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There is a common perception that banking organisations are slow to innovate, due in part to the historic systems on which they run being inflexible and resistant to change. As recently as July 2020, TSB in the UK were struggling with ongoing problems resulting from a major system upgrade.

Delivering major innovations for ‘brick and mortar’ banks is certainly challenging. The clunky integrations between siloed systems such as ATM networks, internet banking and the platforms used in-branch can slow down development, but is this picture of glacial change as a result of aged technology a true reflection of the banking world as a whole?

Fintech is often seen today as the marriage of financial services and information technology, but unlike the legacy systems of ‘brick and mortar’ banks, this is an open marriage based on the very latest technologies and delivery practises.

What Does Continuous Delivery Mean for Capital International Bank?

The first version of Capital International Bank was deployed for live testing on 1st December 2020.  This was the minimal viable product. Over the following months, before the regulator lifted all licensing restrictions on 27th May 2021, the bank was slowly opened up to more users, and their experiences were used to validate our product features and learn critical lessons about what our clients really wanted from our digital banking platform.

During this period, Capital’s team delivered a total of 65 new banking features, 61 major improvements and 803 fixes where the functionality fell short of expectations. While the average number of changes was over 5 per day, the majority of updates were made weekly, and major client facing feature releases were scheduled on a monthly basis. With this, it’s fair to say that the snail-pace of innovation the banking industry has come to be associated with is quickening; for us at Capital, it’s less glacial change, more speed of light! How did we achieve this? Keep reading to uncover our secrets.

Banking Technology Innovations Open the Door to Opportunities

The leading internet businesses across Fintech, gaming and other regulated sectors have one foundation in common: continuous delivery from cloud-based infrastructure. This is the foundation that Capital has adopted in order to bring the agility of best-in-class businesses to the world of corporate banking and investment services.

What is Continuous Delivery (CD)?

This is a software engineering approach in which teams produce software in short cycles, ensuring that the software can be reliably released at any time. For example, some digital retail banks release product enhancements every two weeks and most gaming companies update products daily.

The essence of this approach is often termed ‘agile development’. The diagram below shows a simplistic view of how the mechanism functions. Rather than the focus being on producing a final version of the product (a car in the example), the focus is on delivering a simple version that meets the user objective (moving from A to B). Only after that comes the regular refinement of the product based on an in-depth understanding of user needs.

This approach reflects the reality that it is almost impossible to define a complex product on day one with enough detail to satisfy the needs of the customer. It is better to use real customer feedback to determine the requirements and to iterate the product frequently until the customer is delighted with the product that is being offered.

The approach helps reduce the cost, time and risk of delivering changes, by allowing for more incremental updates to applications in production. Frequent update cycles – or having a high release velocity – is also the key to being responsive to client demands, which ultimately drives customer satisfaction.

The Benefits of Continuous Delivery Include:

  • Accelerated Time to Market: Continuous delivery lets an organisation deliver the business value inherent in new software releases to customers more quickly. This capability helps the company to stay a step ahead of the competition.
  • Building the Right Product: Frequent releases let the application development teams obtain user feedback more quickly. This means they can target their efforts toward only the useful changes. If they find that a certain feature isn't useful, they can then take the decision to spend no further time on developing it. This helps them to build the right product.
  • Improved Productivity and Efficiency: Significant time savings for developers, testers, operations engineers, etc. through automation.
  • Reliable Releases: The risks associated with a release have significantly decreased, and the release process has become more reliable. With continuous delivery, the deployment process and scripts are tested repeatedly before deployment to production. With more frequent releases, the number of code changes in each release decreases. This makes finding and fixing any problems that do occur easier, reducing the time in which they have an impact.
  • Improved Product Quality: The number of open bugs and production incidents has decreased significantly.
  • Improved Customer Satisfaction: A higher level of customer satisfaction is achieved.

A straightforward and repeatable deployment process, which minimises the risk of releasing faulty software, is vital for continuous delivery. Continuous delivery is based on the notion of a deployment pipeline, which is analogous to a conveyor belt that includes a set of validations through which a piece of software must pass on its way to be released.

Every time a new release is planned, all software and systems changes are verified, using a mix of automated and manual functional testing, security testing, and business ‘user acceptance’ testing. Only once these validations have been positively confirmed as meeting the set quality criteria is the new software version permitted to be released.

