Business
South African companies’ investments in other African countries paying off
Investments in other African countries are starting to pay off handsomely for some South African companies, such as banks, which earned R5.1bn from operations on the rest of the continent in 2013, up 27.5% from the previous year, while return on equity beat that from local operations. According to consultancy, EY, earnings from the rest of Africa operations are growing much faster than here.
The big four banks’ Africa expansion strategies are at different stages, and will be beneficial to the groups, according to EY’s lead financial services director, Emilio Pera. He said the banks’ offerings have to be relevant because they compete with strong international and regional players.
Standard Bank, Africa’s largest bank by assets, reported in its recent annual financial results that return on equity from its operations outside South Africa grew from 16.6% to 19.7%. Despite losses increasing in the personal and business banking portfolio, overall headline earnings from the rest of Africa rose 44% during 2013, driven by the bank’s strong corporate and investment banking focus.
Over the past two years the Johannesburg-based lender has increased its exposure to African countries other than South Africa from 17 to 20 while reducing its exposure outside the continent. Absa Group, now known as Barclays Africa, reported that retail and business banking earnings elsewhere in Africa increased by 35% from R1 billion to R1.35 billion.
The group said it expected operations outside South Africa to account for 20% to 25% of total group revenue by 2016. The group, led by Maria Ramos, acquired eight of the 10 operations from its parent company, Barclays plc, last year. The R18.3bn transaction excluded operations in Zimbabwe and Egypt.
Ramos and her team have set clear objectives in creating “Africa’s go-to bank”, which include growing its wealth and investment management businesses, rolling out its corporate banking and turning around its retail and business banking after years of disappointing performance.
Ramos said recently when releasing results that she wanted to see her bank become one of the top three banks by revenue in South Africa, Ghana, Kenya, Botswana and Zambia. Although the group was always on the prowl for acquisitions in other markets, Barclays Africa would focus on growth in the markets it was already in.
Korner Perspectives MD Graeme Korner said that after a series of own-goals the Africa expansion of Ramos’s company seems to be working. Korner did not think Ramos overpaid for the Barclays operations, and said that FirstRand would probably have paid more for a decent footprint in eight African countries.
FirstRand has been knocking on a number of doors, but most of the deals it has tried to bed down have been unsuccessful. Failed deals include those involving Nigeria’s Sterling Bank, Merchant of Ghana, and Zambia’s Finance Bank. However, the head of the group Sizwe Nxasana said at the release of the group’s results this month that he was not frustrated because the group’s organic approach enabled it to fuse its culture wherever it expanded on the continent and protected shareholder returns by having control over the operations.
Nxasana is aware that organic growth is a lengthy process but is “quite happy with it”. When pressed on whether FirstRand is not being left behind in the rush for Africa, he said: “We are playing a different game. We are not playing our competitors’ game. If some of them want to plant flags in all the 54 countries … if they want to grow branches in every corner of every country, that is not where we are.”
FirstRand has operations in Mozambique, Zambia, Tanzania, Nigeria, Ghana and India. FirstRand still has an eye open for acquisition opportunities, but does not have a team actively searching for prey, according to Nxasana.
Copyright Business Day Live 2014