Author: Mohamed Sayed Fathy – Chief Information Officer, IT at EFG Holding 

In today’s fast-paced financial world, staying ahead means more than just adopting new technologies — it requires a fresh, agile approach to innovation. This is where Digital Factories come in. These dynamic hubs within financial institutions are breaking down traditional silos, bringing together diverse teams to develop and launch digital solutions rapidly. In a landscape where customers expect seamless, personalized services and regulators demand strict compliance, Digital Factories offer a way to balance both without sacrificing speed or quality. By leveraging data, automation, and collaborative problem-solving, they’re helping financial organizations not just keep up with the competition but also keep up with the competition and lead the way into the future (International Finance Corporation [IFC], 2023).

Key Roles Inside a Digital Factory

Within a Digital Factory, various specialized roles work together to achieve the organization’s digital transformation goals. Each role uniquely ensures that the digital solutions developed are efficient, compliant, and aligned with business objectives.

Product Manager

The Product Manager is the cornerstone of the Digital Factory, playing a critical role in translating business strategy into actionable product initiatives. They define the overall product vision, ensuring it meets customer needs and aligns with the financial institution’s long-term strategic goals. In an industry where compliance and regulations are critical, the Product Manager must skillfully balance innovation with risk management, ensuring all digital initiatives adhere to industry standards (McKinsey & Company, 2023). Their ability to orchestrate collaboration across various departments—development, compliance, marketing, and more—makes them a key driver of the factory’s success (Harvard Business Review, 2023).

Project Manager: The Project Manager is at the heart of ensuring digital projects run smoothly from start to finish. They are keeping everything in line—ensuring deadlines are hit, budgets are not blown, and teams are all moving coordinated. Whether managing a single project or juggling several at once, they are the go-to for coordinating across departments, resolving issues before they become problems, and ensuring everyone is focused on the bigger picture. In the rapid-fire pace of a Digital Factory, their role is crucial to ensuring that resources are used wisely and that the end goals are always within reach (Project Management Institute, 2022).

Data Scientist

As the role of data becomes increasingly important in decision-making processes, Data Scientists in the Digital Factory unlock the potential hidden in vast amounts of data. They provide actionable insights by analyzing large datasets, helping to guide business strategies and improve product offerings. Their work is instrumental in developing predictive models, personalizing user experiences, and optimizing operations. In financial organizations, where data security and privacy are paramount, Data Scientists also ensure that their models comply with regulatory requirements (MIT Sloan, 2022). By making sense of complex data, they enable the institution to anticipate market trends and respond proactively.

UX/UI Designer

In a Digital Factory, UX/UI Designers are the advocates for the end user. Their responsibility goes beyond just making the product look good; they focus on ensuring that the product delivers a seamless and intuitive experience for the user. Through in-depth user research and testing, UX/UI Designers translate complex business requirements into user-friendly designs that enhance customer engagement and satisfaction (Nielsen Norman Group, 2022). Their work ensures that digital products meet user expectations and stand out in a competitive market where customer experience is a key differentiator.

 Product Owner (PO)

The Product Owner focuses on the execution of the product development process by prioritizing the product backlog and ensuring that the development team delivers features that bring the most value to customers. They play a vital role in maintaining an iterative approach to product releases (Forbes, 2022).

Scrum Master

A Scrum Master facilitates Agile methodologies within the Digital Factory. Their role is to ensure that teams work efficiently by removing obstacles and helping the team adhere to Scrum principles. This is particularly important in the fast-paced environment of a Digital Factory (Scrum.org, 2022).

Developers (Frontend and Backend)

Developers are responsible for creating the digital solutions. Frontend developers design the user interface and experience, while backend developers manage the server-side logic. Together, they bring the product vision to life through coding and system integration (Financial Times, 2023).

Business Analyst (BA)

The Business Analyst plays a crucial role in gathering business requirements and translating them into technical specifications. They ensure that the developed solutions align with organizational goals and meet both customer and regulatory needs (Gartner, 2023).

Quality Assurance (QA) Engineer

QA Engineers are responsible for testing the digital products to ensure they meet high-quality standards. They identify defects, perform tests, and ensure that all features function as expected before the product is released (TechCrunch, 2023).

DevOps Engineer

DevOps Engineers manage the infrastructure and automate processes to ensure smooth product deployment. Their work ensures that digital products can be released reliably and quickly, with continuous integration and delivery pipelines playing a pivotal role (DevOps.com, 2023).

By integrating these roles, Digital Factories in financial organizations can rapidly develop and deploy new solutions while meeting both internal objectives and regulatory demands. The collaborative environment within the factory ensures that innovations can be delivered at a faster pace, providing a competitive edge in a highly dynamic market.

