Jacko Maree describes his experiences working with a Chinese investor—the giant Industrial and Commercial Bank of China.
Before 2007, Standard Bank Group, Africa’s
largest financial institution by assets, had done its fair share of international deals. Over the years, it had not only expanded northward into the continent from its base in South Africa
but had also established a presence in Hong Kong, Russia, and South America. Still, Standard Bank could hardly be considered a high-profile bank on the world financial stage. All that changed in October 2007, when Standard Bank announced that it had sold a 20 percent stake to the giant Industrial and Commercial Bank of China (ICBC) for $5.5 billion, the largest Chinese foreign investment at the time.
The deal is enormously important to Standard Bank, says Jacko Maree, the bank’s chief executive officer since 1999, and it also has great symbolic significance for Africa, demonstrating China’s growing business commitment to the continent. In this interview with McKinsey’s Michael Kloss and Vikas Sagar, Maree reflects on the results of the deal with ICBC—the world’s biggest bank by market capitalization at the end of 2009—China’s increasing role in Africa, the continent’s economic prospects, and how multinationals might approach doing business there.
Globally, there’s increased optimism and focus on Africa. Is it justified?
We have taken the view for a very long time that Africa, coming off a low base, should grow faster than many other parts of the world. Not as fast as the “BRIC countries,”1
but certainly faster than South Africa
, where our head office is located, and definitely faster than the developed economies.
As a collective, the African economy is relatively small. The question is, while Africa as a continent may have higher growth, will you be able to earn enough to move the needle? There has to be a dose of realism in this. You may do very well in a small country, but the impact on your total earnings may not be that significant. However, there are also the obvious big growth opportunities within developing economies in sectors like food, infrastructure, telecommunications, commodities, and energy. There are also a number of African countries with vibrant and substantial consumer markets, such as Nigeria
In a number of these countries, there are certain operational challenges that need to be met, so certain costs will be higher. If you’re happy with the size of the opportunity, we think that the potential is there.
What advice would you have for multinationals looking to do business in Africa?
The most important question is, are you going it alone or are you going to work with partners? Sometimes having a local partner is really the most obvious way to go. Clearly, you always need advice from someone who understands the local environment. In a number of the countries in which we operate, we have chosen to work in formal partnerships. In some geographies, we have tried to position ourselves firstly as a local player and secondly as a multinational.
For major multinationals looking to expand on the African continent, a key question is whether you have sufficient resources to tackle the challenge. What we have found in a number of these countries is that, initially, you’ve got to use quite a lot of your own resources rather than rely on local skills. Over time, of course, that changes.
Africa has a reputation as a risky place to do business. How should a multinational think about risk there?
Whenever you go into developing countries, you are exposed to different risks from those you might be used to if you’re sitting in London or New York and thinking in a developed-country paradigm. There are risks to doing business in Africa
, but no more so than some of the Latin American economies or even Russia and Asia. The question is how to manage those risks once you’ve understood them. We spend a huge amount of time getting to grips with the particular risks that may occur in some of these countries and then try to mitigate them.
, for example, we own 50.1 percent of Stanbic IBTC Bank. The remaining shares are owned by the general public and the founder of IBTC. We feel that the structure helps mitigate the risks because we have positioned ourselves as a local institution with local shareholders. In Russia, where we merged our bank with a very successful investment-banking operation called Troika Dialog in 2009, we were prepared to reduce our economic interest to 36 percent. Our view was that it was better for us to be in a strategic minority position because we think that improves our risk profile, not to mention the commercial benefits we gain from having teamed up with an excellent partner.
Understanding risk is more than just a financial concern. One has to be mindful of ensuring that you’re seen to be helpful and relevant to the local economies rather than just extracting profits by providing a service. When you’re dealing with developing countries, the issue of the social relevance of your company is completely different from when you’re dealing with a developed economy. For banks, more so than other enterprises, the question that often comes up when you are visiting government officials or major corporate customers is: what are you doing for our country? A bank cannot typically turn around and say, “Well, we’re just here to help you with your transactions or your financing requirements.” You have to be involved and committed to the communities in which you operate.
What is Standard’s aspiration for expansion in Africa?
We are trying to position ourselves as the “go to” bank for the African continent. As a growing financial-services group, you can build domestic businesses, and you can also build cross-border businesses. We are trying to do both. We are trying to build scale businesses locally and then use that platform to link those countries to other emerging markets in a banking sense.
The question is, where do you start? For obvious reasons, we started in southern Africa and expanded northward. We haven’t yet really entered French-speaking Africa. I have no doubt that, if our strategy remains successful, it will only be a matter of time before we do find ourselves in more countries. North Africa will probably be the last move for us because many of those countries probably see themselves as closer culturally and economically to the surrounding Mediterranean countries and the Middle East.
Because we are present in 17 African countries, we’ve got a significant enough base to position ourselves as a bank that can assist multinationals with the full spectrum of financial solutions across the continent. We have the ability to link emerging markets in Africa to our network in Argentina, Brazil, China, Russia, and Turkey, to name a few. You can’t do that if you’ve only got a small number of countries in your portfolio.
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1 Brazil, Russia, India, and China.