The growing calls for the government to step in to take over or assist black investors to acquire Barclays Africa following the announcement that the lender’s UK-based parent Barclays was selling down its 62.3 percent shareholding to a non-controlling stake are unrealistic under the current weak economic climate, where the state is tightening its belt in the face of declining tax revenues.
Barclays’s stake in Barclays Africa is estimated to be worth $5 billion (R76bn) and anyone who wants to buy it must have deep pockets. As an astute investor, Barclays will ask for a premium from potential bidders, who will have to dig deeper into their pockets if they are to walk away with the prized stake, either in full or half.
Neither the government nor black investors may have the cash needed to take control of Barclays Africa and by extension Absa, the crown jewel in the banking empire’s crown. There was a time when black investors owned 10 percent shareholdings in South Africa’s four big banks, but black ownership in the sector has regressed spectacularly due to black people selling their shares to the market instead of other black investors.
Black shareholding in Absa has dwindled to about 1 percent since Tokyo Sexwale’s Mvelaphanda Group sold its shares in the bank in 2012 for R2.3bn.
While there is merit in boosting the black shareholding in Barclays Africa (or Absa), the reality is that the black business elite in South Africa do not have enough investment capital to take control of a banking group of Barclays Africa’s size, which by the way also has operations in 11 other African countries.
Anyone who is going to acquire the stake will need to have a sizeable capital buffer. If an investor owns 15 percent of a bank, they are classified as a shareholder of reference and banking regulations require such an investor to hold more cash reserves to ensure that a pan-African bank like Barclays Bank can be bailed out if it gets into trouble. This capital buffer must be the shareholder’s own money, not borrowed cash.
If black investors feature in the bidding for Barclays Africa, they will act as the black economic empowerment (BEE) partners of cash-rich international bidders.
There is speculation in the market that Bob Diamond, the former Barclays chief executive, is mulling a takeover bid for Barclays Africa, but he will probably be challenged by other bidders, especially the Chinese who have an investment appetite for Africa.
Middle East investors, awash with petro-dollars, may also want to grab a piece of the pan-African lender to diversify away from oil, whose prices have gone down considerably in tandem with falling commodity prices and a slowdown in the Chinese economy.
I don’t believe the government, already limping from falling tax revenues, will risk taxpayers’ money to fund a BEE transaction with Barclays Africa/Absa.
With the little that the government has at its disposal, it is better off focusing its energies on fixing the plethora of under-performing development funding institutions (DFIs) – particularly at provincial level – and PostBank, the retail bank that has yet to make its presence felt despite having access to a nationwide network of Post Office outlets to disburse loans to consumers.
Provincial DFIs are often riddled with reckless lending practices that result in rampant bad debts that are worsened by state bureaucrats channelling loans to political elites while real entrepreneurs are cut off from the credit tap. This destructive culture of poor management and political patronage could be transferred to Barclays Bank, a well-capitalised and efficiently run lender that certainly does not need the baggage that comes with being owned by the state.
The government is already a big player in South Africa’s financial system and it does not need to nationalise Barclays Africa, considering that it gained control of African Bank after its near collapse and bailout, in addition to PostBank.
Just to give you a sense of the extent of the government’s involvement in the local financial services sector: the state owns a number of DFIs such as the Industrial Development Corporation, the Development Bank of SA, National Empowerment Fund, Land Bank, National Housing Finance Corporation, and Small Enterprise Finance Agency. At a provincial level, it controls DFIs like the Eastern Cape Development Corporation, KwaZulu-Natal’s Ithala Development Finance Corporation, Limpopo Development Corporation, and many others.
On top of this, the state owns asset manager, the Public Investment Corporation, which handles assets of more than R1.8 trillion on behalf of government employees and beneficiaries of the Unemployment Insurance Fund.
The government also missed a huge opportunity in 2008 to support the emergence of a black-owned and operated bank when it allowed Absa to bury Meeg Bank.
That year, Zinzile Nkonki – a veteran banker who knew Meeg Bank inside out – aided by the Black Management Forum and the National African Federated Chamber of Commerce and Industry fought valiantly to prevent Absa from acquiring 100 percent of Meeg Bank in a David and Goliath tussle. This fight did not produce the famous upset of its Biblical origins.
Goliath (Absa) buried David (Meeg Bank) and the aspirations of black people owning and operating a viable bank died that year while they watched the rise of the Afrikaner-owned Capitec Bank, as a new member in mainstream banking to challenge the dominance of the Big Four.
Nkonki and his supporters wanted Meeg Bank to merge with Ubank (owned by mineworkers), but the SA Reserve Bank supported the Absa acquisition of Meeg Bank, effectively aiding the wipe-out of the bank from the country’s banking landscape.
A merged Meeg-Ubank would have given the established lenders a run for their money for lucrative government banking contracts, which are highly contested and sought after, as well as the large working-class market in which Capitec thrives.
In 2014, the very same Reserve Bank bailed out African Bank, a white-controlled bank, to the tune of R7bn.
By way of comparison, Meeg Bank needed R53 million in 2008 to plug a hole in its capital reserves and hold on to its licence. It was not financially assisted and blocked from partnering with Ubank to recapitalise itself.
Once African Bank has been nursed back to health, I believe it should be sold to black investors in line with the current mantra of the “Black Industrialists Project”. Barclays Africa should be left to people with big pockets.
* Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.
** The views expressed here do not necessarily reflect those of Independent Media.