When Barclays opened its first branch in Africa in 1925, it was the first international bank to venture onto the continent. Originally a bank primarily for colonialists, Barclays is known for being a pioneer in emerging markets. This announcement, made in early March, was not unexpected, but was nonetheless surprising: Barclays has said they will be focusing on transatlantic markets in the United States and United Kingdom. Barclays has said it will be selling off its 63% stake in a regional subsidiary and will be making a full exit within three years.
Bye Bye Barclays
Barclays employs 45,000 people across the continent and holds $70 billion in assets. In the face of falling currencies and rising commodity prices, Barclays’ move seems to indicate that they are wary of continuing their involvement in a market that is no longer seeing the exponential growth it once was. That being said, Barclays’ African division’s earnings grew twice as many percentage points as the rest of the bank overall. This, then, makes Barclays’ decision even more peculiar.
“Barclays Africa outperformed the investment bank arm of Barclays,” said Ayso Van Eysinga, Eurasia Group’s Africa researcher. “[This] highlights that this is not an Africa problem; rather, it’s a Barclays’ problem.” Critics seem to agree with Van Eysinga, speculating that although Barclays may have been a pioneer in 1925 when it first arrived in Africa, they were slow to take advantage of new opportunities in the past decade. Other banks, such as Standard Bank or GT Bank, seemed much quicker at the bit and snapped up a variety of investment opportunities across the continent.
An Africa problem?
Barclays’ new CEO, Jes Stanley, is not willing to allow such another slow decade: since becoming CEO in October, he has already made drastic changes from within, including exiting Africa and scaling-down Asian operations. Stanley has voiced his concern over the volatility of Africa’s market since he began, and understandably so. Banks depend upon customers, and customers require money to open an account. With sky-high unemployment rates and a slowdown of commodity production, Africans are not investing or opening accounts at the rate they once were. Falling job rates suggest that with the slowdown of the commodity market, there are simply not enough jobs available.
Of particular concern is the current state of the South African economy. Barclays Africa is listed on the Johannesburg Stock Exchange: since the beginning of 2015, the South African rand has fallen in value by nearly 40 %, causing shareholders to lose a great deal of money. This, of course, has little to do with Barclays’ executives and more to do with global confidence in the South African economy. Nonetheless, it does not look good for shareholders to lose so much money by the destabilization of an African currency.
Some of Africa’s economies, such as those of Nigeria and Angola, are inundated with oil and other commodities, making them difficult to service in a time of weakening exchange rates and falling prices. Countries like Kenya or the Ivory Coast have been more successful at diversifying their economies and are therefore much more responsive to commodity shocks than they were in the 1990s, when Africa had a decade of negative growth.
Bowing Out
Barclays’ decision to leave does not do anything good for international financial institutions’ confidence in the African economy. Barclays exit could very well result in a loss of confidence by other institutions, and a closing or changing hands of previously stable and well-reputed banks. By opting out of the 52-country continent, Barclays may be signaling to others to follow-suit.
With Barclays’ recent announcement, there has been a great deal of talk about who will take over their holdings. While Barclays has reassured customers their assets will be untouched and only share certificates will change hands, the new and as-of-yet-unnamed proprietor will have an enormous responsibility. Barclays is expected to sell for 4 billion euros, an amount that may be a reach in today’s economy.
This is not the first time Barclays has surprised, and it certainly won’t be the last. It will be interesting to see who takes over Barclays’ shares; how the African economy responds and, above all, whether Barclays bet pays off.