As a world class banking product organisation, Capital International Bank fully supports continuous delivery but with some further controls added to the process which ensure the integrity of the product within a highly regulated market. Capital’s continuous delivery capabilities have been established around a number of investments designed to ensure the company’s future success:

  • Full Control and Accountability: All releases follow a formally defined ‘pipeline’, which is enforced by tools that allow any change to be tracked through several validation phases. This allows all constituent parts of a release to be version controlled and allows releases to be managed in production and in-life.
  • Feature Team Organisation Design: Our delivery organisation is modelled around the so called ‘Spotify’ structure in which teams are aligned to specific product features (e.g. payments). This creates a sense of ownership and a deeper understanding of the customer requirements than if delivery tasks are being continually spread across a wider team.  
  • Automated Code Quality Analysis: All software updates created by Capital’s development team are analysed using a state-of-the-art tool which is used widely by other leading organisations. This uses machine learning techniques to automatically identify potential security vulnerabilities, poor production standards and levels of maintainability.
  • Services Based Architecture: Breaking a system into a number of independent microservices can increase a software system's ‘deployability’. The Bank system is broken down into several subcomponents, which can be updated independently with some elements being released with zero downtime.
  • High Levels of Test Automation: We have invested heavily in test automation; this runs every day for the most critical areas of the software to ensure that we have confidence in the integrity of each release.
  • ‘Live Like’ Environments: Different environments used in development, testing and production can result in undetected issues slipping to the production environment. We have created a ‘life like’ staging environment – which replicates production as closely as possible – so that each software version can be validated end-to-end before release.
  • Customer Feedback Monitoring: The business has created a ‘Voice of the Customer’ team as a forum for gathering customer suggestions and analysing data to help us understand where the product can be improved.

So how is this Working at Capital?

Capital International Bank was born on 1st December 2020 with the first release of the new banking product. At this time, the product was hidden from public view whilst a period of commissioning took place in which Capital International Group companies used the bank for live testing within terms agreed by the regulator.

In the six months leading up to this first launch milestone, the newly created Capital delivery organisation was releasing internal updates every two weeks and this bi-weekly release cadence became the natural ‘heartbeat’ of the organisation. In unregulated markets such as retail, many larger companies release changes daily. Our decision was to establish a slow natural cadence to our updates but within a process that supports daily releases if ever required by the business. Immediately after our first ‘hidden’ launch, we started using analytics and direct feedback to influence our product development roadmap and priorities. Daily reviews between business, product, operations and technology stakeholders allowed us to understand how the bank was being used and decisions were taken quickly if improvements were needed.

Following a soft launch on 1st March in which a customer facing version of the bank was released, our natural bi-weekly cycle was cut in half. For a period, we then ran a cycle of weekly scheduled updates allowing us to directly respond to customer feedback.

Following the excitement of the initial soft launch phase and after proving that our delivery capabilities could support daily and weekly releases as needed, the team settled back into bi-weekly sprints. The clients of Capital International Bank can expect new features to be introduced on a monthly basis, with any emerging friction points being resolved bi-weekly and critical issues being solved on a daily basis if needed. The investment in a continuous delivery capability stands us in good stead to support a customer obsessed culture in which the business can respond quickly to the needs of our clients.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

ESG has surged in popularity recently with nearly all large organisations now promoting some kind of ethical product or business practice in order to attract ESG conscious consumers and investors.

While ESG is new to many, the concept is something the Capital International Group has been familiar with for a long time. In fact, Fusion ESG, the Group’s ethical investment portfolio, was established more than a decade ago. Throughout its 25-year history, the company has consistently upheld high ethical standards. As a guardian of over $5 billion in client assets, the Group acts as a trusted partner to its clients and has invested heavily in maintaining a strong organisational culture, giving back to its people and communities.

Building on the business’ existing initiatives, Capital’s ESG approach going forward will be characterised by authenticity and a genuine desire to do the right thing. Simply coating the business with a temporary ESG lacquer that will wash away in a few years is not something the Group would ever consider. Instead, Capital will be making real, practical and sustainable changes, a process which began earlier this year with the formation of the ‘ESG Forum’ which is headed up by Group Chairman Anthony Long:

Group Chairman, Anthony Long

"We wanted to embed years of informal initiatives into a much more structured approach.  We formed a new ESG Forum that draws its membership from staff across all of the Group’s offices and reports directly to our Group Board. We also developed a new ESG mission and strategy statement, which now touches all areas of the business and sets a new tone that will define our cultural development in the years ahead.”

First on the Forum’s agenda was to set out goals for the coming five years. These are built around five key themes and are framed around the ambitious target of the Group becoming carbon neutral by the end of 2025.

“It’s a big, hairy, audacious goal, and it won’t come easily, but every decision that we take from now on is framed around meeting this target,” said Anthony.

One step the Group has already taken towards achieving this goal is the introduction of an electric vehicle scheme for staff. There are currently only around 400 electric vehicles on the Isle of Man and with over 160 staff based across the company’s Douglas and Castletown offices, there is potential to have a real impact in reducing the Island’s emissions.

