Africa’s relative attractiveness for banking groups has come in part due to the high rates of GDP growth across its more sophisticated economies. Several countries, including those in Barclays’ portfolio, have also discovered new hydrocarbon reserves.
However, the global economy is still only slowly recovering from the 2008–2009 financial crisis, and most African countries are still struggling to diversify away from the extractive industries.
This in turn has left them vulnerable to shifts in international markets and undermined their fiscal stability. Ghana, for example, has emerged from a period of fast economic growth and its own GDP rebasing into one of fiscal uncertainty. The country has a triple deficit – current account, budget and trade – a sign that, despite the revenues from its new-found oil reserves, it still has structural issues in its economy.
Although not as severe, some analysts expressed concerns about Kenya’s fiscal position last year as it began discussions about a $1bn Eurobond. Bungane says that his conversations with the leadership in these countries have left him confident that they are capable of and committed to dealing with their problems.
“All of these countries are thinking long and hard about how to use the growth dividend of the last decade to improve the structural set up of their economy by driving infrastructure spend harder, to support the extractive industries, to support their enabling sectors such as the service sectors,” Bungane says.
“I am confident that many of our policy makers, many of the executives in these countries not only understand the phase that they’re in, but they’re up to the task in doing what is needed to continue to grow and structurally adjust for the future.”
Over the past 12 months, several African countries have tapped the global markets, borrowing from international investors in order to finance capital expenditure on infrastructure. Zambia, which was the forerunner of the recent trend for sovereign issuance in Africa in 2012, returned to the market this April with a $1bn bond. Barclays was one of the lead managers.
“Accessing hard currency, long-term debt capital and equity capital is the key ingredient in unlocking infrastructure spend, in unlocking the potential for sustainable growth in Africa,” Bungane says.
This, he believes, is the role that investment banks can play in creating a sustainable future for the continent’s economies.
“For Barclays to package and introduce sovereigns to deep pools of US-dollar liquidity from both the West and East Coast of the US, from London, from Europe, from Asia, is genuinely life-changing,” he says. “This kind of stuff really changes African economies.”
Investment banking is still a major part of Barclays’ business in Africa, and the bank is able to leverage a global footprint to source capital from investors worldwide. However, major questions remain over the ultimate shape of the business, which has been going through a massive transformation under its new CEO, Antony Jenkins.
Jenkins, who took over from Diamond in August 2012, has been tasked with detoxifying a brand that, in the UK and US, has become intimately linked with the worst excesses of the pre-crisis investment banking boom, including a major scandal linked to the fixing of foreign exchange rates in March.
A strategic review of the business, due to be published in May, is expected to lead to up to 20% of the investment bank’s staff being cut. Jenkins, who had responsibility for the Africa region as part of his previous role at the apex of Barclays’ consumer business, is understood to see the continent as a strategic priority, but there is still considerable uncertainty about what the overall restructuring of the company will mean for its African operations.
Although he will not be drawn on the future of the investment banking arm, Bungane is confident that Africa will remain part of Barclays’ short- and long-term focus.
“A third of all of the plc’s employees are in Africa, we contribute double digits to the bottom line of the group,” he says. “Africa represents a significant growth opportunity for the group. This is the status that we enjoy, and continue to profit from it. The group is going through interesting times, as are many global banks with significant investment banking [arms]. We have a transformation strategy that is meant to radically change how we do banking throughout the group.”
In Africa, this will mean more investment in technology, making the company more efficient and with better security and corporate governance controls. It will also allow the business to invest in products – such as mobile money – that have proved disruptive on the continent, Bungane explains. In the longer term, that should pay dividends.
“I’m a firm believer in the narrative of Africa’s economic rise. Not just because over the last two years, over the last decade, they have averaged over 5.5% increases year on year in GDP. It isn’t just a revenue story, it’s also just a resilience story,” he says, adding that after the global financial crisis, only a handful of Africa’s top economies went into recession, while most of the G7 advanced economies shrank.
“Africa’s economic rise is not just a historical thing. I think it’s going to hold up well, even looking into the next decade. I think that the resilience of these economies is probably understated.”