Challenges Facing Digital Factories and How to Tackle Them

While Digital Factories offer immense potential for driving innovation within financial organizations, they are not without their challenges. The fast-paced nature of digital transformation, coupled with the complexity of financial services, presents several obstacles that can hinder the success of these initiatives. Below are some of the common challenges Digital Factories face and how to tackle them.

1. Legacy Systems and Integration

One of the most significant challenges for Digital Factories in financial organizations is dealing with outdated legacy systems. Many financial institutions still rely on decades-old infrastructure that lacks the flexibility and speed required for modern digital solutions. Integrating new technologies with these systems can be complex and costly (Deloitte, 2022).

2. Cultural Resistance

Introducing a Digital Factory often requires a shift in the organization’s culture, which can be met with resistance. Employees acquainted with traditional ways of working may feel threatened by new methods such as Agile practices or cross-functional collaboration (McKinsey & Company, 2023).

3. Talent Shortages

Finding the right talent to staff a Digital Factory can be difficult, especially when hiring specialized roles like data scientists, DevOps engineers, and UI/UX designers. The demand for these skills often falls behind supply, making attracting and retaining top talent challenging (Gartner, 2023).

4. Regulatory Compliance

The financial sector is heavily regulated, and digital initiatives must meet strict compliance standards. This can slow down the speed of development and make it difficult for Digital Factories to innovate freely (PwC, 2022).

5. Maintaining Customer-Centric Focus

In the rush to innovate, there is a risk that Digital Factories might lose sight of the customer’s needs. Focusing too much on the technology itself rather than the problems it is meant to solve can lead to products that do not resonate with end users (Harvard Business Review, 2023).

Organizations should embrace a holistic approach to tackle the challenges facing Digital Factories. Modernizing legacy systems can be achieved through incremental upgrades, allowing for flexibility and efficiency while partnering with tech providers to ease the integration process. It is essential to foster a culture of innovation by having leaders actively communicate the benefits of new methodologies and investing in training programs to help staff adapt. Developing talent internally fills skill gaps and creates a more engaged workforce. Furthermore, embedding compliance experts within teams ensures that regulatory standards are met without stifling creativity. Lastly, adopting a design thinking approach helps keep customer needs at the forefront of product development, leading to solutions that genuinely resonate with users and deliver real value (Deloitte, 2022; McKinsey & Company, 2023; Gartner, 2023; PwC, 2022; Harvard Business Review, 2023).

Conclusion

In conclusion, Digital Factories represent a transformative force within financial organizations, enabling them to innovate and adapt in an increasingly digital world. By understanding the critical roles within these factories and addressing the challenges they face, financial institutions can harness the full potential of their Digital Factory initiatives, ultimately driving better outcomes for both the organization and its customers.

References

International Finance Corporation. (2023). Innovation in financial services: The role of technology hubs.

World Economic Forum. (2022). The future of financial services.

McKinsey & Company. (2023). How digital factories can transform financial institutions.

Harvard Business Review. (2023). The role of product managers in driving digital transformation.

Forbes. (2022). Agile product development in the digital age.

Scrum.org. (2022). The role of scrum in digital transformation.

Financial Times. (2023). The importance of full-stack development in finance.

Nielsen Norman Group. (2022). UX design for financial services.

Gartner. (2023). Bridging business and IT with business analysts.

MIT Sloan. (2022). Data science in financial services: Trends and implications.

TechCrunch. (2023). Quality assurance in the age of digital banking.

DevOps.com. (2023). Building efficient CI/CD pipelines in financial institutions

Deloitte. (2022). The challenge of modernizing legacy systems in financial services.
McKinsey & Company. (2023). Navigating digital transformation in finance.
Gartner. (2023). Closing the talent gap: Building the future workforce in digital transformation.
PwC. (2022). Leveraging regtech to meet compliance challenges.
Harvard Business Review. (2023). The power of design thinking in financial innovation.

As we approach the end of the fourth quarter of 2024, capital markets are under the spotlight, reflecting a complex interplay of various factors shaping investment strategies and economic outlooks. Investors, analysts, and business leaders are closely monitoring several pivotal trends that are defining the financial landscape this year. In this blog, we’ll explore the most significant topics impacting capital markets today, providing valuable insights to help you navigate this dynamic environment.

1. The Impact of Interest Rate Changes

Central banks continue to play a critical role in shaping market sentiment through their interest rate policies. As we enter the final months of 2024, the Federal Reserve and other central banks worldwide are grappling with the balance between controlling inflation and fostering economic growth. Recent adjustments in interest rates are a response to ongoing inflationary pressures, with central banks adopting a cautious approach to avoid triggering a recession.

