering comparable opportunities.

There is now generally good internet penetration across Africa, although some countries have a much greater proportion of their residents online than others. The region loves mobile and could reasonably be declared ahead of the worldwide curve when it comes to mobile internet: research has identified 444 million African mobile subscribers and nearly 300 million more are expected to join networks in the next few years.

Many in Africa now shop online, usually via smartphone, and an important consequence of this has been the development of e-wallets. These are usually administered via mobile phone accounts, i.e. the user opens a mobile account, regularly tops it up with cash and then uses the balance to buy goods and services online, send money to relatives, etc.

Such e-wallets are now favoured throughout Africa (although in some areas, cash and payment on receipt are also popular). Payments of this type are rarely used in the west, so they may take foreign businesses by surprise. But if those businesses cannot accommodate the payment preferences of African customers, they are unlikely to do well in the region. 

The use of such e-wallets has made it much easier for locals and non-locals alike to do business in Africa. It is much cheaper to set up an online shop than a traditional version, and in doing so merchants can now bring goods and services within reach of people in remote and previously under-served areas. This opportunity has expanded with improved logistics, which are another key feature of the new African markets.

Logistics are better, but highly localised

While it was possible to sell goods online in Africa ten years ago, the logistics of the time made it hard. Many customers did not have formal banking arrangements and it could be difficult to administer refunds and returns, for example. Things are very different now.

Local delivery companies have been quick to spot the opportunities of e-commerce, and their strength is an understanding of, and ability to work with, a system that may baffle westerners and multinationals. For example, in parts of Africa the concept of a formal street address simply does not exist. If a customer’s delivery address is ‘the house with the red door, five houses down from the crossroads’ then it will take somebody with local knowledge to deliver that.

The logistics gap has also driven sites like Jumia, which echoes Amazon in providing a single marketplace through which vendors can sell anything from make-up and washing machines to food. Selling through such marketplaces limits the need for small merchants to arrange logistics, and streamlines the entire process for customers and vendors.

In fact, Jumia’s One app is a great example of how mobile is driving the African e-commerce revolution. Once downloaded onto a smartphone, the app lets users transfer money or airtime, buy goods, pay their utility bills and book hotels, all through their mobile.

As well as local delivery services working with bigger companies, pick-up points are becoming a popular form of delivery in some parts of Africa, and offer a logistical alternative to companies entering these markets.

Tips for success in Africa

Africa is a huge region with a diverse geography, population and infrastructure. While that lack of infrastructure has caused problems for merchants in the past, it has also generated a distinctive ‘can do’ attitude to e-commerce and innovative solutions, which have only arisen because the region is not weighed down by legacy arrangements.

What is more, Africa’s embrace of mobile technology makes it a vibrant and promising region for business, particularly with the imminent launch of 5G on the continent.

It is important to remember that Africa is not a single entity, any more than Europe is, so merchants should take a country-by-country, or even district-by-district approach. This is particularly important in terms of logistics, where payment methods and deliveries are so distinctive and idiosyncratic that foreigners are likely to slip up. Working with local partners is best practice here.

In short, Africa differs from the west in many practical, cultural and psychological ways. Marketing messages, payment methods and logistics must all be tailored accordingly. But while this may seem daunting at first, working with local providers can make trading in Africa much easier than it looks – and given the booming, and relatively untapped, nature of the market that has to be a step worth taking.

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Business

IS YOUR OFFICE LEASE CRUSHING YOUR BOTTOM LINE? YOU HAVE OPTIONS

LEASE

By Jonathan Wasserstrum, Founder / CEO, SquareFoot

These are unprecedented times for us all. Nobody has a playbook to get through it. Every company right now is undergoing a series of budget cuts and enduring difficult questions, trying to trim wherever it possibly can to help withstand the profound pressures and unique challenges that the covid scare haqs brought with it from an economic standpoint.

Companies looking to avoid having to make significant layoffs to offset their expenses are having to find other budget items that they can slash or reconsider. For many companies, especially those on the smaller side, that relief may come through renegotiating or rethinking their office lease. Especially at a time like this, when there’s so much uncertainty on how long this pandemic might last, and with staffers working from home indefinitely, this sizable area of cost to the business doesn’t make sense for some businesses to carry.