Another step has been to launch a major initiative to plant indigenous trees on the Island and in Africa, and to link this with local community engagement and educational awareness.

Anthony commented “Both the electric vehicle scheme and the tree planting are really exciting initiatives which, on the one hand will dramatically reduce our commuting emissions over time, and on the other I expect will enable us to plant around 30,000 new trees over the next five years."

In addition to the net-zero objective, work is progressing on the creation of a procurement score card which will be used to ensure that suppliers of the Group also uphold high ethical standards.

The ESG Forum draws from various departments across the business; those enthusiastic about creating a better world are encouraged to join the group. In addition to this voluntary committee, an ESG department has also been created which spans the Group’s Investment Management and Business Development teams.

Greg Easton, Business Development Manager

Tasked with managing and growing the Group’s ethical investment offering are Business Development Manager Greg Easton and Investment Manager James Fitzpatrick. Greg has been active in the ESG space for over a decade and even ran his own sustainable ecological assets fund between 2010 and 2013.

James meanwhile is responsible for ensuring that the Group’s ESG portfolios remain truly ESG through a stock selection style that combines both exclusion and inclusion strategies, whist maximising returns for clients.

Greg said: "We understand that investors are increasingly seeking an ESG manager that goes beyond negative screening and ESG scoring to provide a transparent and purposeful investment strategy. We also recognise that we are in a position to lead the Isle of Man investment industry in decarbonising our discretionary portfolios and are the first on the island to appoint a dedicated ESG team. To demonstrate our commitment to responsible investing, we have also recently become a signatory of the UN PRI, a United Nations-backed global network of investors uniting to transform the investment landscape according to six aspirational ESG principles.”

James Fitzpatrick, Investment Manager

James said: "Capital International have had an ethical investment solution for over 10 years. In 2020, we decided to relaunch this solution as Fusion ESG, an actively managed portfolio focused on positive impact strategies and resource sustainability. Fusion ESG has a 100% ESG asset allocation, investing across four key themes of sustainable agriculture, clean technology, water management and healthy living."

Joining the company earlier this year, Capital’s ESG team was strengthened further with the arrival of Business Development Consultant Kim Quirk. Kim’s role within the team is to grow Capital’s ESG client base and manage existing relationships. With vast experience of working with private clients in the banking sector, Kim will now be putting her relationship skills to use once more in an area she is passionate about.

Kim Quirk, Business Development Consultant

Kim said: “Many companies claim to be focused on ESG, both on a company level and through their product offering, but few deliver on both counts. At Capital we have literally put our money where our mouth is. Through our ‘Conscious Capital’ pledge, we are committed to becoming carbon neutral by the end of 2025. This pledge comes right from the top of our organisation and has the backing of our staff in both the Isle of Man and South Africa. ESG is not just something we invest in, it’s in everything we do.”

Unlike Kim, the fourth member of the ESG team, Paige Orlik, is not new to Capital. Her graduate internship with the company began in 2019 shortly after she completed her Finance degree at the University of Cape Town and gained the CFA Level 1 qualification. Having recently moved over from Cape Town to the Isle of Man, Paige now joins our ESG team in a role that will see her time divided between Business Development and Investment Management.  

Paige Orlik, ESG Research Analyst

Paige commented on her appointment: “I couldn’t think of a better time in history to be a young, passionate individual starting out in the investment industry. The world, and particularly the economy and financial markets, are changing as climate, biodiversity, and other ESG issues come to light. With my passion for people and the environment, alongside my financial background, I aim to empower our clients to better understand the relationship between these issues, risk, and long-term financial performance. In addition, I aim to shed more light on the importance of ESG based investment decisions in ensuring a sustainable future.”

A sense of duty to protect the planet and better society has always come naturally to the Group. Since its inception, the business has been guided by its core value of integrity combined with an intrinsic desire to do the right thing. The Group’s drive to make a lasting and positive impact has now however been formalised and it looks forward to a future of building on its current initiatives, growing its ESG department and making a lasting difference in the local community as well as further afield.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Head of Equity James Penn recently spent a week on the Calf of Man, a small island off the coast of the Isle of Man, assisting in the annual two-week Shearwater Survey conducted by the wardens on the Calf. This involves playing a pre-recording of a Manx Shearwater call into one of the burrows they nest in on the Calf.

Shearwaters are members of a group of birds known as ‘tubenoses’, the group also includes fulmar, giant albatrosses and tiny storm petrels. The incredible Manx shearwater flies for thousands of miles to return to the same burrow every year, nesting on small islands off the west coast of Britain. Raising only one extremely fluffy chick a year. The parents wait until the cover of darkness before heading out to fish. Shearwater chicks become so big that they are not able to leave the nest – and instead, must go on a crash diet in preparation for their big journey to South America for winter. (Source: Manx Wildlife Trust)

The Manx Shearwater Is the only bird named after the Isle of Man, after the bird was first identified in the 1700s, with a large population at that time based on the Calf.

