Getting the basics right

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What’s the best approach to managing your foreign exchange and sorting out travel insurance when travelling Africa on business? Richard Holmes takes a looks at some of the products out there, as well as some of the pros and cons.

All too often it’s the last thing on the to-do list before you dash from the office to the airport.

But when you arrive in Ouagadougou, N’Djamena or Nairobi, and discover you have only a wallet of useless home currency and a stash of credit cards nobody will accept, you’ll wish you’d spent a few hours working out the correct way to carry your currency.

Whether it’s booking a hotel room, finding a reputable airline, or working out how to pay for dinner, planning your travels on the African continent simply can’t be compared with corporate travel in the rest of the world. While you might be able to slap down your Diners Club card in Paris or London, in Dar es Salaam or Victoria Island it might not be so simple.

Managing your foreign currency when travelling in Africa comes down to finding a balance between cost and convenience. The method with the least fuss can come with hefty fees attached, while what may seem the simplest approach in other parts of the world might not be suitable in Africa, where there are lower rates of card acceptance. That’s certainly changing in popular business cities such as Luanda, Nairobi and Lagos, with credit cards becoming commonplace, as international brands stake their claim on the corporate travel market. More often than not, though, it pays to cover your bases.

Credit cards have long been a staple of corporate travellers worldwide, with the convenience of offering both point-of-sale transactions and cash withdrawals in foreign currency. They are also relatively hassle-free, allowing you to just slip your wallet in your pocket and head to the airport. But there’s a catch.

“Credit cards are quite simply the most expensive payment mechanism you can use,” warns Andrew McDonic, Managing Director of American Express Foreign Exchange in South Africa.

Transaction fees for cash withdrawals are hefty, and commission rates on purchases can vary between five and 10 percent… something that travellers often only realise on their return home.

“There are two main reasons for the trend away from credit cards – statement shock and cost-efficiency,” agrees Brett Jury, Head of Transactional Banking at Bidvest Bank. “With a credit card, rates can vary depending on the prevailing rate when card transactions are processed. At times of rand weakness, this can lead to unexpectedly high expenditure when travel costs are calculated and credit card ‘statement shock’ sets in.”

Avoiding fluctuating exchange rates is one of the key benefits of pre-paid currency cards, which are becoming increasingly popular amongst both leisure and corporate travellers.

“The key benefit of the pre-paid cards is that you are fixing the rate upfront, regardless of any later fluctuation in the exchange rates,” adds McDonic. “The cards also give you the benefit of both point-of-sale transactions, as well as drawing cash from an ATM abroad.”

Pre-paid cards are widely available from banks and foreign exchange bureaux, and allow you to load your chosen amount of foreign currency onto the card, locking in the rate of exchange at the time of purchase.

Commission in the region of two percent is payable on the currency loaded to the card, and most card issuers charge an administrative or initialisation fee in the region of $15. American Express, notably, does not currently charge an upfront card fee.

Once your card is loaded, point-of-sale transactions worldwide are free of charge, although any ATM cash withdrawals will incur further fees.

But beware. As soon as you start spending the ‘wrong’ currency on your card – spending euros in the USA, for instance, or dollars in Nigeria – currency conversion fees will start to apply. These vary between card issuers, but can be as high as six percent.

It’s a key drawback when it comes to travelling in Africa, as the only African currency offered by pre-paid card issuers is the South African rand. If you’re heading anywhere north of the Limpopo River, you’ll need to brace yourself for some hefty conversion charges on each and every transaction.

Fees are simply an unavoidable aspect of corporate travel, and pre-paid cards remain the most cost-efficient method on the market.

“Corporates are extremely cost sensitive,” adds Jury. “One reason we are confident our rates are competitive is the fact that our corporate foreign exchange volumes continue to grow.”

Furthermore, the benefits far outweigh the downsides, and pre-paid currency cards remain the most secure way to transact while travelling. Most cards offer ‘chip-and-PIN’ security, as well as access to a 24-hour emergency helpline in the event of loss or theft. If your card does go missing, cards can be replaced in as little as 24 hours worldwide.

Pre-paid cards are also proving their worth when it comes to managing travel budgets. Cards can be topped up remotely; for instance, allowing the head office to approve additional spending and add additional funds to the card of an employee travelling abroad.

