It’s December 2015 and Jes Staley, the veteran American banker who had spent almost three decades on Wall Street with JP Morgan Chase is appointed CEO of Barclays Bank PLC.
Expectations are high among financial observers that they finally have the man to lead the firm to the top of the pile after being mired in scandal after scandal starting with the Libor rigging case. Jes Staley’s first order of business is unexpected, he makes his intention known of pulling out of Africa.
It’s a decision that surprised many including Barclays PLC chairman, John McFarlane, who had waxed lyrical about Africa’s prospects just a few months prior to Staley’s appointment. But there was no turning back for the man they simply called “Jes”, according to him, the African operations were a costly distraction to the overall strategic objectives of focusing on core US and UK markets. Being a savvy American risk taker steeped in Wall Street deal making and risk taking, he wanted complete focus on investment banking and his goal was to make Barclays PLC the biggest Trans-Atlantic bank able to compete with the crème de la crème of Wall Street.
Barclays Africa group Ltd did not see this one coming, but signed divorce papers were nevertheless served to them in March 2016. The corporate divorce was effectively initiated and Barclays PLC promised to make the process as less painful as possible by implementing it in phases over a “reasonable” time period probably three years. The reality that they were now on their own soon dawned on Barclays Africa group Ltd, it was a brave new world without their rich partner.
Barclays Africa needed to make some hard decisions going forward and one of those involved giving up the iconic “Barclays” name that had served them so well. Even more heart-breaking, would have been the thought of never seeing on their corporate logo that majestic “eagle” and the strength it so signifies. However, life and most importantly business had to go on, and under the capable leadership of Maria Ramos, hard decisive decisions started flowing in thick and fast.
The first order of business was uniting the various African operations under one brand name. A brand that resonated with Africa as much as it was international. They chose the name ABSA. The plan is to have ABSA, pending regulatory approval, as the new name for Barclays Africa group Ltd by the end of 2020.
ABSA (Amalgamated banks of South Africa) was founded in 1991 from a merger of various financial service providers in South Africa. The ABSA name enjoys strong brand equity in South Africa, management is therefore betting this should provide a stable foundation to build on and further strengthen the brand across the African continent.
Reverting back to the Absa name is in my opinion a stroke of genius from the management team.
After the loss of a huge financial backer, Barclays Africa needed the money, it needed the money for all the operational activities it was going to implement to fulfil its ambitious strategy of expanding in Africa. The money was also going to serve as supplementary capital for the Basel III accord capital requirements. In light of the foregoing, Barclays Africa made a post-divorce debut on the international debt markets in London, Singapore and Hong Kong in April 2018.
But most analysts including myself were weary of such a move at a time when treasury yields were on the uptick in the United States, the world’s biggest economy. US treasury bonds are deemed to be the safest form of low risk investment for most international investors as it is backed by the full faith of the United States government and an uptick in their yield makes them more attractive. As a result, investors will ask for a small premium over and above US treasuries to invest in other riskier assets.
It was simply bad timing and Barclays Africa analysts should have known better noted some sceptics. However, Barclays Africa would prove the sceptics wrong, the debut bond was 3x oversubscribed in London, Singapore and Hong Kong with orders received exceeding 1.5 billion dollars with 400 million dollars raised in the process. On 26th April 2018, the bond beat market expectations and traded at a modest yield of 6.25% on the London Stock exchange. At this price, Barclays Africa got a good deal, it was a vote of confidence in all that they were envisioning for the future.
For the most part however, the success of the bond issue came down to the exquisite execution of the marketing strategy. It was an ingenious strategy that saw them sell not only their ambitious growth strategy but the Africa rising narrative as well. A marketing strategy that was executed with pure tactical class it left international investors in awe.
Who says a divorce has to hurt? It’s certainly a brave new world for Barclays Africa but I have a feeling they can now execute their pan-African vision the way they would love to, with total freedom. There is certainly no sign of any divorce blues, a colour they are leaving behind to take on the ever attractive red of ABSA. Barclays Africa is definitely moving on with a very big smile! Bravo!
By Katandula Chitika - The author is an Economist, Writer and a Corporate Executive. All views expressed in this article are solely mine and do not represent the views of my employer, church and any other organisation am affiliated to.
The Digital Transformation Congress will take place on 26 July 2018 at the Gallagher Convention Centre, with “Redefining the future organisation through digital” as the running theme of the day. The congress will assemble a variety of industries all in one room, as business leaders and technology innovators come together to shape the future of business and IT through digital transformation.
Included in the event’s selection of world-class speakers is ‘Obama White House digital leader’, Tom Cochran. With nearly 20 years of digital experience, Tom Cochran is a digital transformation consultant and executive keynote speaker (www.thomascochran.com), who’s spent over four years in the Obama administration as a presidential appointee and digital leader helping advance the President’s open government directive.
