counter current

Goldman Sachs swims against tide in South Africa

By Benjamin Polle

Posted on January 29, 2020 07:51

As other investment banks head in the opposite direction, Goldman Sachs is piling into South Africa

Goldman Sachs announced last May it was expanding its services in South Africa.

On Monday, 20 January 20, the Wall Street bank confirmed it received approval from the South African Reserve Bank — the banking regulator — “to operate as a bank in South Africa”.

Goldman Sachs International Bank (GSIB), which groups together the international activities of the New York bank in the United Kingdom, Germany, China, and South Korea, will now have a South African branch.

GSIB is also listed on the currency markets of the Johannesburg Stock Exchange, the South African stock exchange. In May, Goldman Sachs signed an exclusive partnership with the asset management company Investec to broaden the scope of their mutual intervention in the South African equity market.

Portfolio expansion

Goldman Sachs is positioned to provide the full suite of investment banking: loans to South African corporates and institutions, government and public company bonds, equities, and currencies.

This is a significant expansion of its portfolio, as Goldman Sachs has for the past 20 years limited itself to providing advice on wealth and asset management, or support in mergers and acquisitions, via a representative office in Sandton, Johannesburg.

In 2007, the company was in the thick of things when the Industrial and Commercial Bank of China (ICBC) acquired a 20% stake in Standard Bank for $5.6 billion (5.1 billion euro). At the time, the deal was touted as the largest foreign direct investment ever made in Africa.

Acting against the tide

Goldman Sachs was part of a recent $52 million fund-raising effort by South African fintech Jumo, which aims to improve access to savings and credit for individuals and small businesses to finance its development in Asia.

Goldman Sachs’ decision comes at a time when other financial players, including Deutsche Bank, Credit Suisse, Australian Macquarie, and Dubai’s Arqaa, are pulling out of the country, faced with very weak growth and unemployment reaching 29%.

Benjamin Ngongang, associate director of FinAfrique, a banking and insurance consulting firm based in Abidjan, Douala, and Paris, said, “Some players have said that South Africa is not what it used to be. Goldman Sachs is saying, on the contrary it would strengthen its position in Africa.”

Signed Colin Coleman

For Warren Thompson of the Financial Mail, the explanation for this counter-current strategy bears the marks of the “Mr Goldman” in Johannesburg, Colin Coleman, the former CEO Goldman Sachs for Sub Saharan Africa.

“The decision to apply for a banking licence is clearly his, perhaps even against the advice of the bank’s management. He comes from a family that has long been involved in the struggle against apartheid,” explained Thompson.

Coleman is well connected to the ruling African National Congress and has publicly championed the very pro-business Ramaphosa, Jacob Zuma’s successor as president of South Africa. At the end of 2019, Goldman Sachs’ emblematic leader ended more than two decades with the bank to become a professor at Yale University in the United States.

His successor, Jonathan Penkin, one of the bank’s partners, is less well known in the local business community.

Opening new offices?

Penkin’s Sandton team is set to expand. Two investment co-heads have already been appointed.

“This anchors South Africa as a market place to which Goldman Sachs will bring its clients from all over the world,” reckoned Ngongang. “It will further open up South African players to international markets.”

Is this a prelude to the opening of other African branches? Not in the immediate future said the analyst but added the bank has “shown interest” in African technology.

In this perspective, “the opening of offices in Kenya or Nigeria would not be absurd”.

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