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Finance: Africa’s banking leaders go global

By Nicholas Norbrook
Posted on Monday, 21 September 2009 12:55

The Africa Report’s exclusive analysis of the Top 200 Banks in Africa 2009 is now online. Here we look at how Africa’s leading banks are starting to spread their wings beyond the continent.

The small, neat office in a huge office block in central Beijing is dwarfed by those of the Chinese corporate titans surrounding it on every floor. It belongs to Standard Bank, the first African bank to own a banking licence in China. A small bar is screened from a meeting room by sliding doors. For Craig Bond, the architect of Standard Bank’s expansion in Africa, and now in charge of the company’s China operation, this room is critical. “The Chinese don’t do deals like Western businessmen. Connecting with people is important – sitting down, having meals together, building relationships. It’s more of an African way of doing things.”?

Standard Bank Group dominates Africa. Sitting on top of our list of Africa’s Top 200 Banks (see page 99), it has slowly pushed its reach into the rest of the continent and is present in 17 African countries. Big deals have followed – lead arranger, underwriter and largest lender for the 30-year Lekki toll road concession in Nigeria, the Mozambican gas pipeline to South Africa and the Rabai power plant in Kenya. Other South African banks have followed clients like MTN, Anglo American, Sasol and Shoprite into the rest of the continent. In every sector, South African companies have taken the plunge and have brought their bankers with them.??

But the 2008 sale of 20% of Standard Bank to the Industrial and Commercial Bank of China (ICBC), 70% owned by the Chinese government, was the next step in a race that has seen African banks try to hoist themselves out of the narrow confines of a continent that does not do business with itself and into the warm expanding tides of South-South trade. “The South African economy was running out of steam,” says Bond. “That’s why we wanted a BRIC focus” – in reference to the rapidly growing economies of Brazil, Russia, India and China tapped up by Goldman Sachs. Following the trend, Standard now has operations in Brazil, Argentina and Turkey, amongst other countries.

The business logic is irresistible, driven by a sense that the Africa-Asia relationship is changing. The big deals for resources, including oil, between African and Asian governments will eventually be followed by more multi-faceted relationships at the corporate level. An agro-processor in India will look to Mozambique to provide fresh fruit, a cassava producer in Nigeria will sell in bulk to an animal feed manufacturer in China, Korean plastics companies will look to import petroleum products from South Africa and a Ugandan company will hire a Chinese one to manage their telecoms network. Such relationships will grow fast over the next decade – and they will require financing.

India, where corporate life is more developed than in state-dominated China, is also a natural destination for African banks looking outside the continent. In May, South Africa’s FirstRand was the first African bank to open an office in India. Indian companies like Essar and ONGC-Videsh are interested in oil, while Reliance and Bharti Airtel are circling Africa’s telecoms operators. It is not just one-way traffic; in July, energy giant Sasol tendered with Indian company Tata Group for an $8bn coal-to-liquids plant in Orissa State, India; not only did they win the contract, they were asked to build another one.

Game shifters?

Standard and FirstRand are looking to align local knowledge with heavyweight balance sheets. For Razia Kahn, Africa economist at Standard Chartered, this has changed the game. “These banks are now able to do things that otherwise were not considered possible,” she says. “They can do today what they had planned for tomorrow, in terms of deals and in terms of growth into new markets.” ?

The Morupule B power station deal in Botswana, for which Standard Bank won the financing tender, is a case in point. Standard and ICBC are the lead arrangers of the $825m, 20-year loan, with Chinese insurance giant Sinosure guaranteeing the risks. Standard Bank Group CEO Jacko Maree says they obviously could not have done this deal alone. “It was the combination of ICBC bringing the partner and a lot of funding, and us having a lot of the skills, as well as the physical presence on the ground. That was the deciding factor in winning the mandate”, in what could well be a blueprint for future deals for the two banks’ operations. “But we are not limited to Africa, there is other emerging-market business to be done as well,” Maree explains. The purchase of a 33% stake in one of Russia’s leading investment banks, Troika Dialogue, for $200m in March allows Standard to start looking at Russia-Africa deals, of which there are several in the energy sector.

This evidently brings Standard into competition with Standard Chartered, already well-established in global markets. Though both banks say there is plenty of room for all, Standard Chartered sees itself as operating towards the upper end of the value chain. Its Africa CEO, Mike Hart, explains that his bank is “actively involved in the evolution of local derivatives and interest rate markets. This ensures that we can offer more sophisticated risk solutions to our growing customer base in Africa, to match their increasingly sophisticated requirements”.

Is the gleaming world of corporate and investment banking the right way to go for African banks wishing to expand abroad? Not according to investment advisor Joseph Wambia, managing principal at US company Wambia Capital, which is launching a range of mutual funds focused on Africa. “African banks are wedded to the corporate model, but they will never be competitive overseas. You need a huge capital base and the ability to offer sophisticated products. At the moment, only the South Africans can offer that.”?

Wambia believes smaller African banks should focus on the diaspora. With Africans abroad sending home $20bn last year, the transfer market can be seen as an extension of the domestic retail market, but offshore. Nigerian banks are particularly keen to have a presence in the West – but these are currently no more than trophy offices, the status symbols of a recent, more ebullient age in Nigerian finance.

Now, Western Union and other money transfer companies, with fees of up to 20%, are taking the cream of the African remittance flows. “The bank that intermediates this by reducing the costs and increasing the flows of remittances, has the best chance to be the bank that mediates investment flows into SMEs in the domestic market by the diaspora”, according to Wambia.

Seeking the big bucks from abroad?

The competition for this market is fierce among banks from North Africa, serving the huge diaspora in Europe. Attijariwafa Bank has dropped the cost of transferring money from abroad to Morocco from 2.5% to 0%. It currently banks 22% of Moroccans living abroad. It is estimated that 5% of Moroccan GDP comes from overseas nationals. Banks know that in a few years’ time their clients abroad will want to start investing in their home country – either by purchasing houses, investing in the stock exchange or buying a business.

Moroccan banks, which lie between the average South African and Nigerian bank in terms of size, have not only been focusing on their diaspora, but they also support companies in the aviation, agribusiness and construction sectors, allowing them to expand corporate and trade finance especially into francophone Sub-Saharan Africa.

Morocco’s BMCE has put all its international operations into one company, MediCapital Bank, which is based in London and was launched in 2007. It aims to revive the idea of Morocco as a gateway to Africa. “We started with the basics, which is plain vanilla equity trading, pure institutional funds coming into Africa, wanting to trade Morocco, wanting to trade Tunisia or Côte d’Ivoire, and now we are extending to other areas,” says Luca Del Conte, executive director of treasury and capital markets at MediCapital. “The most active sector at the moment is on the private equity front, for medium-sized firms of around $350-$400m, where private equity firms are looking for a 5-10% stake.”?

The road ahead is clear. The top echelon South African banks will continue to surf on an ever-larger wave of South-South trade growth. The lower echelon banks in Nigeria and Kenya can focus on harnessing their diaspora. Western Union can reach the unbanked in a way that banks cannot, but mobile phones and biometric identification methods are a high-growth area at the moment, easing the access to a bank account. Meanwhile, the middle to large banks in North Africa will continue to sharpen their nascent corporate and investment banking abilities. Together, they will knit Africa into the rest of the global economy, whether for better or for worse.

An interactive version of Top 200 Banks in Africa 2008 ranking is online now.

Finance: Africa’s banking leaders go global