While serving in government, he ran digital technology for the White House and global diplomacy platforms for the State Department. In the private sector, he’s served as the Chief Digital Strategist and VP, Public Sector for Acquia, helping organizations adopt cloud-based, open-source digital engagement platforms, and he was also the Chief Technology Officer for Atlantic Media (i.e. The Atlantic, Quartz brands). Early in his career, he was a senior software engineer for Blue State Digital, building the platforms which would grow into President Obama’s digital campaign, raising $1.2 billion over two election cycles.
At the Digital Transformation Congress, Cochran will share his exceptional insight and expertise under the keynote topic, “Yes we can. Yes we did. Digital transformation in the Obama White House”.
Other key topics to be discussed include: Digital Transformation: A marriage between public and private sector, Developing a digital transformation roadmap, Business Transformation: Re-thinking business - IT alignment, Digital transformation: From customer-aware to customer-led, Re-aligning your business model to more effectively engage digital customers, National Transformation: Initiating high-impact digital initiatives, Turning Innovation into Growth: Creating future digital service models, The future of digital experiences.
Key speakers for DigitalTransformationCongress:
• Andrew Atta Darfoor, Group CEO: Alexander Forbes
• Vera Nagtegaal, Executive Head: Hippo.co.za
• Lisa Macleod, Head of Digital: Tiso Blackstar
• Kenny Moodley, Strategic Head: Digital & Social Media at Eskom Holdings SOC
• Sindisiwe Nhlapho Dlamini-Moloi, CIO at Transnet
• Birgitta Cederstrom, Global Commercial Director: Frost & Sullivan
• Lazaros Karapanagiotidis, Head of Digital Innovation: Makro
• Nneka Keshi, Director of Digital Marketing Africa, L’oréal
• Lizelle Vaughan, Director of Digital Strategy: Liberty Group
• Sam Nkosi, CIO: Sasria SOC
For more information about this conference, visit: www.digitaltransformationcongress.com
As retail banks grapple with rapidly advancing technology, higher customer expectations, and tighter regulation, they must redouble efforts to personalize their product and service offerings if they hope to position themselves optimally for the future, according to a new report by The Boston Consulting Group (BCG). The report, titled Global Retail Banking 2018: The Power of Personalization, is being released today.
The report, the latest in a series of annual BCG studies of the retail banking sector, provides a comprehensive look at the industry, examining such topics as global and regional growth, regulation, performance dispersion, digital transformation, enhanced personalization, and improved continuous delivery.
“Banks are in demonstrably different places today, using their own particular strengths to overcome obstacles,” says Ian Walsh, a BCG senior partner and a coauthor of the report. “Many banks have made progress in digitizing for cost, but they still need to move from pilots to large-scale initiatives to reap the benefits of their digital investments. Banks are less far along in digitizing for value. The goal of this more ambitious effort is to understand and serve the customer better and, in doing so, to earn more revenue per customer and increase retention. This can happen only through personalized value propositions.”
Retail Banking Growth
According to the report, retail banking is responsible for roughly half of all banking revenues worldwide, with the rest coming from corporate banking and sources such as asset management, investment banking, proprietary trading, and bancassurance. That share is not likely to change dramatically between now and 2021, a period during which BCG expects retail banking revenues to rise by 5.3% annually to reach approximately $2.54 trillion. If achieved, this compound annual growth rate would be the highest in the sector in at least a decade. Although some trends in banking—most obviously digitization—are relevant across all regions and markets, retail banking is inherently a local business, inextricably bound up with each country’s economic fundamentals, regulatory landscape, and competitive dynamics.
The Impact of Regulation
The broad outlines of most countries’ top-level regulatory reform packages are now in place, the report says, and the regulations focus on three areas: financial stability, prudent operations, and resolution (a bank’s responsibility to put forward a plan in the event of its own failure). The challenge for banks is to remain efficient as they begin implementing the regulations, which have increased threefold since 2011. Regulations will have a larger near-term impact in some regions than in others.
BCG’s Retail Banking Excellence Benchmark (REBEX)—a yearly analysis that permits comparison across hundreds of metrics—indicates that retail banks are not meeting the current challenges with equal success. In fact, over the past three years, the gap between the cost-income ratio of first-quartile banks and that of median banks has increased at a compound annual growth rate of 13%. This performance split is due in part to circumstances specific to different regions. But it is also attributable to the path that each bank charts on its own digital transformation journey.
For many retail banking executives, a key question is how efficient and digitally advanced their organizations are compared with their immediate competitors. An assessment of progress on digital journeys has two critical dimensions. The first is digitizing for cost, which refers to using digital technologies to create operational efficiencies. The second, digitizing for value, refers to using digital technologies to create a fundamentally better experience for customers. Both globally and regionally, banks display a wide range of progress in these areas.
