It’s taken them long enough, but Absa have finally got their act together to take a serious tilt at making inroads on the African continent, where they have been outshone by their domestic competitors for too long. In what appears to be an expensive and major acquisition, the bank bought almost all of Barclays’ Africa division, which includes operations in nine African countries (spoiler alert: not everything is what it appears to be).

The terms of the deal will give Absa a significant or total majority in banks in Botswana (67.8%), Ghana (100%), Kenya (68.5%), Mauritius (100%), the Seychelles (99.8%), Tanzania (100%), Uganda (100%) and Zambia (100%), as well as the Barclays Africa regional office in Johannesburg (100%). In return, Barclays has increased its stake in Absa from 55.6% to 62.3%, equivalent to approximately R18.3 billion.

It’s about time that Absa got seriously involved in Africa. Until now, its operations on the continent have been limited to just Mozambique, Namibia and Tanzania; a source of frustration for some in the company who believed that its future depended on serious continental expansion, especially considering the progress that other South African banks have made. Nedbank and First National Bank operate in five and six African countries respectively, while Standard Bank (largely through its subsidiary Stanbic) is the biggest African bank by some distance, with a presence in 17 African countries.

Ironically, it was largely thanks to Barclays’ existing Africa division that Absa has struggled to establish an African foothold. According to sources familiar with the complex relationship between the two companies, Barclays was always reluctant to allow Absa to compete with it in Africa. This, combined with a clash of views within both companies at executive level, effectively capped Absa’s opportunities for African growth.

The new deal will change all this, and from Absa’s perspective it’s a good one. “It looks like a great deal on paper. It gives Absa exposure to a high growth region, high levels of profitability, and at a pretty decent price,” said Johann Scholtz, head of research for Afrifocus Securities. But Scholtz, like other analysts contacted by the Daily Maverick, is not too sure why Barclays is getting rid of a division which has proved very profitable over the last few years. In fact, Barclay’s African business has offered higher returns than Standard Bank’s, which is always held up as the poster child for African expansion in the banking sector.

A senior Barclays official, who declined attribution, told the Daily Maverick that as far as they were concerned, the deal was merely an attempt to get their legal structure to reflect the operational situation, which is that for the last 18 months the Africa division has been headquartered in Johannesburg and personally managed by Absa CEO Maria Ramos. “This is not a transaction of value,” he said. From his perspective, there was little distinction between Absa and Barclays as separate entities – which, given that Barclays now controls 62.3% of Absa, is probably fair enough. Lending massive credence to this is that, as part of the deal, Absa’s holding company Absa Group will change its name to ‘Barclays Group Africa’, and all its African operations will operate under the Barclays name (only South Africa will keep the Absa brand). It’s getting harder and harder to see where Barclays ends and Absa begins.

The deal, therefore, is less an acquisition and more an internal reshuffling of assets. “Nothing will change for the day to day business,” he said, before correcting himself. “Well, that’s not quite true. Once we align our businesses with Absa we will have the scale to get into markets more quickly and look after clients and customers better. We are going to grow the business more quickly.”

How exactly this is going to work is unclear, beyond vague notions that African businesses are best managed in Africa by Africans. These are not without merit; there is a growing trend amongst multinational corporates to headquarter their African operations on the continent, rather than run them from Europe or the Middle East.

Even though the deal may just be the corporate equivalent of shuffling paper around a desk, Absa’s bottom line is likely to receive a healthy boost. According to rough initial estimates calculated by Scholtz, Barclays’ Africa division could contribute as much as 15% of Absa’s overall profit, as compared to Standard Bank which looks for a 10% contribution from its Africa business. And the markets certainly bought it: Absa stocks were up 5.5% on Thursday following the announcement.

If nothing else – and even if just on paper – the deal gives Absa the chance to catch up with its domestic rivals in Africa, and sends a clear message to its biggest competitor on the continent: Standard Bank, watch out. DM

Read more: 

• Absa to pay R18.3 billion for Barclays Africa operations in the Mail & Guardian

Photo: Absa group CEO Maria Ramos gestures during the Reuters Africa Investment Summit held in Johannesburg March 8, 2011. REUTERS/Siphiwe Sibeko