It is time to rethink how we do trade, say Absa’s Abdul Yassim and Ruth Ngulube

Absa’s Abdul Yassim and Ruth Ngulube unpack Covid-19’s effects on trade and how it will bounce back.

Absa regional head of sales trade and working capital (SA Coastal) Abdul Yassim (pictured below), and Absa Bank Zambia head of trade and working capital Ruth Ngulube (featured above) say that despite the challenges that South Africa and the region face, solutions are emerging.

Challenges in trade
The pandemic caused many disruptions in trade, one of which was port congestion. With restrictions throttling supplies from markets such as China, which is often referred to as the “world’s factory’, businesses had to adapt and find alternate sources of supply. For example, with no materials in sight, manufacturers and textile retailers in South Africa had to source materials locally and within the southern African region to keep production up.

The Covid-19 related lockdowns, border closures and travel bans have also had far reaching consequences on the tourism industry, which as Abdul points out, is one that many regional economies are heavily dependent on.

Ruth says Zambia’s experience confirms this. As the country’s tourism sector has been severely affected, being deprived of the inflow of earnings that hit airlines, local tour operators and others, with the effects being felt throughout the supply chain. “Small and medium businesses have struggled to weather the storm,” says Ruth.

Abdul says the severe supply chain disruption, alongside reduced consumer demand in many goods and services has forced many businesses to go into survival and cash preservation mode to keep afloat.

Trends emerging
In addition to forcing businesses to go into survival mode, the Covid-19 crisis has forced change in many ways of doing business. Abdul notes that prior to the pandemic, international trade was heavily paper based. With strict lockdowns and border closures, getting documents between businesses remained urgent, especially when critical PPE and other medical equipment had to be sourced and delivered quickly.

In this novel environment, trade had to turn into a strictly digital affair, and it has become clear that the migration to digital channels isn’t optional.

“Digital is here to stay,” says Abdul. “As Absa, we had already embarked on a journey to get our customers to leverage the technology we had. The pandemic and shifting business models accelerated that drive.”

Collection of revenue by government agencies such as Customs and Excise have had to increasingly go online, a trend which is unlikely to reverse as efficiencies and cost savings have emerged.

Notably, while the Covid-19 pandemic has accelerated the pace at which market players have gone digital, the rules and legal framework to match have lagged.
Abdul anticipates that lobbying around legislation to keep up with digital options available in trade finance is going to be ramped up. “The necessity of adjusting legislation to accommodate the effects of digitisation on trade has come to the fore,” he says. “The rules and regulations need to be updated to accommodate the new capabilities.”

Adapting with technology
The pandemic also exposed the vulnerabilities of many businesses with a high dependence on foreign sources for raw materials or finished products. Long-term, as companies look for domestic or regional substitutes, they have realised that they have to diversify.

However, Abdul asserts that a business’s ability to build resilience, diversify its supplier bases, seek alternative logistics options and secure capacity, hinges on its banker’s success in partnering with fintechs to align IT systems and support evolving work requirements. “We expect to see a lot more activity in the realm of collaborations within the trade space,” he says.

New opportunities to boost domestic trade have started to emerge and overall, Absa’s approach has been to customise its offering using innovative tools.

Responding to change
One of the biggest trends Absa has seen is a big shift into more documentary trade, driven by risk management and cash preservation. It has been necessary to provide funds to support supplier and trade finance, as well as working capital

Overall, the bank’s strategic response over the last year and a half has been pursuing innovation, targeting growth and increasing value. Abdul points to ‘Absa Access’ an online portal which is live throughout the bank’s markets via a single sign-on.” It includes cash management, trade finance and forex on a single platform. The award-winning finance trading service was recognised in 2020 by Global Finance for features including its dual factor authentication, convenience and security.

Ruth says in Zambia, as consumer behaviour changed, so did business models. That market, like most others in the region, has seen a huge uptick in delivery services and a shift to adopting online market tools.

She explains that, “Online-driven business activity has grown across various sectors, and we increasingly see fast moving consumer goods and items from local markets being put on ecommerce channels. Our online payment gateways, cash send options, mobile money, and e-wallet transactions were offerings we had invested in. However, their rollout escalated as consumer demand accelerated, something we expect to continue as people avoid exchanging banknotes to minimise Covid-19 exposure.”

Preparing for the rebound
As companies conduct scenario planning, focus on supply chain optimisation, and prepare for future crises, they are looking for long-term solutions. Abdul and Ruth say it is time to focus on collaboration, agility, and optimisation.

Ruth points out that reduction of Covid-19 will enhance trade, and allow people to trade closer to normal. So the efforts of all industry players to focus on workforce planning, supporting governments in the provision of PPE and rollout of vaccines will go a long way in rebuilding trade and our economies.

Navigating the Covid-19 impact on trade
Due to the magnitude of the impact of the pandemic on trade, in recent months, many governments provided liquidity to banks and banks passed on that finance to struggling businesses.

Ruth urges businesses to take advantage of the Covid-19 relief refinancing schemes such as the targeted medium-term refinancing for businesses whose operations have been affected by Covid-19, saying that, “They can renegotiate terms, extend loan tenors and take advantage of policies that support access to affordable financing.”

She also urges businesses to think outside the box and leverage regional agreements with SADC, COMESA and the recently signed Africa Continental Free Trade Agreement, which presents opportunities to grow intra-Africa trade and diversify trade exports with the rest of the world.

Abdul says a sound risk management approach is key: “The recovery of smaller businesses is still considered fragile. Supply chain financing is there to create that much needed stability. In a post-Covid-19 environment, improving visibility across the supply chain, and supporting companies’ ability to resist huge shocks is key.”

He notes, however, that the uptake of supplier finance is still low and nowhere as widespread as in markets such as Asia and therefore there is an opportunity to increase this substantially.