Bidvest Bank’s World Currency Card also provides an up-to-date expenditure report for each card, allowing companies to easily track usage and expenditure. Some products, including the World Currency Card, offer ancillary benefits that include South African Airways Voyager miles being earned on foreign exchange loaded onto the card.

While the security of a card solution for large purchases is key, Africa’s economy still runs largely on paper, not plastic. ‘Cash is king’ in Africa, say many travellers, and it’s always a good idea to have a spread of foreign currency, and some local notes if possible, in your wallet on arrival.

“In most African countries, cash is still the preferred method of holding funds and making payments,” comments Peter Filmer of Exchange4free, which facilitates foreign exchange payments online. “This is changing, and the large card processing companies are investing and improving card payment facilities and reducing the costs of making payments via cards. There is a shift towards improved banking and payment methods in Africa, but there is a long way to go.”

With card acceptance still a challenge, the best strategy for corporate travellers who may need to cover the taxi fare from the airport and/or a hefty hotel bill, is a mixed-wallet approach – some cash on hand on arrival, and a spread of cards for major expenses.

“When I travel, I take a small amount of cash in local currency – then I put the bulk of my money on a pre-paid card. I use a credit card as a back-up,” says McDonic. “A combination of pre-paid card and cash is the best way to go.”

“In Europe, many people travel with a small amount of cash and the rest on cards, but in Africa it is the other way around, and we don’t think this will change in the near future,” says Jeff Mokgodi, spokesperson for Travelex Africa Foreign Exchange.

Managing your foreign exchange is certainly an important aspect of planning any corporate travel in Africa, but the ramifications of making the wrong decision are fairly limited. Perhaps you’ll lose a percentage in commission, or pay a slightly higher rate for your naira. In the end, it’s only your travel budget that will feel the pain.

Not so with making the wrong choice around your travel insurance, when your life can, quite literally, be on the line. Africa is a continent filled with opportunity, but there are also plenty of pitfalls that can trip you up along the way. Airlines go bankrupt and leave you stranded, medical facilities are few and far between, and the standard of hospital care can leave much to be desired. Perhaps more so than travelling in Europe or the United States, travel insurance for journeys in Africa is a no-brainer.

“Comprehensive travel insurance is imperative. No matter where you travel to, you are always at risk,” warns Anrieth Symon, Head of Zurich Travel Insurance. “Hotels might be safe, but your luggage could get lost or damaged. You could unexpectedly fall ill or your trip may be cancelled due to unforeseen circumstances.”

Travel insurance is a grudge purchase for most travellers, but it’s important to remember that you get what you pay for. The cheapest policy may seem an attractive prospect before departure, but when you need to claim, you’ll regret cutting corners. Comprehensive policies invariably cost more, but if things go wrong, the cover is proportionally more wide-ranging.

“Every product plan has been priced according to the benefits and risk that the insurance company will carry,” adds Symon, who says that age and pre-existing conditions are all taken into account when calculating the premium you will pay.

Louise Cockcroft, Travel and PA Manager for Regent Travel Insurance, says there are many risk factors that impact the eventual cost of travel insurance policies.

“Medical expenses in North America are the most expensive and close behind are the United Kingdom, Australia and the rest of Europe. Medical expenses in Africa are generally much cheaper, but the risk of evacuation back to South Africa from an African country is very high, as many regions are not able to provide adequate treatment in certain circumstances.”

A medical evacuation from central Africa to South Africa can cost in excess of $50,000, while hospital bills for the US and Europe can easily run into millions. So surely the argument for purchasing travel insurance is an easy one?

But I get free travel insurance on my credit card, I hear you say. That is true, and major credit card brands typically offer bundled travel insurance when a public conveyance ticket is purchased. But is the cover sufficient for your needs? More often than not, the answer is no.

Complimentary travel insurance from an ABSA-issued credit card caps emergency medical and related expenses at a maximum of R1-million, while the lowest tier of SAA credit card, backed by Nedbank, covers just R150,000 in expenses for accident or illness abroad. By comparison, the Business Administrative policy from TIC, aimed at business travellers up to the age of 75 who do not engage in manual work on business trips, provides R50-million in emergency and medical expenses, as well as R25-million in personal liability cover. If your journey is delayed or curtailed, you’ll have up to R30,000 to take the sting out of making new travel plans.

