STANDARD CHARTERED, NSSF A SIGN OF THINGS TO COME

Recently National Social Security Fund (NSSF) unveiled its long awaited voluntary saving product, SmartLife. The product linked to their already existing app, will allow people to save voluntarily with the fund, earn compound interest and help plan for medium to long term goals.

Similar to the unit trust funds we have become accustomed to, except that your funds will be locked in for a predetermined duration as way to encourage long term savings. This product is in aid of the Fund meeting its target of covering 50 percent of the country’s working population by 2035 and may very well have far reaching consequences for savings rates in the country and eventually lending rates.

Following hot on the heels of this development, was the announcement last week that Standard Chartered Bank was winding down its retail banking and wealth management operations in Uganda, a process that will be finalised over two years.

It is hard to believe this was a spur of the moment decision, given how the bank has been aggressively reducing its branch network over the last five years, shifting most client interaction online.

It make sense, following behind Barclays Bank, which sold its continental operations to ABSA about three years ago. And in another industry, the sale of petroleum company Shell’s regional assets to Swiss trader Vivo energy about a decade ago.

The reality is that these multinationals, among other things, are finding their margins cut to the bone, as the cost of their high compliance standards, make it difficult to compete with the Johnny-come-latelys, who in many liberalized markets are willing to cut corners and undercut the big players.

This in addition to developments in technology mean, for instance in the case of banks, that branch networks, or even what constitutes a branch, are dated concepts. Carrying the overheads that come with these, while competing with more nimble, virtual competition does not make sense.

The big boys are shedding their bottom of the pyramid operations, to better serve their bigger clients, where the returns per transaction dwarf dealing with the unwashed masses.

These moves are not unique to Uganda or this region, but are part of larger movement that has been unfolding since the beginning of the century.

More than a decade ago NSSF set upon improving compliance among employers liable for NSSF. They did this by beefing up their manpower and opening new branches. But today with greater phone penetration and internet coverage, NSSF does not need as much manpower or a large footprint to do the same job.

When I left university my attempts at opening a Stanchart account fell flat. Because they required a sh300,000 opening balance and a commitment that my bank balance would not fall below sh100,000. My gross salary at the time sh600,000. Those days a bank account was a privilege and not a right.

Fast forward to the present and I can not only open a bank account off my phone or laptop, paying next to nothing, but also I need not open it with a bank. It is safe to say that currently and into the future, most people’s first “bank” account will be with their mobile phone company...

These are part of the accelerating global trend towards digitization, miniaturisation and dematerialization...

Right now all information has been digitized making it easier to transmit and process, quicker than any time before. Which explains why banks are now open 24/7 compared to the old days when they closed for business at 1 pm and did not open on the weekends.

Older people would remember a time when an IBM 256 (the 256 means it had a storage capacity of 256 MB) would cover the better part of a desk. My phone now has a storage capacity of 64 GB and fits easily in my shirt pocket. In effect, I have the storage capacity of 250 IBM 256s at my finger tips. I imagine Stanchart may not have had those many PCs in 1995.

And then, because of the previous two, a lot of what used to be is no longer.

Younger people may find this funny, but there was a time when a calculator, diary, clock, telephone, computer, camera, video  game console etc were all different things, taking up a lot of space. Demateriliastion.

Essentially the big multinationals’ competitive advantage that came with their access to global pools of capital, huge size and global reach are being whittled away thanks to technology. They are retreating to areas where their competence is best suited, the bigger deals where transactions are markedly fewer but the returns are much bigger per deal.

"While the economy may not be at its best right now, these multinationals have operated under worse economic circumstances here and made tons of money, thank you very much. So the state of the economy is not the major driver of these moves...

The pull outs are part of a wider rearrangement of the global economy driven by the aforementioned trends.

In the new world managers will not be able to get by on just size and momentum, but will have to sharpen their strategic focus and execute efficiently.

 Expect this to accelerate in coming years.