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Broad Corporate Strategy Required to Manage Emerging Market Risk

Treasury, liquidity and volatility in Africa

by Chris Paizis, Head of Corporate and Rest of Africa Distribution, Barclays Africa 

Many of the risks that company treasurers encounter in Africa require an understanding of what can and can’t be managed or hedged – and then how best to deal with things that can’t be hedged. This necessitates a broader corporate risk strategy which treasury can inform though not necessarily own in its totality.

Treasury, in its simplest expression, is about managing liquidity, regulatory and volatility risk. Liquidity and volatility are especially applicable to treasurers operating in emerging markets like South Africa and Africa in general. Beyond managing these risks by working with a counterpart who can deliver depth and access into markets, as well as the systems and platform to hedge exposures, there is little ‘new’ that treasurers can do to manage risk specific to emerging markets.

Treasurers on the continent can’t by themselves change the fact that Africa experiences little debt capital market activity as local corporates raise money bilaterally, or, in the case of large multinationals, secure funds abroad and inject foreign currency upfront. Instead, treasurers should focus on eliminating risks that they can control (like foreign currency risk). This will free the company to manage broader corporate risks.