Later on, a Russian ship was wrecked near the Calf of Man, resulting in a huge infestation by escaping longtails (the local term for rats) which decimated the Shearwater population over subsequent decades. As a result, 30 years ago they were thought to be extinct on the Calf.

The Calf of Man (far) and Kitterland

Eradication of the rodent population over the past two decades has created an environment suitable for them once again, and the birds have gradually reestablished themselves. There are now thought to be perhaps as many as 600 pairs living on the Calf of Man.

James also visited Kitterland, the small island between the Calf and the mainland while he was there, conducting ringing of Herring Gull and Greater Black Backed Gull chicks.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

We caught up with Finance Director Paul Atherton following his incredible performance in the Parish Walk at the weekend. Paul crossed the line after 15 hours 23 minutes, earning him first place and a spot in the event's history books.

Q: How are you feeling today?

A: I’m feeling a lot better today than on Sunday after the race! I’m trying to stay as active as possible by doing lots of short walks around the office to prevent my muscles from stiffening up.

Q: Have you always been a race-walker? How did you get into it?

I got into race walking in early 2019 when Capital’s Chief Operating Officer Werner Alberts set completing the Parish Walk as one of my work objectives. He then coached me and helped me with my race-walking technique. We trained together regularly before entering the 2019 Parish Walk where I finished 8th.

Q: What’s been involved in your training?

A: My training started in early 2019, but when the lockdown came along in March 2020, I decided to focus on running instead due to only being able to train for 1 hour per day. After lockdown restrictions were lifted, I moved forward with a combination of both running and walking training.

My running had improved a lot during lockdown and on hearing about Christian Varley’s 19 Marathons in 19 days, I decided to run an unofficial marathon by myself, completing it in a time of 3 hours 22mins.

After this first attempt, I had definitely caught ‘the bug’. I wanted to beat my time and so entered the Isle of Man Marathon in August 2020, completing it in 3hours 5mins. I then competed in the IOM Vets Marathon in May 2021, achieving a time of 2 hours 37mins and coming first.

The fitness and endurance I have gained through my marathon training undoubtedly helped me in the Parish Walk. I’ve been training in both disciplines for over a year and am the fittest I’ve ever been.

Q: Do you have any rituals on race day? 

A: I have a very well-organised race day. I like to meticulously plan out my itinerary in advance. On the day of the race, I was up at 5.30am and at the NSC before 7.00am, so I could casually take a few steps around the track and talk to some of the other competitors who were there.

Q: What do you think about during the event to get you through?

A: I find a good distraction is to spend a lot of time thinking about where I’m up to on the course, what’s coming up next, what I should be eating and what pace I should be doing based on all that.

Q: What did you eat and drink during the race?

A: During the Parish, I knew I had to regularly take on a lot of calories, but after 4 or 5 hours of walking, you really don’t feel like eating. I try to consume as many non-sugary foods as possible earlier on in the race such as sandwiches, bananas and rice-pudding. Later in the race, it’s much harder to tolerate those foods so I tend to then turn to energy gels and Jelly Babies, as well as Crunchies (my favourite chocolate bar).

Q: Did you ever think you would win? 

A: I never thought I had a chance of winning. My aim was to improve on my finishing time of around 18 hours from 2019, and to get as close to 16 hours as possible. So to beat the time I was hoping for by 40 minutes and win the race was a real surprise.

Q: How did it feel when you finished? 

A: I’m not normally the sort of person to get emotional, but as I approached the finish line to the cheers of all the supporters and my colleagues, I could really feel myself getting emotional. There was such a long build up to the Parish walk with months of training which all culminated on the one day with incredible support all around the Island and at the finish. The icing on the cake was to see my two daughters at the finish line and get a big hug from them both.

Q: What’s the next challenge?  

A: Now that the border restrictions are easing, I’m hoping to get away to compete in a larger marathon later in the year and after that I’ll be working towards next year’s Parish Walk.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

In a world where technology is evolving at an exponential rate and disruption has become the new normal, we should ask ourselves: how do we find opportunities in one of the most transformational times in human history?

In the past 20 years, there has been more innovation than what we saw in the past 300. The power of battery technology is improving exponentially every year. Our cell phones have become our second brains, our experiences, our memories and soon, they will become a copy of us.

We also find ourselves in a world where people prefer experiences over things. Look at the rise of platforms such as Instagram and Facebook, it’s all designed to show off your experiences and connect you with the world, even if those experiences are only a snapshot in time.

