The call of the veld: banks go big-game hunting in Africa

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The Independent Online

When David Roberts, the head of Barclays' international operations, took over the business two years ago, Africa was contributing around £100m of profits a year. He wants a lot more: "I expect 10 per cent of Barclays' profit before tax will be coming from Africa."

Given that the bank made £4.6bn before tax last year, and other parts of the empire are growing strongly, this means Africa will generate over £500m of profit a year.

It is a tough target. But Barclays is expected to go a long way towards it this week when its plan to take a 51 per cent stake in South African bank Absa is approved by the country's Treasury. Barclays will pay up to 27 billion rand (£2.3bn) for the holding, gaining a platform for its assault on a continent that hardly tops most people's lists of places to invest.

War, famine, corruption, exchange controls, political instability and inflation are just some of the problems that have persuaded most people there are better places to put their money. Since Lonrho fell apart after the death of Tiny Rowland, Unilever has been the only major UK company to have invested and made money in Africa (with the obvious exception of the oil and mining groups, which have to go where the natural resources are). Most UK banks pulled out of South Africa during apartheid, and although Standard Chartered, Barclays and HSBC retained networks across Africa, they were not seen as big money-spinners.

However, things are now changing. "Africa over the last decade, particularly the last five years, has got its act together," says John Kivits, chief executive of Standard Chartered's South African operation. "Political stability has increased, inflation has come under control."

Standard Chartered is in a dozen countries in Africa - it has been there in some for as long as 140 years. It understands that for every success story, such as Ghana, you are going to have a political and economic basket case, such as Zimbabwe. "Sure you are going to have ups and downs," says Mr Kivits. "But rarely do they all go down together."

Barclays is already in 11 countries in Africa and will add another two to its network with the Absa deal. "It is important not to see Africa as one place," says Mr Roberts. "We don't see it as one huge growth opportunity, but parts of the continent have great growth stories."

South Africa, and in particular South African banking, is one of those stories. The country accounts for a quarter of African GDP, and nearly half the GDP of sub-Saharan Africa. Its economy is growing at 4 to 5 per cent per annum and the banks are enjoying 20 per cent-plus growth in profits. It has an extremely stable government, a strong regulatory structure, relatively free market economics and a business-friendly attitude. "It has a lot of the elements of a developed economy and of a developing economy," says Mr Roberts.

Standard Chartered is also keen on South Africa, having bought an internet bank, "20twenty", two years ago. It is pushing its business banking and treasury operations.

Mr Kivits points to the success of Citigroup, which, from nothing, now has around 7 per cent of the business banking market in South Africa. He has similar ambitions.

Others believe Standard Chartered is even more ambitious. It is rumoured to have been a bidder for Absa before Barclays trumped it, and the talk is that it could turn now to the recently restructured NedBank, 53 per cent owned by Old Mutual, or First Rand, which ironically used to be owned by Barclays.

Standard Bank, which was sold by Standard Chartered in the 1980s, is seen as too large for it to take over, but the rumour mill has it linked with HSBC, which itself has a smallish African network.

Neither Standard Chartered nor HSBC will comment on bid speculation, but it is well known that South Africa is increasingly becoming the hub for investment in Africa. As Thabo Mbeki's government spreads its influence through the continent - via quasi governmental organisations and trade and political alliances - corporations and non-governmental organisations will follow. All need banks to oil the wheels.

The only other country in sub-Saharan Africa with anything like the same economic and political clout is Nigeria. Standard Chartered is well placed in this oil-rich but traditionally corrupt and unstable country. "It is a key area for us," says Mr Kivits.

Barclays, though, has only a small presence in Nigeria. "It's a country we need to look at very carefully because it's another 25 per cent of GDP," argues Mr Roberts. "However, if you look at the risk return, there are better places to put our money. We need to get to understand it better."

There is money to be made in Africa, but you have to know what you are doing. The unwary need not apply.

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