Pre-existing medical conditions are also typically not covered by bundled credit card insurance, and if your luggage is lost or flight cancelled, you’ll be picking up the tab yourself. Aside from the inadequate cover in the event of a delay or medical emergency, complimentary credit card cover can also complicate any visa applications required for your business trip.

“Many embassies do not allow automatic credit card travel insurance as a form of travel insurance when applying for a visa, as they are concerned that it does not provide comprehensive enough cover,” explains Symon. “Embassies will often insist on a minimum amount of medical cover, around $40,000. Very often, standard credit card insurance does not meet this requirement.”

Visas aside, the red tape involved in applying for a new travel insurance policy on each and every trip is often enough to make you head to the airport without cover. Luckily, a handful of insurance companies offer annual policies, which provide cover for multiple trips during the year.

“It is definitely more cost effective to purchase a policy of this type, when you know that you will be travelling frequently in the year ahead,” says Symon.

Insurers such as TIC also offer an Annual Declaration Policy, which allows companies to purchase a specified number of insured travel days within a 12-month period. When an employee, client or sub-contractor is required to travel on business, the traveller and the duration of their trip is logged – via a web-based client platform – and cover is initiated for the trip.

And that is, perhaps, the over-riding trend in both foreign exchange and travel insurance – how to make the process of obtaining both, entirely seamless. There’s no shortage of competition to ensure rates – for both currency and cover – remain competitive, and deciding which card mechanism or travel policy is best suited to you, comes down to cost and convenience. With a plethora of products in the marketplace, many available entirely online, there’s simply no reason to head off on your next business trip with outmoded foreign exchange and no safety net in place.

What’s up with travellers cheques?

With their steep commission fees and clumsy system of encashment, travellers cheques have long been on the decline in favour of card-based currency products.

“They stuck around a lot longer than everyone thought they would, but the value of travellers cheques sales has dwindled over the past five years,” explains Andrew McDonic, Managing Director of American Express Foreign Exchange in South Africa.

In South Africa, the issuing of any new cheques will be phased out by the end of the year, but that doesn’t mean you need to raid your stash of rainy-day travellers cheques and rush to the bank. American Express travellers cheques already issued “have an indefinite shelf life,” confirms McDonic.

Ebola and insurance

The outbreak of the Ebola virus in a handful of West African nations has had an enormous impact on corporate and leisure travel across Africa, with many foreign visitors postponing or cancelling trips, even to countries entirely unaffected by the outbreak. Yet while travellers are encouraged to exercise caution, there’s no need to barricade the door and pack away your suitcase just yet.

Crucially, the current Ebola outbreak only affects three countries in West Africa: Guinea, Liberia and Sierra Leone. In these three nations, the World Health Organisation has recorded 13,500 cases and nearly 5,000 deaths. Airlines including Arik Air, Kenya Airways, British Airways, Air France and other airlines have suspended flights to all three affected countries, and government agencies advise against all but essential travel to the region. 

Cases beyond the region – including a tiny number of cases in Senegal and Nigeria – have been isolated and quickly contained, and those countries are officially clear of Ebola.

Happily, corporate travellers forced to visit Ebola-affected countries can still count on back-up from most travel insurers.

“We advise against all but absolutely necessary travel to these areas for the safety of travellers. However, if an insured person does travel to an infected area, we will still provide cover,” says Louise Cockcroft, Travel and PA Manager for Regent Travel Insurance. “At present, we are not loading premiums for this. While Ebola is a very real risk for a traveller to an infected area, we still consider malaria of much higher risk and do still provide cover for this.”

Similarly, TIC will continue to cover medical expenses if you contract Ebola whilst on a journey under a TIC policy. However, as air access into the affected countries is limited, they cannot guarantee medical evacuation. Likewise, the insurer will also not cover the cancellation of your visit due to restricted entry by the government.

While the virus is yet to spread across Africa, the fear of Ebola unfortunately looks set to infect economies across the continent. The World Bank has warned the outbreak could cost $32.6-billion over the next two years, and the International Monetary Fund is warning that economic growth in sub-Saharan Africa will dip to just five percent this year. Economists also fear that Liberia and Sierra Leone’s GDP could dip by 12 and eight percent respectively.