London: In sspite of the cloud hanging over western banks amid concerns about a double-dip recession and the euro-zone crisis, several international institutions have been increasing their presence in Africa to tap its fast growth rates. In November, JPMorgan began offering rand clearing services in SA for the first time and it is preparing to apply for regulatory approval to open a local currency subsidiary in Nigeria. It will also establish representative offices in Kenya and Ghana early this year.
In line with the trend, Credit Suisse set up a wholly owned subsidiary in SA last January — its first stand-alone presence on the continent — after a joint venture with Standard Bank was wound up, enabling the Swiss group to focus on establishing a broader investment banking business to serve the continent.
Barclays has also shifted its Africa headquarters from Dubai to Johannesburg and named Maria Ramos, CEO of Absa Group, its South African subsidiary, as head of Barclays Africa. The UK-based bank paid £2,9bn for a 56% stake in Absa in 2005 but it had been criticised for not putting enough focus on the continent.
However, Barclays CEO Bob Diamond is counted among Africa’s latest cheerleaders.
And it is not just western banks boosting their positions in Africa. Industrial and Commercial Bank of China opened its first representative office in Africa in Cape Town in November. It paid $5,5bn for a 20% stake in Standard Bank in 2007.
The shift, bankers say, is driven by the stagnation of developed economies, coupled with the potential of a resource-rich, but underdeveloped continent with 1-billion people.
The International Monetary Fund forecast sub-Saharan Africa’s economy would grow 5,2% last year and 5,8% this year. At the same time, some of the governance and stability issues that have previously blighted Africa have been improving.
John Coulter, JPMorgan’s senior country officer for sub-Saharan Africa, says: "Better governance and macroeconomic policies, with greater political stability in a number of African countries, have contributed to a significant improvement in the overall economic performance of the continent. As a consequence, Africa is being taken more seriously as an investment and business destination."
It is likely to take two years for JPMorgan’s bank subsidiary to be operational in Nigeria, the continent’s most populous nation, with Africa seen as a long-term play for the group.
Mr Coulter makes the comparison between Brazil and Africa, saying the latter is on a similar trajectory to the Latin American nation five or six years ago. He says by opening local currency branches and representative offices, JPMorgan hopes to build a foundation to position itself for greater investment banking business.
"The opportunity we see in Africa is really to build out our commercial banking business to deliver treasury and corporate banking services to our clients across Africa, at the same time opening up the way for investment banking opportunities. If we invest now, then we will reap the upturn in Africa, whether it’s in five years, 10 years or 20 years. But we recognise that we need to make that investment now," he says.
JPMorgan estimates that at least 35 of its top 100 global clients are operating in Africa.
For Credit Suisse, a key reason for increasing its Africa presence is to bolster its emerging markets coverage as trade patterns shift. Leo Reif, head of the investment banking department at Credit Suisse SA, says: "The dialogue these days with clients is about emerging markets to an increasing extent and they talk about Asia and then they want to talk about Africa. If you can’t talk about Africa, then they’ll find another bank."
Credit Suisse has already advised on several deals, including HSBC’s bid for Nedbank , which ultimately fell through, and the $326m takeover of SA’s Defy Appliances by Arcelik Group, a Turkish company. It has also been involved in initial public offerings in SA and Tanzania.
Mr Reif says the tough environment the bank is enduring in Europe is not affecting its plans in Africa.
Standard Chartered, one of the more established international operators in Africa, is another expanding on the continent. In 2010 it bought Barclays’ Africa custody business — before Mr Diamond took over at the bank. It also put in a failed bid for Nedbank.
Diana Layfield, Standard Chartered’s Africa CEO, says there has not been enough international recognition of the "real economic benefits" of Chinese engagement in Africa. "The increasing role in Africa of other Asian investors like India and Korea has also been neglected," she says.
"Africa is no longer seen as a relative underperformer on the world stage. Investors believe in China and India’s growth; they believe in what this means for demand in commodities, and China’s and increasingly India’s need for what Africa produces."
* Financial Times