Barclays is not in Africa to make a quick buck, but to develop a long-standing relationship with a continent it has not lavished with quite the attention that it deserves, according to Barclays Retail CEO Antony Jenkins.
With operations in 10 countries across the continent, Barclays has one of the broadest franchises in Africa of any international bank and, according to Antony Jenkins, CEO of Barclays Retail, it is a business unit of growing strategic importance for the group.
"In my view, Africa is a bit of a jewel in the Barclays crown that we've probably paid less attention to than we should have done in the past few years," he says, speaking from the bank's global headquarters in London's Canary Wharf.
Barclays underwent a reorganisation in November 2009, separating the corporate and investment banking and wealth-management divisions from the retail side. This latter division, under Mr Jenkins, incorporates the UK retail operations - with 11 million current accounts and £4bn ($6.4bn) in income - its Barclaycard business, western European retail operations and, finally, Africa. The African operations are not split along similar lines, with each national business instead incorporating the broader spectrum of retail and corporate functions.
Barclays' CEO in waiting, Barclays Capital head Bob Diamond, whose appointment has caused political hand-wringing in the UK due to his involvement - and success - in the style of investment banking that policymakers say led to the financial crisis, has said that sub-Saharan Africa is a "huge opportunity" for the group.
Long-term view
Despite Mr Diamond's reputation for short-termism and labels associated with him such as 'casino banking', Mr Jenkins is under no illusion that Africa represents a short-term, speculative opportunity. "You have to be prepared to take a long-term view on Africa. If you seek to look at it as a short-term, profit-maximising opportunity, then I don't think you'll be successful," he says.
Demographic trends, an emerging middle class, increasing regional trade and foreign direct investment (both from traditional trade partners and from new investors, notably China and India) provide significant opportunities for long-term growth in Africa. With a stated desire to be top-tier in all of its markets, Barclays may look to build its African network through acquisition, although Mr Jenkins says he does not feel under pressure to move quickly.
"We don't feel under the gun to make an acquisition, but from time to time we'll look at things and, if they make sense, we'll go for them," he says.
The natural place for such an acquisition in Africa would seem to be Nigeria - anglophone, the continent's most populous country and the second largest economy south of the Sahara. The country's banking system has undergone significant reform, and several banks are now up for sale by the government, having been bailed out in August 2009. The Nigerian government has expressed a preference for an international player to enter the market through one of these institutions, and local banks have been reticent to buy into their former competitors.
"We're looking at Nigeria in partnership with Absa [a South African bank owned by Barclays], and we'll decide which brand we want to go into the market with and which way we want to go into the market," says Mr Jenkins. "We don't intend to do anything that's capricious, but [Nigeria] is the obvious place where we would like to have a presence over time, because we do have presences in the other three big [African] markets - Egypt, Kenya and South Africa. That would kind of round out the set."
Growing economies
Combined, the 10 markets in which Barclays Africa operates should grow by about 8% this year, says Mr Jenkins, making them attractive in comparison with developed markets that are still pulling themselves out of recession. To capture this growth, the bank will initially focus on building its franchises with large local and multinational businesses before moving on to products aimed at the affluent in society and then finally the mass market.
"What we believe in retail banking is that moving our intellectual capital around the globe is a competitive advantage for us. We've developed very good 'mass affluent' banking capabilities in western Europe, for example. That could be helpful in the UK, and it could also be helpful in Africa, as the emerging middle class there has more sophisticated needs," he says.
"Similarly, some of the things that are going on in mobile [banking] are cutting-edge and are informing some of the actions that we take here in the UK. So part of the strategy is to be able to move that intellectual capital and thinking around the organisation.
"The point is that a lot of the way that you manage retail [banking] businesses is quite similar, regardless of the market. The market evolution state may be different, but the essence of how you run a retail bank is quite similar... It's a slightly different way of doing it in Kenya than in Enfield [in the UK], but the principle's the same."
The product set, too, is broadly similar in diverse markets, he says. For the mass market, simple transactional banking, savings, loans and cards are fairly universal requirements. Mortgages will be "a slow build" in sub-Saharan Africa and tied very strongly to the ongoing development of a middle class in the region. For the mass affluent - which the bank defines as individuals with three to four times the average income of the country - Barclays will offer more sophisticated savings, investments and pension products, as elsewhere in the world. In the corporate space, the bank is seeing growing demand for more sophisticated risk-management products, which it services through Absa Capital out of London and Johannesburg.
Harnessing new technology
Banking and payment systems using mobile phones have been increasingly on the agenda of both financial services providers and mobile operators. While the ubiquity of mobile phones in Africa provides powerful mechanisms to access customers in remote areas, and expands the reach of banks beyond traditional branch networks, it also provides challenges for established banking players and for regulators. Barclays has experimented with mobile services in South Africa and Kenya, and Mr Jenkins admits that the way forward is not entirely clear.
"I would say that we are now considering what the next wave of [mobile banking] is going to be and how far we really push into the space of person-to-person payment en masse," he says. "Is it the mobile operator that has the natural advantage, or is it a financial services company, or is it a partnership of the two? And what's really important? Is it the brand and the distribution, or is it the underlying understanding of how money moves around and the ability to manage and contain risk? I think these sorts of issues are quite nascent, and those are all things that we're exploring."
Mr Jenkins compares the mobile banking space with the early days of the internet, when there was much hype and little clarity over the business models that would eventually prove successful for enterprises.
"You saw all of those same discussions about who owns the customer, who's got the natural advantage," he recalls. "That's why [US-based internet provider] AOL was able to sell itself to Time Warner for such a lot of money, because at the time people believed that the AOL 'walled garden' distribution approach [where the service provider tightly controls access to applications and content] was incredibly powerful. As it turned out, that wasn't to be the case.
"The only way you can really be successful in these types of technologies is to employ them and learn, because everything else is just speculation."
Choice of markets
Barclays has little or no retail presence in Asia, or in the BRIC economies of Brazil, Russia, India and China. Markets such as these might superficially appear to make more sense than Africa for a bank with ambitions to extend its universal banking offering globally. However, getting in at the level at which Barclays wants to play is not economically viable in Asia and the BRICs in the current environment, according to Mr Jenkins.
"One thing I'm not interested in at all is planting flags so that we look good when we put the map of all the places where Barclays operates in the annual report. We have to be able to build sustainable franchises, either by product segment, by customer grouping or by country, where we go and play. Otherwise, we're just deluding ourselves," he says.
"I've been doing this long enough to remember when Asia wasn't a glamorous place to go... You've got to be willing to invest in the future, otherwise what you end up doing is optimising your existing business to the point that it begins, rather like a black hole, to implode on itself. You've squeezed all you can out of costs and you've got all the products and services, your market isn't growing inherently and you've got to take market share from your competitors.
"Our view on Africa is that we can balance the investment that's required with the revenue growth, so that we can still deliver profit there and over time build a very important strategic position for Barclays.
"In today's age it's easy to get opportunist and say: 'Are we going to make a lot of money there relative to the profit and loss of Barclays in the next two years?' If you're looking for that sort of opportunity, [Africa] isn't it. But I do think, strategically, it's the right place for the bank to be."
