Digital treasuries – is it too early for Africa?


Rato de Mendonça | Group Head | Sales & FI Sector | Transaction Banking | Standard Bank Corporate & Investment Banking | mail me |

There are many challenges for treasuries across the world, in any market, but the developing world has an opportunity for a head start in the switch to digital.

This is borne out by the fact that the adoption of best practice treasury management tools, technology and integrated enterprise resource planning (ERP) systems that feed off data points all along the ERP value chain, are entirely within the grasp of corporate treasuries.

In Africa, the challenge is that unless an organisation has a local corporate treasury function (either fully fledged or responsible for some elements of the treasury function), and this local treasury is given the investment support and digital strategy direction to advance its systems, there’s little incentive to take on the digitisation journey locally.

Bringing the entire process into digital line

The typical impediments experienced by them are an absence of a mid to long term digital strategy, lack of well-defined digital use cases/business cases and insufficient digital skills. These then stand in the way of bringing the entire process into digital line, in order to be able to support the heavy data and timeousness needs of a digital treasury.

Digitising the central function without digitising the data that feeds into it handicaps the treasury function and negates potential efficiency gains. Which begs the questions, is it too early for Africa to truly benefit from the rollout of a full suite, world class, digital treasury function?

After all, digital treasuries could solve problems in Africa such as queues for FX allocation in countries such as Angola, Nigeria and Zimbabwe. The complexity of African regional corporate treasuries is that they need to first access and then analyse a plethora of incoming insights and data points, and then engineer ways in which they are going to create that specific currency liquidity in partnership with their liquidity providers. But that’s not all, this liquidity then needs to be made available at the right time for subsidiary treasuries and finance functions in order for them to meet their obligations.

But before we go any further, let’s unpack exactly what the concept of a digital treasury means. In a nutshell, it infers no human interaction in company treasury operations, with a sophisticated cluster of technologies across the value chain feeding data and insights to a central point.

Having established treasury policies that work for the business, and having them dictate the operations of the system, the digital avatar runs processes like sweeping overnight liquidity into concentration accounts (single and multi-country), enabling money market investments, and executing FX trades.

That’s the digital utopia – and while there are organisations in Africa that are working towards this, the early adopters are still working with a blend of technology and manual processes. As a whole, the continent’s treasury operations remain largely manual and highly dependent on similarly manual reporting.

Value chain challenges

The degree to which a corporate treasury is able to adopt digital platforms to help them along has a direct dependency on the ability of the value chains to digitise.

For example, procurement departments may still run on spreadsheets because who they’re buying from are themselves manually executing sales orders, and so their ability to digitally integrate that part of their value chain is impeded. Treasuries ideally want that information fed directly into liquidity forecasting models (also digital) which inform them at the press of a button which invoice needs to be settled on which day, in which currency and in which market it needs to be settled.

While there will always be a human element involved in oversight and applying their minds to challenges like currency, interest rate, regulatory risks (including exchange controls which govern cross-border payments), there’s an opportunity to adopt more digital elements to help aid operations in an environment in which your banking partner has a deep understanding of the nuanced market complexities.

A further dimension of complexity presents itself in the realm of correspondent banking arrangements. Many African countries are threatened by the loss of their connectivity to the global financial system (through SWIFT), creating a significant risk to corporate trade activity and institutional investment activity.

The extent to which the corporate treasury’s local/regional banker has consistent and reliable access to foreign currency clearing services to facilitate cross border payments/receivables is crucial.

In recent years major banks around the world have been terminating their long-standing correspondent banking relationships, a process commonly referred to as ‘de-risking’. This shift is fundamentally changing the landscape of payments and clearing, and it is more important than ever that corporate treasuries on the African continent choose banking partners that have contracted with committed foreign currency clearers.

The future of corporate treasuries requires a closer alignment to the corporate internal financial value chain – the link between the treasury and finance functions is crucial. The treasury has a responsibility to keep a daily intraday finger on the pulse of cashflow and the overnight liquidity position of companies – particularly those that operate across geographies, or which have multiple business pillars.

A procurement roadmap

There’s a second component in the operation of the procurement department. It’s crucial for treasury to get a forecast view of procurement activity and this forecast needs to be both on-time and dynamic. This allows the treasury to make sure that the right amount of liquidity is available in the right currency at the right time so that the organisation can settle its obligations.

The treasury is also accountable to Group Corporate Financing and Strategy Offices in listed companies or companies that have issued financial instruments such as corporate bonds and repos. They need to ensure the health of the corporate cash flow is intact and well synchronised with the organisation’s growth plans.

The treasurer needs to make sure that the schedule of obligations or repayments is well communicated and understood, since such liquidity events are often large (for example dividend payments or capital market repayments). This is especially important in an African context where availability to FX liquidity may not be available at the required time for these chunky payments.

Digital for clients

There’s also a strong link into clients and the sales activity of an organisation. The treasury gets one view of one side of the cashflow statement that relates to obligations for the company – the outbound liquidity. In terms of inbound liquidity, the treasury is often faced with challenges which arise from not being fed good, accurate or timely sales forecast numbers. They’re often frustrated by inefficiency in this process, blindsiding them.

An important segment of clients which is a key focus for us is the domestic corporate sector on the African continent. These organisations are experiencing high growth, linked largely to many of the high GDP growth economies in which they operate. A large cohort of these organisations are at times growing at accelerated rates above GDP rates.

The newly founded Africa Continental Free Trade Area, seeking to reduce barriers to trade and investment across the countries of within Africa (and already ratified by most African countries), will further accelerate their growth. But their treasury operations are being held back from injecting efficiencies into their financial value chains because of the companies with which they do business still operating manually, or a lack of tech investment where they should be adopting international best practice, fast-tracking learning, and adopting tech-led workflow methodologies, they are forced to see their treasuries lag a decade and a half behind those in more developed markets.

It’s a strange sight in a marketplace which often leapfrogs more developed economies – look at mobile adoption and the subsequent success of mobile payment systems on the African continent.

The African opportunity

In the context of a highly-fragmented financial market in Africa – with 42 different currencies and myriad of varying exchange controls – with varying levels of FX liquidity availability – with disparate payment settlement systems and with markets being at varying levels of technology adoption, there is little doubt that the adoption of digital ways of working will spark accelerated growth, improved efficiency and ultimately create a competitive advantage.

Relying on manual processes (the spreadsheet syndrome) just means we will be living with unnecessary inefficiencies. Today we have the perfect opportunity to make a clean break and go straight to more digital processes – on the journey to the utopia of a Digital Treasury.

Domestic and African regional banks should not be underestimated in their ability to solution for corporate digital treasuries, utilising their home-grown market relevant technologies, this in partnership with fintech’s many of whom are African. By helping to create the frameworks that will accelerate digital adoption across the entire value chain for our clients, we can support African businesses make the leap into global business leadership positions.



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