For investors, understanding the implications of these changes is essential. When interest rates rise they lead to higher borrowing costs, impacting consumer spending and corporate profitability. Conversely, a stabilization in rates might signal a more favorable environment for investments. Keeping a close watch on central bank announcements and economic indicators will provide essential insights into potential market movements.

2. The Ongoing Battle with Inflation

Inflation remains a pressing issue in 2024, with prices for essential goods and services continuing to exert pressure on consumers and businesses alike. Although inflation rates have shown signs of moderating, the lingering effects of previous supply chain disruptions and geopolitical tensions contribute to persistent pricing pressures.

Understanding the Causes of Continued Inflation

Factors such as ongoing supply chain challenges, energy price fluctuations, and global economic shifts continue to drive inflation. Additionally, labor market dynamics—characterized by skill shortages and wage increases—further contribute to rising operational costs for businesses.

Consumer Behavior in an Inflationary Environment

As inflation erodes purchasing power, consumers are becoming more selective about their spending. Many are prioritizing essential goods while cutting back on discretionary expenses. This behavioral shift is prompting retailers and service providers to adapt their strategies, focusing on value offerings and innovative promotions to maintain customer loyalty.

Corporate Strategies to Combat Inflation

Businesses are increasingly adopting strategic measures to manage inflationary pressures. Many are exploring cost-cutting initiatives, renegotiating supplier contracts, and optimizing their supply chains to enhance efficiency. Some companies are also investing in technology to streamline operations and reduce dependency on volatile supply chains.

For investors, identifying companies that can effectively navigate these challenges is crucial. Sectors such as consumer staples, utilities, and healthcare typically offer some resilience during inflationary periods.

3. The Rise of ESG Investing

Environmental, Social, and Governance (ESG) considerations are becoming increasingly integral to investment strategies in 2024. Investors are prioritizing companies that demonstrate sustainable practices and strong governance, driven by growing consumer awareness and regulatory pressures.

This shift is not merely ethical; studies have shown that firms with robust ESG profiles often outperform their peers. Investors are recognizing that sustainable practices can lead to improved risk management, innovation, and long-term value creation.

For market participants, integrating ESG factors into investment decisions is essential. Engaging with ESG-focused funds or considering sustainability metrics in your investment strategy can yield both ethical and financial benefits.

4. Navigating Market Volatility

The capital markets are experiencing volatility, driven by geopolitical uncertainties, macroeconomic shifts, and rapid technological advancements. Events such as conflicts, trade negotiations, and political instability can create ripples across global markets, leading to price movements.

For investors, effective risk management in this environment is paramount. Diversification remains a critical strategy, allowing investors to spread their exposure across various asset classes and sectors. Maintaining a long-term perspective can also help investors weather short-term fluctuations, focusing on fundamental growth opportunities.

5. The Role of Technological Innovations

Technology continues to revolutionize capital markets in 2024, with fintech, cryptocurrencies, and decentralized finance (DeFi) reshaping traditional investment paradigms. The rise of digital assets offers new avenues for investment while presenting regulatory challenges and security concerns.

Investors should stay informed about the evolving landscape of digital currencies and blockchain technology. These innovations provide unique opportunities for diversification and potentially higher returns. However, they also require a thorough understanding of the associated risks, including volatility and regulatory scrutiny.

6. Adapting to Regulatory Changes

As the capital markets evolve, so too do the regulatory frameworks that govern them. Recent initiatives aimed at enhancing transparency and protecting investors are reshaping how financial institutions operate.

For investors, staying abreast of these regulatory changes is essential. Understanding the implications of new regulations can help mitigate risks and identify emerging opportunities. Engaging with investment advisors and legal experts can clarify how these changes might affect your investment strategy.

Conclusion

The capital markets in 2024 are an ever-evolving ecosystem influenced by a myriad of factors. By staying informed about interest rates, inflation, ESG investing, market volatility, technological innovations, and regulatory changes, investors can better navigate this landscape.

As we progress through 2024, the ability to adapt and respond to these trends will be crucial for achieving financial success. Whether you’re a seasoned investor or just starting your journey, equipping yourself with knowledge is your best strategy for thriving in today’s capital markets. Understanding the nuances of inflation and its far-reaching effects is particularly vital, as it influences everything from consumer behavior to corporate strategy and investment decisions.

By: Luis Colaco, Director, Sub-Saharan Africa, Consumers – EFG Hermes Research

It has been a tough year for most companies with the shilling losing ground to the dollar, a rise in fuel prices and an increase in the cost of borrowing money – interest rates.

While these have grabbed headlines, one pain which has severely affected industries in Kenya especially manufacturers, is the payment of excise duty on a daily basis.

Excise duty is a tax charged on goods and services manufactured in Kenya.

