{UAH} WHY AFRICA SHOULD FOCUS ON LOCAL INVESTORS

 

Barclay’s withdrawal: Why Africa should focus on local investors

By Mark Napier
Posted Wednesday, March 9 2016 at 02:00

So, Barclays is pulling out of Africa. That’s hugely dispiriting news (or non-news, because it has been trailed for a while) and reflects badly on both Barclays and Africa.

It reflects badly on Barclays because it suggests a failure of imagination, over many years, to create a sustainable strategy for Africa. Despite access to phenomenal resources, they weren’t able to come up with a workable plan for either their retail business in Africa or their corporate business.

For those of us who care about financial inclusion, it probably doesn’t make a lot of difference. Barclays has been a non-player for years despite some projects with savings groups in Uganda and with the susu collectors in Ghana. Barclays talked a good story about mainstreaming these sorts of innovations but that simply never happened. A few years ago, there was talk of them revolutionising retail banking in Zambia and elsewhere with low cost kiosk-type bank branches – but, again, nothing ever happened.
Ten years ago, Barclays Bank Kenya had more or less the same number of customers as Equity Bank – around half a million. Now, Equity has almost 10 million customers while Barclays has fewer than 800,000. Mobile phones are evidently what their well-heeled managers use for chatting to each other, not for reaching out to the unbanked.

In a way, that’s fine. Banks need to decide where to play and the mass market is just not Barclays’ space in Africa, except, through Absa, in South Africa. So what is in a way more depressing is they couldn’t find a way to make the corporate banking piece work either. It’s also depressing that it’s the South African business (admittedly 80 per cent of their total African business) that has dragged all the other Barclays Africa businesses off to the scrap heap. These business are more inefficient than the South African business but, still, most are growing in local currency terms and are profitable. Outside South Africa, Barclays Africa has 2.8m customers, 10,500 employees and 476 branches in 11 countries – not small.

Barclays has been stymied by a multiple whammy of weak growth in Africa, severe currency pressure in most of their markets and the impact of increasingly difficult regulatory conditions, which are highly discouraging to lenders looking to engage in markets or sectors perceived as risky.

Barclays’ departure probably won’t have much economic consequence on the continent – except presumably for some its employees. There are so many banks in Africa that borrowers will just move their business elsewhere where they will find no shortage of liquidity. And, in any case, Barclays will be looking to manage its retreat carefully.

But there is a lot of symbolic significance: we can’t just brush it off as “one of those things”. For Barclays head office to put a line through its African business, and turn its back on a century of lending in Africa, especially after working so hard and over many years to get its licence in South Africa, speaks volumes about its perceptions of the near term unattractiveness of the business environment in Africa and how little faith Barclays must have had in the continent’s politicians and regulators to pull their economies around.

And that’s why this withdrawal reflects badly on Africa too. If African economies had used the last decade to become more diversified and business friendly, perhaps they would have weathered the commodity downturn better and Barclays might have found more business to do.

It shows how hard those responsible for shaping African financial markets are going to have to work to attract foreign capital and foreign firms. The lesson for those countries looking to position their capital cities as financial centres is that this is so obviously not a case of “build it and they will come”. They will have to fight hard to attract this investment, and be relentless in their championing of the kind of regulatory and business climate reforms that foreign investors want. Foreign financial investors will set extremely demanding entry conditions but they cannot always be trusted to stay.

Which is why, despite the international connectedness of the financial system, the focus must be on building financial markets that speak to the needs of local businesses and investors. Unlike Barclays, African consumers, and their pension funds, are not going anywhere. They urgently need products to invest in – and in their own currency, too.

Perhaps, once these reform processes have produced some good results, Barclays will want to come back. The question is whether they will be welcome then. And if Barclays has gone, which of the other international banks is next?

Mr Napier is the Executive Director, FSD Africa

Editor’s note: Barclays Africa has announced that the decision of UK-based Barclays PLC to reduce its shareholding in Barclays Africa to a non-controlling stake will not affect Barclays Africa’s operations.

 

EM

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