Q&A: BARCLAYS AFRICA - JSE MAGAZINE

Q&A: BARCLAYS AFRICA

Stephen van Coller, head of corporate and investment banking at Barclays Africa, on their expansion strategy, handling competition and financing SMMEs

Q&A: BARCLAYS AFRICA

Q: Investor interest in Africa, both global and domestic, is at a peak. From a banking perspective, how do you view this?
A:
There’s excitement largely because Africa is developing quickly from a very low base. Consider that there are more cities in Africa with a million inhabitants than exist in Europe and the US combined. Add to that the incredible number of cellphone users and we see the scale of growth potential.

If governments can remain stable, then Africa is the ‘next India’. In a world of tough economic conditions, the continent’s offerings are very attractive. Mozambique, for example, with its gas-to-liquid project, will basically add some 50% to the country’s tax revenue – almost the same as its current GDP. This is an example of the chunky projects on offer.

African nations are growing on average between 5% to 12%, with sub-Saharan Africa presenting an average of 6.5%. If a global company is not already in Africa, it’s tough to be a Johnny-come-lately. Also, financial markets are growing particularly fast – the bond market in SA is 10 times bigger than it was in the mid-90s, and the JSE is eight times larger. Those two compounding growths show us how quickly things here can double again.

Q: Can Africa’s banking environment support such accelerated growth?
A:
Yes, but everyone needs to go in and build scale, and that’s what Absa is doing. We are putting our SA trading system into each of the countries where we have a presence. This allows for the correct management of market risk, derivatives and so on, so we can offer appropriate risk management services for corporates, which hasn’t been available until recently.

Up to the early 2000s doing a three-year rand/dollar swap was difficult and costly, but now we are doing much longer dated transactions. We have to build platforms now, and the good thing is that most of those already exist in SA, having been developed over the past 15 years, so taking these into Africa is not that difficult.

Q: What is the corporate and investment banking division’s plans for Africa expansion, and what are the criteria that you use to determine viability?
A:
We operate in 15 sub-Saharan countries. The only two large economies we miss in this region are Nigeria and Angola, and although we do have a presence in both, we are still building up those businesses. We are present in the countries where we wish to be, and it’s a question of building the wholesale banking franchise side of operations. Traditionally the focus in Africa has been on retail and SMME businesses.

Absa and Barclays build on the presence that the latter has had in Africa. We also tend to have relationships with SA’s neighbours, and more importantly, we look at growth markets such as Zambia, Kenya and Ghana. Global indicators show that we need to ensure countries have viable trade markets, global interest, stable governments as well as reasonable and sound economic principles.

We ask whether there are reasons for growth, such as mineral or gas resources, and what the potential of these indicate. We also work to a client-driven strategy, so if our customers go into Africa on scale we are driven to develop a synergist strategy and that creates a banking environment across marketable jurisdictions.

‘We are putting our SA trading system into each of the countries where we have a presence’

Q: What service offerings are you taking into the African market?
A:
We are emphasising corporate and business banking products, and on the back of that, which is a natural progression, Forex trade finance. We also bear in mind that when local African banks start to issue government bonds internationally to take care of their central bank and treasury, then bond trading comes into play.

Country circumstances determine what you take to market. Our four main products are debt; transactional services (your basic treasury services) and Forex and trade finance. Everything else builds on that base, so as the government bond market grows and bond trading starts, risk hedging is stimulated off interest rates. Similarly, as infrastructure develops and natural resources projects gain momentum, project finance is required.

Q: What is Absa’s strategy for corporate clients in Africa?
A:
This is interesting because it’s about connecting the dots to enable regional and continental banking, a “one bank in Africa” approach if you like, from a single common login. This is the competitive advantage that prevails over local banks, because we offer this service across 15 countries.

This is enhanced by the fact that we are an international bank, so Africa can easily integrate into Europe and the US as part of our global offering. I think we must emphasise the need for IT platforms that can make a business scalable and uniform across all countries.

International banks need to take their technology and roll it out across the grid because the bigger the scale, the better the platform and state-of-art facilities, so Barclays in Ghana or the UK will look and feel the same.

This is a formula that works for us and is ideal for corporates that are active in two or more countries, because this is where we can offer something different to the local equivalent.

Q: How does Absa/Barclays accommodate the SMME sector?
A:
There is a lot of pressure on large corporates to work with local suppliers. Working with our clients’ suppliers, which are largely SMMEs, makes for a very interesting relationship. It makes it easier to lend and bank to those SMMEs off the back of the contract they already have with the corporates.

We are trying to combine our enterprise development efforts with our top-end corporate offering as a product service. An example is Tshwane, which last year announced the creation of 10 000 jobs for the youth by offering employment contracts such as park cleaning, window washing, catering etc. After being awarded a contract, the young person applies for a loan from us, and we in turn offer them banking education, facilities and even training under our enterprise development programme.

Once service payment made by Tshwane is transferred into the individual’s Barclay’s account, we deduct the loan money thereby creating a relationship with the individual. With Tshwane having pledged R1.3 billion in contracts into the scheme, this is a substantial effort to help develop and create SMMEs along with our bank.

Q: Is CSI part of the bank’s Africa strategy?
A:
CSI is part of our broader citizenship agenda, which also contributes to economic growth and the way we do business. Citizenship is very important to us. We focus on being relevant in the communities in which we operate. We also take advantage of opportunities to partner with our clients to support our communities.

In Zambia we have partnered with GlaxoSmithKline to deliver critical medicine for distribution, along with much-needed micro health-care insurance at 25% of cost. We also use sport as a base to reach the youth and equip them with financial, enterprise and life skills. Our Spaces for Sports programme provides leadership training and HIV/Aids education. There are many other corporate citizenship projects in place that we apply across borders.

‘CSI is part of our broader citizenship agenda, which
also contributes to economic growth’

Q: How does Absa apply e-commerce in its African activities?
A:
With a lack of infrastructure, particularly roads, e-commerce is critical. A great deal of work goes on to address these issues, such as increasing the use of cellphone banking. As important is the development of solar energy. One of our projects in Kenya is involved with solar lights and chargers to enable mobile study and banking. Three years ago when we launched our FX platform BARX none of our FX was registered on an internet platform. Today that figure stands at 52%.

This transforms our currency trade in Africa because on the old system you’d have to buy dollars before you could take out a spread to, for example, buy Kenyan shillings or Ghanaian cedi. This was exceptionally expensive and time consuming.

Q: How does Barclays in Africa fare against indigenous competition and how do you drive confidence?
A:
Barclays has an aspirational global brand presence in Africa with better credit rating than local banks, so we attract lots of deposits naturally. But you also have to look at SA and how difficult it is for international banks to make inroads against the big four – Absa, Nedbank, Standard [Bank] and FNB. The same applies to Nigeria, which is similar to Kenya because local banks have a long history of deposits. They operate within borders so they have a different view of risk.

This makes it difficult to compete against them. However, we focus more on corporates operating in more than one country because here we can achieve better success than the local brands.

By Kerry Dimmer
Image: David Maclennan