Following the enactment of the Finance Bill 2023, the payment of the daily excise taxes took effect in August 2023.

The impact from all the above shocks and regulatory measures has seen manufacturers face tough options in managing their cash; and we are likely to see many companies not generating as much cash as was the case in the past.

Manufactures will have to manage their inventories better, hold back on dividend payments, extend their debt repayment and negotiate with their suppliers in order to manage their cash flows better.

An example is listed manufacturer EABL. Cash flows in Kenya are being hit by challenging macro environment and by the daily payment of excise, despite taxes holding in EABL’s half year for 2024 (July to December 2023)

If you are giving money to the government earlier, it means your working capital is declining, impacting your ability to generate cash.

EABL generated Ksh11 billion from cash of operations in the year ended June 2023, a significant drop from the Ksh25.9 billion it generated the previous year.

Our estimates are that it will generate KES4.2bn of free cash flow in the current financial year which ends in June 2024, but we acknowledge that the visibility on earnings is, at this stage, low.

Rising inflation has pushed up the prices of raw materials, forcing manufacturers to pay more for their cost of goods (lower margins) or pay their suppliers in advance (working capital investments).

Manufacturers have, as a cautionary measure, held onto a higher inventory of raw materials to avoid disruption and a hike in prices.  This constrains the manufacturers’ working capital.

A major setback for Kenyan manufacturers, especially those importing raw materials, has been the undervaluation of the shilling to the dollar.

This has made importation of raw materials expensive because manufacturers have to spend more shillings to buy the dollar.

The shilling opened the year at Ksh123 to the dollar, but it has since depreciated to Ksh152, a 23 percent decline.

Furthermore, accessing dollars has been a challenge for the manufactures because of scarcity of the greenback.

Manufacturers are therefore forced to hold onto more dollars so that they have enough currency to bring in imports.

Manufacturers must walk a tight rope to balance inventories, manage their cash reserves and grow sales. This is forcing manufacturers to think about their debts and dividend payments.

Against this backdrop of slower cash generation, currency fluctuation and payments of suppliers, companies are likely to be more cautious in paying their dividends.
This article was first run on Business Daily

Investing is often perceived to be a daunting venture, especially for individuals overwhelmed by the finance world. Some perceive it to be a complex financial venture, while others believe it requires high financial expertise. These common misperceptions often act as a barrier, hindering their aspirations for financial growth. The truth is, when you detach myths from reality, you will uncover a world of financial opportunities. So, without further ado, allow us to debunk 3 common myths to help launch your journey to financial freedom.

#1 Investing is Only for The Wealthy

The notion of investing being exclusively for the elite is predominantly false. In truth, there are numerous options for investors with all kinds of budgets and risk tolerances. Over the past few years, investment platforms have risen to offer individuals a low-cost entry. Applications such as EFG Hermes ONE don’t require a minimum amount in bank accounts to start investing. No matter your investment choice, be it stocks, bonds, or mutual funds, or how much you choose to begin with, what truly matters is taking the first step to benefit from the power of compound interest. This will enable even the smallest investments to grow significantly over time, especially when made consistently.

#2 You Must Constantly Be Glued to Daily Stock Movements

The belief that you must continuously be consumed with daily stock prices and financial news is a popular misconception. As with anything in life, overconsuming anything is not advisable. While staying informed about the companies’ history, current status, and potential growth in the future, along with monitoring your portfolio, is essential, being hyper-vigilant may result in trading impulsivity while also clouding your strategy rationale. Remember, a diversified portfolio and a long-term investment mindset triumph over market fluctuations over time. So, make sure to review your portfolio periodically or when needed and adjust it accordingly to make your money work smarter for you.

#3 All Forms of Investment are Too Risky

The bottom line is that not all investments are equally risky. While some investments are riskier than others, low-risk investments are available to meet your risk tolerance and financial goals. Additionally, it is essential to recognize that risk can be managed through diversification. Diversifying your investments across various industries and asset classes reduces the chances of your portfolio underperforming.

Furthermore, short-term market volatility has contributed to the risky reputation of investing. Although markets can experience fluctuations over a short period of time, history has proven that investments tend to recover and provide positive returns over long periods of time. Take Warren Buffet’s strategic approach; for instance, the successful investor has long benefited by investing in companies during times of distress. His tactic has progressed as market conditions began to change over the years, eventually resulting in Apple constituting over 45% of the Berkshire Hathway portfolio. This shows that adopting the long-term perspective is crucial for successful investing.

In conclusion, understanding the truth and explanation behind each myth enables you to make smarter investment decisions. Don’t let fear and myths hamper you from moving forward. Do your due diligence, conduct thorough research, and remember that fear and misinformation are some of the most significant setbacks for growth and prosperity.