Will technology replace me?

Some of the biggest fears people have when they think about technological change are: will I still be valuable? Will I be replaced by technology? Or will Skynet activate and end the earth? Thankfully, Skynet isn’t a real threat but the opportunity to harness the power of technology is very real.

We need to realise that people are inefficient. We need to eat, we need to sleep, we are emotional, we question things based on our beliefs and this makes us slow and expensive. Computers and robots don’t feel. They don’t eat. They don’t question. They don’t sleep. They just do and they do it much faster than we can.

While computers and robots will inevitably do some of our work, this shouldn’t be seen as a threat, rather, it should be seen as an opportunity. It allows us the time to focus on the things that cannot be automated, it allows us to focus on smarter work.

Things like human only traits such as creativity, imagination, intuition, emotion and ethics are becoming extremely more valuable not just in the future, but right now. I’d even argue that when having a conversation, it’s maybe more important to think about what I am not saying rather than what I am saying. These are the things that computers will not be able to do.

When thinking of the future of technology and the impact it will have on your business, focus on “what can be” not “what is”. Never confuse the tool with the purpose. The tool (technology) is your force multiplier, the purpose is to give your client the best experience possible.

The problem with laggards

Another question to ask yourself: What is the downside risk of delaying the adoption of technology in your business? Is there a fundamental threat to your business model if you don’t act? Or is the reason to act purely to unlock more upside potential?

By delaying the adoption of technology, you run the risk of locking yourself and your business into a trap in which any advancements that do take place, will be to your detriment. Now, this doesn’t mean that you cannot at a later date implement technology, but it does mean that whilst you delay, your competition will be leapfrogging ahead of you.

Let’s look at the global pandemic. Advisers who embraced the change, albeit a forced change, flourished. Those that didn’t lost a lot of clients and ultimately a lot of money.

There is also a reason to act because of the upside potential. I have spoken to a lot of advisers in my time in the industry and there seem to be three things that advisers want; more time, more money and more/better clients. As I mentioned earlier, people are inefficient and by using technology, businesses can become more efficient and effective which will allow them to manage increasingly larger numbers of clients.

Where to start with implementing tech?

I want to start by making a note that you must not be scared to scrap what isn’t working and focus on what does work. Focus on implementing the ‘Agile’ methodology as it involves rapid iteration.

As an adviser, you already know what you client needs from you, so I would start by defining what experience you want your clients to have when dealing with you and your business. Once you have done this, implement the plan and then ask your clients what they think about the plan you have implemented and then tweak the experience as you go along.  

Next, break down every aspect of your business and determine how it impacts the client experience. Determine what impacts the clients experience. Anything that does should be seen as a cost of sales item.

Once you have done this, determine what you need from your technology partner/s. This will help with your search for a technology partner because you will have a good idea of what you need walking in. Know that you don’t need one system to rule them all. Rather implement a tech stack, a set of tools and technologies that work together to build your client experience.

When evaluating a technology partner/s, don’t focus on price, especially if it’s a cost of sales item. Rather focus on what value you will get from that piece of technology and how that technology is going to improve the client experience.

You will almost certainly have a demo from the potential tech partner that you are interviewing. It’s important to make note that a demo is generally a perfect world scenario and that your experience won’t be like that on day one. There is likely to be crinkles that will need to be ironed out.

Technology is a force multiplier that will help you give your clients the best experience possible, but without data feeding into the system, the technology won’t be as effective as you need it to be, so it’s important to understand what data you need to feed into these systems and then speak to the relevant data aggregators.  

Last but not least, give your clients a digital portal. If possible, give them one that not only allows them to access their info but actually do some planning themselves. Give them a sandbox to play around in so that they can better understand the implications of their actions on their plan. This will push your client to take more responsibility for their plan going forward because they will feel more involved rather than being told what to do.

The API Economy - Is it the next big thing?

An API otherwise known as an application programming interface has been around for decades. It’s only in the past decade that we have seen APIs becoming so prevalent. Gary Hoberman, the Founder and CEO of Unqork explains an API like this, “They allow different systems to talk to each other in a seamless, fast fashion”.

The API Economy enables organisations new ways to create value and extend their services. This leads to an improved customer experience, continuous innovation and fast delivery of products and services to market. It also means increased efficiency because contributors in the API Economy focus on making their digital assets readily accessible.

At Capital International Group, one of our digital assets is the client data that we have stored in our system. We have employed an Open API architecture which allows you to access your clients’ information. We did this for two reasons:

1) We believe that client data belongs to the client.

2) We understand that this data will be valuable to you when managing your client accounts, so we have made this info accessible to you.

