African corporates could emerge from the crisis more resilient

COVID-19 has tested the mettle of corporates operating in Africa. In many cases, the crisis has forced companies to shelve expansion plans and take urgent steps to shore up liquidity and ensure their survival. But as the continent’s economies reopen, green shoots are appearing.  Many corporates are set to emerge from the crisis more resilient.

The pandemic has required companies in all sectors to adapt with speed, to work more closely with suppliers and other key stakeholders, and to take extraordinary measures to protect both themselves and their employees. 

Businesses in the hardest-hit sectors have had a mountain to climb. We have seen significant pressure on companies of all sizes in the aviation and hospitality sectors, for instance, with some having been forced into business rescue. Numerous other companies have had to scale back operations and retrench employees, adding to an already tough jobs market. 

Governments and banks have stepped in to assist companies of all sizes. Central banks have slashed borrowing rates, authorities have implemented relief schemes, and banks have provided liquidity, capital and tenor extensions, as well as interest and covenant waivers. 

Standard Bank Group continues to play its part. By the end of June, our Corporate and Investment Banking (CIB) business had provided COVID-19-related risk exposure restructurings worth R48 billion, mainly for clients in the real estate, retail, hospitality, industrial and power and infrastructure sectors. Encouragingly, after an initial flurry of requests in March and April, client requests have slowed significantly. However, our teams continue to proactively engage with clients to provide tailored funding, liquidity and risk management solutions. 

In the first half of 2020, gross loans and advances to CIB customers grew as much as 17% due to COVID-19 liquidity and other funding needs. At the same time, CIB deposits grew 21% year on year to R869 billion, as market uncertainty prompted corporate clients to reassess planned capital investments and hold larger cash balances. This means that when certainty and confidence return, many firms will have sizeable war chests to protect against future shocks or to invest in new growth activities. 

Despite the immense pressure they have been under, corporates have taken bold steps to help their employees and local communities through the crisis. 

The period ahead will undoubtedly be tough, particularly for Africa’s commodity-intensive economies, which face the prospect of sharply lower export revenues. Businesses such as hotels, travel agencies, airlines and other passenger transportation services face a long road ahead. But bright spots are already emerging. The healthcare sector is benefiting from increased investment, while Africa’s telecommunications industry is powering ahead, thanks in part to the shift to remote work. The growth of the fintech sector has also been accelerated. 

And with global supply chains under pressure, there will also likely be a renewed focus on local manufacturing and agricultural production, particularly as the African Continental Free-Trade Agreement (AfCFTA) takes effect in January 2021. There is a real opportunity for Africa to shift towards local production amid the breakdown in global supply chains, and the launch of AfCFTA could supplement these efforts. Several of the continent’s economies are already reopening. 

Meanwhile, the crisis has forced corporates to accelerate their digitisation plans, seek new efficiencies, and ensure they are better placed to navigate future shocks. In the months ahead, it is possible that we will see a number of cash-flush companies acquiring or merging with those that are in need of recapitalisation. There will also be fresh opportunities for innovation and investment in a range of sectors. 

With the worst of the crisis seemingly behind us, business confidence indicators are starting to edge gradually back towards more normal levels. Looking forward, Africa remains an attractive place to do business and opportunities abound across the continent.