Barclays rethinks its Africa strategy

  

In a statement released by Absa yesterday, the South African bank announced that UK banking giant Barclays is looking at combining the majority of its operations in Africa with its Absa subsidiary, in line with its strategy to operate as ‘One Bank’ across the continent.

Maria Ramos, Absa Group CEO

Maria Ramos, Absa Group CEO

The proposed deal would involve the combination of Barclays’ interests in Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia and the Indian Ocean with Absa, with Barclays Bank PLC remaining as the majority shareholder of the combined African operations.

“This proposed combination of the majority of the Barclays Africa businesses with Absa is the next logical step in delivering our ‘One Africa’ strategy, which Barclays PLC announced last year. 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. This proposed combination of the businesses will mirror the managerial and operational structure we have already put in place,” said Maria Ramos, the chief executive of Absa Group and Barclays Africa.

The proposed tie-up will be subject to the approval of the boards of Barclays and Absa as well as shareholder and regulatory approval. The listings of Barclays’ subsidiaries in Kenya and in Botswana will be maintained.

Ramos added: “We are tremendously excited by the opportunities for growth in Africa. We are wholeheartedly committed to our businesses across Africa and this proposed combination will help us to leverage the significant potential of these businesses. It will provide a platform for further growth that we firmly believe will be to the benefit of our colleagues, our customers and clients, our shareholders and the communities in which we operate.”

Barclays said that “there can be no certainty that these discussions will lead to a combination”. However, if it goes ahead, the proposed combination would not be expected to be completed until 2013.

We had been unsure of how exactly Absa and Barclays were looking to play the Africa strategy, with Absa having previously announced its intention to grow its footprint as Absa as recently as last month. Ramos announced then that Absa was scouring East Africa for potential acquisitions and aimed to strike a deal by next year. “East Africa is our next focus area and we are evaluating acquisition opportunities in this region with a target date of first quarter 2013,” Ramos said at the bank’s first-half results presentation.

Absa already has operations outside of South Africa in Namibia, Mozambique and Tanzania.

While this statement does now give more colour as to how the two will combine their operations, which obviously makes sense from an operational efficiency point of view as we assume many of the functionalities will become centralised, it is interesting to note that not all of Barclays’ operations are mentioned in the tie up.

Barclays PLC’s presence in Africa at the moment encompasses Botswana, Egypt, Ethiopia, Ghana, Kenya, Mauritius, Mozambique, Nigeria, Rwanda, Seychelles, Tanzania, Uganda, Zambia and Zimbabwe. Whether the countries not included in the proposed combination will be brought into the fold later remains to be seen.

We do however expect that it is the Barclays brand that will remain deployed throughout the rest of Africa where it has built a strong goodwill over the years, while South Africa is likely to remain as Absa, we think, in the short to medium term.

Barclays’ pre-tax profit from Africa, including the bank’s holding in Absa, rose 13% to £910m in 2011, as the unit contributed 15% of the bank’s £5.97bn pre-tax profit. Thus Africa is a key component of the group’s future, and we expect it to grow in stature as the continent continues to show strong economic growth and more of its unbanked graduate to formal banking services.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.




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