At SquareFoot, the commercial real estate company I founded in 2011, near the beginning of a decade of positive economic outlook, I envisioned helping growing companies to find office space. And I staffed up with a talented team of in-house brokers to show offices in NYC, and to work on deals in 30 other major U.S. cities.

I raise this background to offer some context for how dire the situation is now with regard to commercial real estate, when it’s not possible to show available office spaces to interested parties. Just a month ago, we were looking ahead at a very promising 2020, on track to act on and to achieve goals we had set. Because of this current economic downturn that has hit us all, we’ve also had to shift priorities accordingly.

Jonathan Wasserstrum

We’ve instructed our brokers – effective immediately – to make themselves available to all concerned business owners as trusted advisers to walk them through their current leases and to outline for them all of their options. Even if they never do a transaction with us, I want my team to step up and provide some expertise to stressed-out executives. This is our small but significant way of helping to prevent other companies from having to let go of key staffers. We want to make this an easy choice for entrepreneurs. But, first, it requires them to understand what options they can move on.

We are already working closely with a number of businesses to review and to summarize their current leases, giving them some clarity and greater comprehension of what is set in stone and what can be adjusted in the wake of this crisis. Among the options that I and the team are exploring on behalf of those who have reached out include:

  • Checking with your insurance agent about your Business Interruption Insurance coverage;
  • Subletting the space. It’s not an optimal time to find a subtenant, but it’s still something worth pursuing to salvage the situation at hand;
  • Post empty desks on PivotDesk, a business unit that SquareFoot owns and operates to rent out (as a host) a small number of desks within an office (to a guest) to share the space;
  • Propose a rent abatement now from the landlord and arrange for a term at a higher escalated rent on the back end; or
  • Walking away. Closing up shop and declaring bankruptcy isn’t anyone’s first option, but handing back the keys and letting the landlord keep your security deposit is a path forward for the most desperate of clients.

Obviously, this is not a situation that anyone hoped to be in or had prepared for. We don’t proclaim to have all of the answers for every company, but we do hope that giving some knowledge and sharing some wisdom with those in the most vulnerable of positions right now would leave them better off than without it. In addition to the specifics of the situation for each individual client, we can also step back and have offered some additional background on what to expect from the real estate market in the coming months.

For instance, we anticipate that subleasing will emerge as increasingly important to fill spaces quickly. Amid the 2008 financial crash, subleases went from 20% of the market to 45% of the real estate market after the stock market market crashed. If that’s the direction we’re heading again – and it seems we might – it’s perhaps wisest for those holding onto long term leases to act quickly.

Once the quarantine is lifted, it’s possible that everyone else will catch up and get wise to this opportunity in the market and they will likely request these types of discounted transactions in a rush all at once; subleases could flood the market, driving costs straight up.

Moreover, if similar effects on the office market emerge soon the way they did during the 2008 financial crisis then there will likely be a sharp increase in the number of tenants looking to:

  • Renew their lease
  • Arrange for a short-term extension of their lease

This is the lowest risk strategy for any tenant, of course. Lease renewals are likely to be incredibly popular in the coming months. We expect that landlords will be working closely and compassionately with tenants at this time to offer existing tenants who are looking for short-term extensions to offer incentives, in the form of free or reduced rents.

As the markets go sideways, you can likely find better value on the space you already have. Whether you work with my team and me, or with someone else, we still advise that you should act quickly. Right now, it’s all about reducing costs to keep people in place. Your office lease is a better place to start the discussion than anywhere else on that long list of expenses.

 

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Business

CAPITAL MARKETS – LIQUIDITY MANAGEMENT DURING COVID-19

COVID-19

Tony Farnfield, Partner at management and technology consultancy, BearingPoint

 

When “Dr. Doom” predicted the 2008 financial crisis back in 2006, and spoke of a necessitated market correction and was calling for the repricing of riskier assets; predicting a continuation of a global financial slowdown, or even a global recession starting in 2020, this prediction was based on known factors affecting the global economy. The unforeseen outbreak of Covid-19 and the increased volatility this has brought to global financial markets was not taken into account.

