Barclays to Strengthen Presence in South Africa

on Aug 29, 2012

Barclays (BCS:US) aims to expand its reach in South Africa and fulfil long-held ambitions of increasing market penetration in developing markets. The UK bank already controls Absa (ABSA:SJ), a South African lender, after paying $4.5bn (£2.85bn) for a majority stake in 2005. Now it intends to merge its African operations with those of the Johannesburg-based company with the purpose of cleaning up inefficiencies, which have become a point of critique for many analysts.

The bank already announced its intentions to launch Pingit, an international version of mobile phone payments, in Kenya this week. The service is an extension of the mobile-to-mobile payments which Barclays introduced in the UK earlier in the year and will allow British people to send money to Africa by using only the recipient’s phone number. There are about 200,000 people living in the UK who were born in Kenya and who regularly send money back to their families. This creates a market opportunity for the

British bank, which can capitalize on the frequent transactions via a small charge in the form of a commission on the currency exchange. Barclays stated it will not charge separate fees for the service making it the cheapest type of international transfer currently available. To send £100 to Africa via Barclays’ new system should cost about £3 while a traditional money transfer would cost anywhere between £5-£10.

!m[](/uploads/story/294/thumbs/pic1_inline.png)If the merger with Absa is successful, Barclays expects to receive some sort of compensation for lending its brand-name to the South African bank. As of now, the UK bank owns 55.5 per cent in Absa. Bob Diamond, the former CEO who resigned after the Libor scandal ensued, had said in the past that the bank would like to increase its share to 75 per cent. Discussions are still at a very early stage so a merger is not expected until at least 2013. But no matter what it does, the UK bank will probably not be able to take full control of Absa with South African laws protecting minority investors’ right not to sell shares even if a majority vote in favour of a takeover.

“We have already consolidated the regional offices for Absa Africa and Barclays Africa, as well as introduced a global product strategy for banking across the continent,” said Maria Ramos, chief executive of Absa Group and Barclays Africa “This proposed combination of the businesses will mirror the managerial and operational structure we have already put in place.”

About 5-10 per cent of Barclays’ pre tax-profits came from Africa, making the region crucial for future growth of revenues. However, business suffered a recent decline in the first half of the year as a result of credit impairments on South African mortgages and adverse currency movements. Absa released a profit warning, which highlights the increase in bad debt charges.
Despite, or perhaps because of, global turbulence and the Eurozone crisis, western banks have been actively trying to increase their presence in Africa, a market with strong growth. In November last year, JPMorgan (JPM:US) began offering rand clearing and applied for approval to establish local currency subsidiary in Nigeria. Credit Suisse (CS:US) made its first standalone presence on the continent after setting up a wholly owned subsidiary in January 2011. Chinese ICBC opened a representative office in Cape Town and bought 20 per cent of the stakes in South Africa’s Standard Bank for $5.5 (£3.5bn).
“Better governance and macroeconomic policies, together with greater political stability in a number of African countries, have contributed to a significant improvement in the overall economic performance of the continent. “ said John Coulter, JPMorgan’s senior country officer for sub-Saharan Africa . “If we invest now, then we will reap the upturn in Africa, whether it’s in five years, 10 years or 20 years, but we recognise that we need to make that investment now.”


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