Opinion: Why A Black-Owned Barclays Africa Is Unlikely

Written by Dana Sanchez

From IndependentOnline. Story by Andile Ntingi, CEO and co-founder of GetBiz, an e-procurement and tender notification service.

Calls are growing for the South African government to step in, take over or assist black investors to acquire Barclays Africa.

This follows the announcement that the lender’s U.K.-based parent, Barclays, is selling down its 62.3 percent shareholding to a non-controlling stake.

That’s 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 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 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.

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).

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 nationalize Barclays Africa, considering that it gained control of African Bank after its near collapse and bailout, in addition to PostBank.

Read more at IndependentOnline.