Personalization and Continuous Delivery
Personalization is emerging as a primary mechanism for increasing both customer satisfaction and economic value in banking, the report says. Banks should use improved data and technology to get a clear sense of each customer’s financial and behavioral DNA, and develop individualized offers on that basis. Banks that succeed with personalization will more effectively acquire, engage, and retain customers, adding to their growth and profits. The report adds that, in the future, convenience will increasingly revolve around the concept of always-on banking. To remain flexible, banks must build sophisticated routing platforms that ensure continuous delivery of the personalized experience—through digitally empowered relationship managers, automated customer-care centers, and self-service technologies.
“Retail banks need to grapple with near-term challenges while still investing in capabilities and services to remain relevant in the future,” says BCG’s Ian Walsh. “Short- and long-term goals will occasionally conflict in the coming years, and each bank will have to figure out the tradeoffs it must make. But one thing is clear: the customer can never be an afterthought.”
The land reform debate in South Africa is dominated by a political agenda. This is a pity because other more relevant economic viewpoints on the subject are being ignored.
In 2015, when the last census took place, more than every second South African was marked as poor – a higher number than in 2011. For these millions of people access to affordable food and having enough to eat every day is a major challenge.
The price of agricultural products has risen steeply over the last seven years, illustrating how delicate agricultural production actually is. The Organisation for Economic Co-operation and Development (OECD) data base shows that A basket of food items that cost R100 in 2010 rose to over R170 in 2017. A further price hike has to be avoided if the country is serious about eradicating hunger. On top of this, the price increases also reduce the disposable income of the middle class.
What this means is that politicians concerned with the structure of land ownership should also be evaluating how it will affect the supply of food. To do this, it’s imperative to understand what actually drives productivity in agriculture.
Across the world technology is enabling efficiency gains and productivity growth. Different technologies have been grouped with information technology and turned into entirely new production concepts. Modern agricultural production requires an approach that embraces technological opportunities. And breaking farms into smaller units makes the adoption of these technologies much more difficult.
In my view making South Africa’s agricultural sector more competitive is more important than fighting about political categories. While the skin colour of our farmers is of symbolic importance, the rise of the food prices is very real for everybody – particularly poor people. Breaking up the land into small-holdings with no capital will catapult the country back in time. South Africans should first be discussing how it can maximise food production through innovative technologies, and then how it shares the profits, or ownership.
Cutting edge technology
Precision agriculture, for example, builds on IT applications for soil and crop surveillance, helping farmers make optimal decisions about both. This reduces the use of contaminants and increases productivity. Mapping technologies based on satellite data, together with drones for crop scouting, has massively increased productivity in major crop-producing countries like Argentina, Brazil or Australia. Technological development has not only lowered the unit cost; it has also increased the productivity of land that wasn’t suitable for farming.
In the 1990s and 2000s machinery was becoming bigger in size and power. Now, they’re getting smarter. Agricultural equipment is increasingly performing automated work – from sewing to harvesting to packing and shipping. Fully automatic greenhouses or integrated industrial mini-mills with robotic production lines are no longer a thing of the future. While this new type of machinery holds the future of agriculture, it require substantial investments.
Another area where technological innovation can really help is in the threat posed by climate change. As global temperatures continue to rise, the consequences for water-based ecosystems will be dramatic.
To ensure food is still being brought to the table farmers will rely even more on resistant crops such as genetically modified organisms (GMOs). It has become widely accepted that the world won’t be able to feed its population without GMOs.
Many of these seeds require less input - like water, fertilizer and chemicals - as they are much more resistant. South Africa started testing GMOs at an early stage and approved modified cotton and maize variants in 1997. As such, agriculture GMOs account for the majority of the country’s field crops.
In addition, climate change is leading to many regions becoming more habitable for heat-loving pests and pathogenic agents. Here again, the country will have to rely on new technologies to control pathogens and to treat seed material.
Bigger versus smaller farms
Technological solutions are essential to competitive agriculture, but they are expensive and require large amounts of capital. As a result, agricultural producers all over the world have become larger – instead of smaller – as more land allows to make better use of these investments.
There are a number of drawbacks to smallholder production. The first is that, while technologies increase efficiencies and make smallholdings economically sustainable, it’s unlikely that a farmer on a small plot of land will be able to invest the money that is required.
The second is also related to investment: under private ownership, the farmer is required to make the necessary technological updates to stay competitive. The danger with state-arranged smallholdings is that investments are either not made at all, or they have to be shouldered by someone else. This could either be the consumers through higher prices or – what I consider more likely – the taxpayer.
Given that so many South Africans still go hungry every night, the country’s focus should rest on raising food production while lowering the prices that consumers pay. The country must not lose sight of the real issue: how to provide enough food to feed its people.