The ABSA deal is actually a return by Barclays to South Africa. Barclays was forced to sell (at a loss) its South African holdings in 1986, in response to huge protests in Britain against apartheid. Today those holdings are First Rand Bank, another of South Africa’s big four commercial banks. Ironically, Barclays has bought one of its original competitors.
Both Barclays and ABSA have operations in a number of other African countries, around 13 together — making the combined entity Africa’s largest commercial bank. Barclays has said that it wants to invest lots more in Africa, which is growing far more rapidly than the British market. It has also agreed that ABSA will remain listed on the Johannesburg Stock Exchange and be run by a South African board, so the deal should avoid getting labelled as economic imperialism.
Obviously, the deal is a huge vote of confidence in South Africa’s economy. The government has been practising a very restrained fiscal policy ever since coming to power in 1994. As a result, compared to 1994 the budget is a lot healthier; taxes are down thanks largely to far more efficient collection; inflation is down from around 16% to around 3%; the currency is, if anything, too strong; and the economy is growing at around 3-4% annually.
It will, of course, take a long time to undo the damage that the last decades of apartheid did to the economy. When first introduced to replace the British Pound, the South African Rand was valued twice as highly as the US Dollar. Now, while the standard of living of the wealthiest 10% of the country can rival anywhere in the world, unemployment amongst the broader population runs at around 40%. And that’s going to require more than 3-4% annual growth to correct.
Which leads to foreign direct investment (FDI). Such investment is an excellent way of introducing capital and expertise into an economy — which explains the cut-throat global competition for investment. Africa received only around $15 billion in FDI in 2003, a third of which was from other Africa countries (particularly South Africa). This is somewhere around a mere 3% of global FDI.
However, new deals like the Barclays one suggest positive change might be on the way. There is a lot of positive feedback coming from current investors around Africa. Many countries seem to be more investor-friendly than ever before. In addition, the African Union’s economy policy, NEPAD (New Policy for Africa’s Development) is looking at a number of long-standing problems, like infrastructure, skills development, cross-border trade, and good government. Indeed, there are a number of sectors that are seeing growing (and highly profitable) investment, notably telecommunications, retail, banking and resources (mining and oil). (See, for example, some interesting articles here).
All of which makes it possible that the Barclays deal will not be the last of its nature. Perhaps even more importantly, it looks like increased investment might go to the rest of Africa too — since South Africa’s economy already accounts for nearly half of sub-Saharan Africa’s GDP, there is more need elsewhere.
But before this starts to sound too much like a propaganda release, there remains a huge problem with the rosy picture above: Africa is not the only developing country in the world. China, and increasingly India and South America, are attracting almost all of the investment that is interested in either cheap labour costs or new consumer markets. And it’s going to take a long time to saturate the Chinese market. So perhaps Africa is going to be left advertising its excellent fundamentals without success for some years yet.
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