This is a guest post by Allen Grane, research associate for the Council on Foreign Relations Africa Studies program.
The recent rumor of Barclays PLC’s potential sale of its African businesses has caused a stir in South Africa. While Barclay’s has yet to confirm any decisions, there is plenty of reason to suspect the rumors are credible. Barclay’s has recently had to pay large regulatory fines for illegally rigging the London interbank rate, they have cut back substantially in Asia, and, perhaps worst of all, economic growth has significantly decreased in Africa. If Barclays PLC were to divest of holdings in Africa, it begs the question of who would buy their shares in Barclays Africa, specifically South Africa-based ABSA, one of the country’s largest banks.
Barclays PLC currently owns sixty-two percent of ABSA and, if the sale rumors are true, it is not clear whether Barclays PLC would sell ABSA in its entirety or only a part. No matter how much of ABSA would be up for sale, it is unclear who would want to buy the shares. Gross domestic product (GDP) growth across sub-Saharan Africa was 3.5 percent in 2015, down from 4.5 percent in 2014. While this is higher than in other regions, investors are still wary. Growth is not expected to increase in the coming years, and many companies are shy about entering sub-Saharan African markets with which they are unfamiliar yet are known for political volatility. One company that is not shy of these markets is the Public Investment Corporation (PIC) in South Africa. PIC Chief Executive Officer, Daniel Matjila, has said that PIC “would be keen to participate and increase our position (in ABSA).” PIC is already the second largest shareholder in ABSA with 5.44 percent of shares.
However, there is a major limitation on a potential PIC purchase of ABSA. As a state-owned corporation, PIC is unlikely to receive regulatory approval for a majority share in an international bank (ABSA operates across Africa, including Egypt, Nigeria, and Kenya).
There is wider discussion in South Africa regarding the purchase of ABSA. There have been calls in South Africa for a large black-owned bank. Who or what organization would make this purchase is up in the air, but there has been hopeful speculation about black South African businessmen joining forces to purchase the ABSA shares and make this dream a reality.
Barclays’ intentions are still unclear. Times may be hard, but there are still plenty of reasons for it to stay in Africa. Africa contributes about fifteen percent of the bank’s pre-tax revenue, and there are still several African countries that are expected to enjoy high GDP growth this year. It is possible that Barclays could also choose to divest of holdings in specific countries, thereby decreasing its shares by only a small margin. On March 1, when Barclays will announce its full year results, its intentions may become clear.