Three months on from the initial outbreak, and we have already witnessed the biggest intraday drop in the Dow Jones Industrial Average. The outbreak, coupled with the oil price shock, triggered responses from the Federal Reserve, the Bank of England and Central Bank of Canada to cut benchmarks rates in an effort to even out the shock to the wider economies.

There is a high degree of uncertainty on how the coronavirus crisis will unfold. We could experience only a temporary disruption – lasting from a few weeks to a few months, or a prolonged stress in markets, assuming that it will be months until vaccine clinical trials begin and with rate cuts (already reaching bottom) having limited effects on the required stimulus.

Banks have undeniably improved their liquidity following regulatory guidance post financial crisis; however, treasury departments will need to prepare and caveat for a wide range of possible outcomes. Traditional stress testing, scenario development and re-calibration have not taken into account conditions such as the ones experienced with the Covid-19 outbreak or the speed with which things evolved.

At a generic level, there are three key steps Treasurer’s should look to take:

 

  1. Convert uncertainties into emerging and quantifiable risks

This is already being considered by some of the larger financial institutions under their crisis management responses. However, it’s important to highlight that even for those that have triggered the crisis management process, the forecasting, rebalancing and risk assessment should be continuous, taking into account new developments in the following manner:

Continuous forecasting

Continuously monitor and develop scenarios of potential sources that could disrupt funding and liquidity usage. With the right analytical capability, cash-flow projections should adapt to changing scenarios, including scenarios coming from the different business lines. Scenario sources could include unexpected credit usage that could encourage either large prepayments or defaults, or changing corporate customer behaviour – deposit inflows from corporates and depositors affecting leverage-constrained institutions. Also, there should be some consideration given to the availability of funding sources or, for wholesale funding, acceleration or reduction of funding plans.

Continuous re-balancing

Take immediate actions in increasing liquidity and cash holdings in the short term to cover for the uncertainty.

Continuous risk assessment

Account for emerging risks previously not accounted for, such as the temporary closure of operations or reduced capacity of market utilities. Assess those scenarios and how these are captured and factored in stress tests. Intraday liquidity should be the primary focus to understand immediate cash requirements.

 

  1. Refine your liquidity risk measurement

Better identification, measurement and analysis of key liquidity drivers should become core for an institution’s ability to effectively manage and mitigate particularly unique risks not previously considered. To do this, Treasurers should consider the frequency of their monitoring, and increase levels to daily stress tests and daily Early Warning Indicator testing to include daily developments.

In-depth analysis of risks

Re-run your liquidity risk identification exercise to understand better your current exposures, especially examining certain instances of this outbreak crisis, e.g. oil-related exposures, airline, marine or supply chain related exposures etc.

Re-calibrate based on new understanding

Re-assess existing scenarios or add new scenarios in covering a range of events and timeframes (e.g. sustained spread of the virus over x months vs limited spread and containment). Revisit your Early Warning Indicators to monitor emerging risks. At a later point, revisit these to assess if market signals existed and if they were picked up by your indicators.

 

  1. Review your mitigation plan

Identification, assessment and measurement is only part of the overall response. Stresses or risks that can be crystallised need to be accompanied by mitigative actions, agile and feasible enough under the current market conditions. Contingency funding actions might need to be revisited to determine if additional actions need to be considered.

Revisit and verify the availability of near real time reports, such as positions of securities holdings reports. Such information should be readily available and synthesised in the event that you will need to communicate clear and concise plans to investors, regulators or other market participants in relation to liquidity management strategies to foster confidence in the market.

In summary, reviewing and preserving an institution’s liquidity under extreme and volatile circumstances is the core responsibility of any treasurer. However, we know that any scenario or contingency planning is unlikely to be fully predictive of unprecedented scenarios such as this. Re-visiting already set practices and testing their efficacy and completeness should be the first step before considering inserting new scenarios and new actions into the mix. Nothing tried and tested can always remain true.

 

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