Technology is the reason that Batman is able to beat Superman. The new way to work is to embrace technology, not to be scared of it. When thinking about the future and technology, ask yourself - am I driving change, or am I being driven by it?

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

There has been a lot of talk of the potential for a roaring 20s-like era following the pandemic, where the economy flourishes and society plunges into a decade of hedonism and excess. After over a year of restrictions, there is without doubt pent-up demand for leisure activities, but will the release from lockdown and society’s new-found freedom see the economy boom for an entire decade?

What happened in the 1920s?

Influenza broke out in the aftermath of the first world war and the deadly virus went on to spread around the world killing around 50 million people. Unlike today, there were no effective drugs or vaccines to fight the virus or treat those infected. There were however measures introduced to reduce infection rates such as mask wearing and the closure of schools and theatres.

Despite influenza leading to more deaths than the first world war, society did not remain in a long-term state of mourning but bounced back quickly. After many years of deprivation and loss, much of the western world entered a golden era of partying, concerts and extensive social interaction. During the roaring 20s, the American economy grew by 42% and the Dow Jones Industrial Average rocketed from 71.95 points in 1921 to 381 points before the market plummeted in the Wall Street Crash of 1929.


If history is to repeat itself a century on from roaring 20s, we would now be on the cusp of entering into a period of increased spending and economic prosperity. But after COVID-19, can we really afford it?

While some people’s finances have been decimated by the pandemic, many have remained in employment throughout or have suffered no reduction in income thanks to government support packages. In fact, unemployment in the UK sits currently at around 5% - much lower than economists had predicted at the start of the pandemic.

Stuck at home for almost a year, in the UK, approximately £100bn has been set aside by households, and the savings ratio, which measures the proportion of disposable income that is put away, hit a peak of 29% in 2020, almost twice as high as the former record.

In normal circumstances, this extra cash would have likely been spent on leisure activities and enjoyment. Is it now then the case that holes are being burnt in pockets and that manic spending will ensue as soon as we are permitted to socialise again?

Spending habits post-covid

Research by Santander would suggest the pandemic has changed consumer habits significantly. They revealed that almost 50% of adults have established a rainy-day fund and 60% of 18 to 34-year-olds believe their spending habits have been changed forever.

Many are astounded by just how much money they are saving by staying at home. For some it equates to hundreds of extra pounds in their pocket every month. People are enjoying the frugality and are now unwilling to return to their old ways. 

Of course, some will splurge post lockdown, but research shows that this is more probable in lower income households. A study was conducted that looked at the propensity of households to spend unexpected temporary extra cash. It concluded:

“Better off households are likely to spend almost half of the windfall, saving the rest, whilst less well-off households are likely to spend over three fifths of the windfall.”

Furthermore, in a survey of consumers who have available funds after deducting their monthly expenses, more than half of those, as a result of pandemic restrictions, plan to save some of that money from now on (see graph below).

With increased saving and less spending, what will drive the economic boom?

While we might not be spending and partying like they did in the 1920s, this might not be as economically important as first thought.

When we think of the roaring 20s, we picture the Great Gatsby era: a period of fun and frivolity. At this time however, what was propelling the economy to new heights was not the jazz parties or gin drinking, but the advent of numerous new technologies over a short period of time. Because of the war and the influenza outbreak, the development of new technologies had been halted, but once these threats were no more, focus could return to the tech projects that had been left to gather dust.

Throughout the 1920s, there was a flurry of new technology released to the masses. Electrification gave rise to washing machines, refrigerators and radio. It also transformed the manufacturing sector, as factories no longer had to rely on huge engines and piston powered production lines. Motor vehicles, aeroplanes and agriculture also benefited from the invention of the internal combustion engine.

So significant was this period that it is known in history as the ‘Technological Revolution’, but can we in post-pandemic 2021 now expect a similar wave of new inventions capable of sustaining the economy for the next decade?

The tech sector post-pandemic

The use and adoption of digital technologies has increased significantly in the last year.

In terms of digitisation, it’s as though the world has been set to fast forward with video conferencing and eCommerce now part of our everyday lives. A global survey of executives by McKinsey & Co revealed that companies are seven years ahead of where they planned to be in regard to the share of digital or digitally enabled products in their portfolios.

Governments have also spotted the potential for a tech fuelled recovery. The EU for example recently unveiled a stimulus package of €1.8tn with the aim of creating “a greener, more digital and more resilient Europe”.  Similar action has been taken in the UK. Back in March, Chancellor Rishi Sunak revealed plans to launch a £375m initiative to invest in highly-innovative businesses in the life sciences and technology sectors.

Are there enough technological developments in the pipeline for a repeat of the roaring 20s?

