In July 2005, when Barclays gained the approval of the South African government to acquire a majority stake in banking group Absa, I wrote an article in the Financial Times stressing that there was nothing charitable about our £2.6bn investment. The acquisition was based on a hard-nosed and commercial view of the potential there for profitable growth and the likely return on our investment. How else could I have justified it to the Barclays board or to our owners?
Our views about the commercial potential of Africa are underscored by the scale of our African operations and by our history in the continent. We have had a presence in sub-Saharan Africa for more than a century. We now operate in 12 countries in Africa. A third of all Barclays staff are located there – about 41,000 employees – and we have more than eight million African customers. Africa accounts for 13% (and rising) of our group profits. And, given that total annual foreign direct investment in South Africa averaged $1.6m between 1994 and 2004, our $5bn-plus Absa transaction was a landmark deal not just for us, but for Africa, too.
With our history in Africa has gone the development of a close affinity with the continent, which includes support that we have given to the region’s social and economic development. This is not philanthropy either. We have learnt that to increase return on investment in developing markets requires commitment to developing the markets themselves. We believe strongly in the correlation between thriving banking sectors and thriving economies. So, the healthier the economies and societies in which we operate, the greater our commercial opportunity. We have made a practice, by consequence, of committing effort and resource to supporting the wider development of the countries in which we do business.
Developing the market
We can contribute most to the societies in which we do business by being successful. That means a strong emphasis on hiring talent. So we are obsessive about developing local capabilities and local management on the ground. The managing director of every one of our 12 sub-Saharan country operations is African, not British.
And in Africa we have the same commitment to training, talent husbandry and talent development as in every other continent in the world where we do business. That means, for example, running a first-class graduate development scheme for Africa. It also means ensuring that, where we have expatriates in the business, we expect them to have a succession plan that will draw on local, not expatriate, successors.
Kenya would be a good example of our endeavour to make a real contribution to economic development. It is an important business for us and we have expansion plans that include doubling the number of branches and cash machines in the next three years, from about 60 branches to 120, and from about 80 cash machines to more than 200. We are also investing in our first call centre for our Kenyan customers and in improving the credit card system, as well as in servicing the underbanked segment of the population with portable branches that can be deployed rapidly.
The small and medium-sized enterprise (SME) sector represents a critical pillar of economic growth and sustainability in our African businesses. The SME sector is a forcing ground both for entrepreneurial spirit and employment.
SMEs to power stations
Banks play a critical role in supporting business start-ups. Governments themselves have to create an environment in which citizens are encouraged to take the risk of opening a new business. But where that environment exists we have found that we can create additional support, such as offering our SME customers across Africa membership of the Barclays Business Club, which provides them with regular advice from a business development manager, a quarterly magazine, and an extensive programme of seminars and networking.
We organise business trips that let our club members in Africa experience best practice in other markets, make contacts and explore business opportunities. Recent trips have included 50 club members from Ghana visiting Dubai, 35 from Uganda travelling to China and 180 from Kenya visiting Japan.
We have also been active in the African capital markets. Successful Barclays-backed initiatives of the past two years include: the R1bn ($141.6m) infrastructure bond issued by the City of Johannesburg (which was the first by the city); a MRs3bn ($90.8m) issue to fund the Savannah coal and biomass power station project in Mauritius; and a $33m offshore mooring and pipeline project in Ghana.
We have been involved in funding numerous telecommunications infrastructure projects across Africa with companies such as CelTel, Vodafone, Vodacom and MTN. And the Emerging Africa Infrastructure Fund, of which Barclays is a part, will provide more than $300m in long-term debt finance for infrastructure projects in Africa in the power, telecommunications, transport, water and sanitation sectors.
Building pyramids
The business activities of the majority of the population of South Africa fall below the level of SMEs. The majority of citizens still have no bank account, and in these circumstances we need to create greater access to appropriate and affordable financial services. That means being involved in financial inclusion. One of the main vehicles for tackling financial exclusion is microfinance: a proven technique for stimulating and building economic activity and prosperity at the bottom of the business pyramid.
The best way to describe what microfinance can achieve is to give an example. In Ghana, there is a savings collection system known as susu. Susu collectors are individuals who collect a fixed amount of cash from every customer every day, and are responsible for the safekeeping of the money. Money is returned to the customer at the end of the month, and the collectors keep back one day’s takings from each stallholder in payment. Market stallholders and other small entrepreneurs who use susu collectors participate in a thriving economy that operates well below the traditional banking radar. But the collectors themselves face limitations in their ability to provide credit, educate customers in financial management and increase their own efficiency.
Late in 2005, we launched a microbanking service, including out-of-hours deposit-taking, to help susu collectors in Ghana address these challenges. After bedding down these new relationships for six months, attracting 173 susu collectors who have 70,000 customers between them, we began lending money in mid-2006 to help the collectors to extend credit to their customers. To date, we have provided small loans to 50 susu collectors, who distributed the money we had lent them to 400 of their customers.
The model works well, and a drive is now on to build greater scale. Do we make money out of this? The answer is yes. And one of the advantages of this structure is its sustainability. Even the Barclays people responsible for running the scheme in Ghana have been surprised by the level of economic activity there, and by the financial sophistication of the customers.
We are involved in tackling financial exclusion in another way in South Africa. Absa has added one million retail banking customers since the beginning of 2005 – customers who in many cases had not previously had a bank account. This access is important: it enables the customer to build a credit history and accumulate savings, which can help with children’s education or insuring against ill-health.
Accessing these customers requires creativity and dedication, opening branches in the former townships, and developing portable branches and mobile phone-based banking technology. It is an approach that has been very successful for Absa, and one from which we are learning in other countries.
Health support
Any business that is serious about Africa must confront the greatest peril facing the region: the continuing HIV/Aids pandemic. It is the biggest single threat to our staff, to the future of the economies in which we work in Africa and to the development of a thriving business sector there. So we have invested in a comprehensive employee HIV/Aids programme. It has three strands: preventing new infections; helping to treat those infected and prolong their lives through anti-retroviral treatment; and helping our employees to cope with HIV/Aids by creating a supportive working environment and providing counselling services to them and their dependents.
As bankers and business people, we believe in the future of Africa. As for Africa’s commercial potential, consider this statistic: according to the United Nations Development Programme only 4% of Africans have a bank account. Just think about that. The opportunity for a well-known banking brand in Africa is awesome.
John Varley is chief executive of Barclays.
