Dear,
The last few weeks have been very difficult. Since the Russian military intervention in Ukraine began, our societies have been subjected to deep stress, both emotional and economic.
I am afraid that the confusion generated by the emotional shock of the harsh images of deaths, bombings and refugees makes difficult a balanced analysis of economic reality. Analysis that, however, is more necessary than ever.
My main background is Physics, and from a very young age I learned that Energy is the ability to Produce Work, and some time later I understood the causal relationship between the availability of energy and economic growth.
Tensions in the energy markets began just as the restrictions of the COVID-19 pandemic were being eased, reactivating the economy. These tensions that caused inflation to spike have been accelerated and multiplied by the economic effects of the war in Ukraine and subsequent sanctions and retaliation.
In order to control inflation, central banks have reduced liquidity injections, repeating a pattern of behavior that we already saw in the summer of 2008.
Unlike then, the banking system seems better capitalized, but shadow banking assets are much larger and their effect on the system's capital consumption is consistent with their volume and risk.
Summarizing; the combined effect of weak growth due to energy shortages, accompanied by the scarcity of other critical resources, and the overconsumption of capital due to excess debt, threatens to destabilize, sooner rather than later, the financial system.
Some concerning signs have appeared this week, triggering margin calls, increasing counterparty risk and market volatility.
For many economists, this environment is structural; energy shortages will be present for a long period of time, and financial difficulties caused by excess debt, combined with weak growth and reduced liquidity, will translate into an increasing number of defaults, delinquencies and insolvencies.
We are facing a very serious capital scarcity crisis and we are not ready for it.
Capital is the most important resource in the financial system (actually in the economic system) and in an environment of scarcity, there is no higher priority than optimizing it.
Capital optimization has always been at the core of SAP's value proposition. The subsidiaries of the groups of companies, and the networks of groups of companies integrate their business processes, sharing information in order to reduce the costs of supply, production, storage and distribution, while maximizing the level of service.
Over the past 30 years, SAP's products and services offering have transformed the supply and distribution chains of the real economy, and it is now in the position to multiply these benefits, with the deployment of new Geolocation, Artificial Intelligence and IoT technologies.
But the financial system has remained detached from this transformation, greatly limiting its ability to optimize capital.
I personally discovered this in 2012 and started working on finding a solution.
The solution had to follow the guidelines that had enabled SAP to transform the real economy; technical integration and process integration.
Technical integration means that we have to express the banking processes with SAP technology, because in this way technological compatibility reduces the operational costs associated with the integration of processes.
The integration of processes supposes a greater challenge, because it implies modeling the processes of the real economy in terms of generation and consumption of liquidity and solvency. I will give you an example.
Let's evaluate the distribution process of a perishable product. Efficient shelf-life management reduces obsolescence costs and service level. This improvement in the process affects the efficiency and profitability of the company and we can already see intuitively that it tends to improve its solvency.
But for the improvements to be effective, we have to move from intuition to a systematic process of measuring the impact of efficient shelf-life management of perishable products on the company's solvency.
The solution is to express in terms of generation and consumption of solvency and liquidity, the business processes of companies managed with SAP (supply, production, sales, distribution, etc.). Saying it is easy, but doing it has required a significant effort.
Once the balance of generation and consumption of solvency and liquidity of a process is measured and recorded, we determine the needs or excesses of solvency and liquidity of the process, covering the gap or surplus through the proactive offer of financial services.
To a certain extent, it is similar to the collaborative processes in logistics replenishment, but replacing material stocks with solvency and liquidity (financial instruments).
We are confident that this value proposition creates a significant competitive advantage in today's capital-scarce environment. And the advantage will increase while the environment worsens, as unfortunately it will happen.
We are working on presenting our system to the market and looking for business partners and investors. If you are interested, do not hesitate to contact me at ferran.frances@capitency.com
Looking forward to reading your opinions.
Kindest Regards,
Ferran Frances.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Ferran.frances@capitency.com
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