Although there are lots of advancements on the horizon, the planned developments are nowhere near as revolutionary as those witnessed a century ago. Electricity and motor engines - these were transformative developments that led to a shift away from the frugality, thrift and rationing of the early 1900s towards the consumer culture we know today.

Even if there were revolutionary technologies on the horizon in the 2021, manufacturing and logistics have slowed due to the pandemic and while countries like the US and UK might be returning to normal, the emerging markets where many goods and technologies are produced are lagging behind in terms of vaccine rollout and the backlog of orders that remain unfulfilled is mounting.

We saw an example of this recently with the global scarcity of semiconductor chips. Unable to source this tiny piece of technology, Jaguar Land Rover in Merseyside was forced to temporarily cease production. Similarly, Samsung has announced it may have to delay the launch of its latest smartphone because of the shortage. This kind of disruption to supply chains could take a long time to recover from and without the necessary supplies, how can we expect new technologies to revive our economy? 

Is our economic situation really comparable to the 1920s?

As nice as it is to picture the world emerging from the pandemic and entering a decade-long golden era of economic prosperity, it could be argued that our economic situation is much more comparable to that of the late 1920s and we all know what happened then…

In today’s markets, we are seeing examples of asset price bubbles which occur when market participants drive stock prices and the price of other assets above their intrinsic value. The period leading up to the Wall Street Crash of 1929 and the Dot com bubble just before the millennium are two examples. Prior to both of these economic events, prices were driven by speculation around new technologies with investment pouring into these sectors.

In 2021, there are similar things happening. Elon Musk’s TESLA for example has soared by more than 700% in the last year. Similarly, investment into cryptocurrency has far exceeded any other asset class, with bitcoin’s value rising 600% in just a year. Even Doge Coin, which was originally created as a tongue-in-cheek reaction to the hype surrounding Bitcoin, has soared following endorsement from Elon Musk on Twitter over the last few months (see below graph).

Source: https://www.coindesk.com/price/dogecoin

In summary, of course there is going to be a short-term ‘Roaring 20s’ style revival of the likes of the hospitality, retail and travel sectors. People will emerge from lockdown eager to enjoy themselves and are likely to spend at least a small portion of their savings on the fun they have been deprived of for over a year. This pent-up demand will likely fuel a short-term boost to businesses in certain sectors, but whether it can sustain the economy for an entire decade is yet to be seen.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

Google defines ‘Identity’ as:  

The qualities, beliefs, personality, looks and/or expressions that make a person or group.

In South Africa, identity is so much more than that – it’s a survival technique.

For South African citizens, an ID card is essential in order to:  

·        Access state healthcare services

·         Apply for a job

·         Register for the Unemployment Insurance Fund

If you don’t have an ID in South Africa, you don’t officially exist, and many clients of our Cape Town based partner charity, Souper Troopers, find themselves living on the streets without an Identity card.

Souper Troopers was founded back in 2014 with the aim of restoring dignity, love and respect in the homeless population of Cape Town. The charity began back when its founder, Kerry Hoffman, spent her free time handing out food from the back of her car. Seven years later, the charity’s team has grown, and its role has developed from serving up food on the streets to offering a number of services to homeless people, including the provision of ID cards.

Homeless people can find themselves without ID cards for a variety of reasons. They might have lost their card of had it stolen while living on the streets, law enforcement might have confiscated their belongings, or it could be that they never had a card to begin with if their birth was never registered.

In South Africa, an ID card is a powerful thing. The Souper Troopers have shared stories with us of individuals who were able to turn their lives around after successfully obtaining an ID card.

Let’s take their client Sipho as an example. Sipho was a barista at a coffee shop, earning a decent salary and renting a small room just outside Cape Town. During lockdown in 2020, the coffee shop was forced to close and Sipho was retrenched.  

Unable to pay rent, he found himself living on the streets and one night, whilst sleeping under some cardboard boxes, law enforcement officers arrived and confiscated all his belongings, including his ID.

It was soon after this that Sipho got in touch with Souper Troopers, who got to work contacting his family for copies of all the relevant legal documents. After many phone calls and multiple trips to the Government Home Affairs offices, a jubilant Sipho had his new ID card and was now able to start applying for jobs.  

Like Sipho, Jack and John are also clients of Souper Troopers and they too became homeless during lockdown. Unable to afford rent, the men sought refuge in the mountains above Cape Town. Their daily 10km walk from their sleeping spot to a central soup kitchen allowed them to access meals and it was there that they met Souper Troopers fieldworker, Tasneem. Together, they started navigating their journey from homeless to hopeful.

A few months later, Jack and John are getting their lives back; they have ID cards, a tent and sleeping bags, all of which had previously been removed during a law enforcement operation in the city.

At Capital International Group, we are very proud of our ongoing partnership with Souper Troopers and realise the importance of the work they are doing for their clients, many of whom live on the fringes of society. Not only does having an ID card unlock many opportunities for an individual in South Africa, but it also provides a sense of belonging and self-worth. Without an ID card a person can feel invisible or like they don’t exist. By providing an ID card, Souper Troopers are remaining true to their mission of restoring dignity and as a Group, we could not be happier to support them in their goal of providing as many ID cards as possible.

If you would like to donate to the cause, please follow this link: https://www.soupertroopers.org/donate-now/

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.

At the time of the 2017 UK general election, then Prime Minister Theresa May spoke at various times during election debates about ‘there not being a magic money tree.’

This was in the face of high spending pledges made by the Labour Party, under Jeremy Corbyn, which included the abolition of student university fees and the nationalisation of railways and all the major utility companies.

The comment referenced the old adage that ‘money doesn’t grow on trees’, and implied that government spending pledges must be financed – usually by higher taxes and/or spending cuts in other areas.

The inference was that the Labour plans were unrealistic, and that the spending could never happen because the money would not be available.

Yet roll forward four years to today, and it does seem that there is indeed a ‘magic money tree’ in existence, and that it allows governments to spend vastly more than they receive in revenues – in the short term at least.

This ‘tree’, if that is the right word, has allowed the UK government to rack up an expected budget deficit of £355bn in this financial year (to March 2021), or 17% of GDP – massively higher than the deficit of £60bn in the year to March 2020, or 2.7% of GDP. Conveniently, the Bank of England has been buying most of this up through its Asset Purchase Facility.

The UK is also expected to run a deficit of £230bn in the year to March 2022. Thereafter, the deficit (the difference between government spending and taxes) is expected to fall gradually to £74bn, or 2.8% of GDP, in the year to March 2025.

At the Budget announcement of 3rd March, the Chancellor of the Exchequer did little to get the finances back in order. The furlough payments, and other government assistance including higher NHS spending and the vaccine rollout, which has cost a total of £352bn thus far, will remain in place until September.

The huge stimulus offered to the housing market, alongside rock bottom interest rates, also stays in place. The Stamp Duty holiday on house purchases up to a value of £500,000 remains till June, while a new 95% mortgage guarantee scheme for first time buyers has been introduced.

We even saw some new additional stimulus, such as the 130% ‘super-deduction’ on capital spending over the next two years, whereby companies can offset a large portion of their capex budgets against tax liabilities and which is expected to cost £25bn.

So, in other words the Treasury remains committed to keeping the economy ticking over – funded by increased debt – until the vaccines have been rolled out and COVID case rates have dropped significantly. Lockdowns can then be released, and the economy can go back to ‘normal’, with all the natural rebalancing of the deficit through increased tax revenues and the lower spending that this will entail.

Yet there were measures introduced by Rishi Sunak to get the government finances back in kilter over the long term. The rate of Corporation Tax will increase from the current 19% level to 25% in April 2023, a rise of six percentage points. This will reverse some of the reductions introduced by George Osborne in the previous decade, although ministers claim the UK will still have the lowest rate among G7 countries – assuming President Biden follows through with his pledge to increase corporate tax rates in the USA. Also, the rate will remain lower for smaller companies, and the government claims that only 10% of companies will pay the full higher rate.

Mr Sunak has also frozen tax thresholds for individuals, meaning that most people will slowly slip into higher tax brackets over time.

We heard much in the previous decade about ‘kicking the can down the road’, in terms of restoring the health of government finances after the Financial Crisis – deferring tax increases to later years by which time the economy has hopefully recovered – and this looks to be another instance of this.

As a result, the state of the government’s ‘balance sheet’ – the UK’s debt to GDP ratio – gets worse in the near term, reaching 110% of GDP in 2023/4, but starts improving after that as the economy continues to grow and debt as a proportion begins to decline.

But it is going to be fairly tight, and the truth is that the government’s finances are in the most precarious state they have been in in decades. Today’s spending largesse is only possible because the government’s interest rate cost is less than 2% of the size of the economy, and equally a relatively small proportion of government revenues.

Intriguingly, the initials for ‘magic money tree’ are the same as for an economic theory called Modern Monetary Theory (MMT), which states that, as long as governments can issue debt and print money in their own currency, there is no need to restrain deficits and debt, as long as the additional spending stimulates nominal GDP growth.

Assuming the real interest rate is lower than the real growth rate, the government can continue to run a deficit indefinitely, without getting into a ‘debt trap’.

On this basis, the increased debt should be manageable in the future, though it is likely to sit on the government’s books for a very long time indeed, with no prospect of a rapid paydown, and we will all be contributing more to it over time.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.