Many point to the latest round of Chinese investment in South Africa as beginning in 2008, when Industrial and Commercial Bank of China (ICBC; 601398.SH, 1398.HK) announced a landmark deal to acquire a 20% stake in Standard Bank (SBK.JNB), South Africa’s largest financial institution.
The deal generated a flurry of speculation in the South African press that more Chinese banks would follow. Yet three years later this has not happened – and the wisdom of the ICBC-Standard Bank deal is appearing less certain.
The deal provided clear benefits for Standard Bank, whose ambitions for expansion outran its capacity. “We were looking for a strong international partner, and a large capital injection,” said Craig Bond, Standard Bank’s head of China operations.
A deal with ICBC seemed to be an ideal match. “You’ve got the world’s biggest bank, incredibly well-capitalized, in a market that has increasing linkages to Africa,” Bond said.
As for ICBC, Bond says the bank was looking for a proxy to get in on the African growth story. “They wanted to move from being a Chinese bank to becoming a real global bank, and Africa is a market that is particularly strategic to China. Standard Bank gave them access to continent-wide market coverage.”
Others see ICBC as a bank with capacity that exceeded its ambitions, leading to a shoot-from-the-hip mentality. “It was a strategic fluke,” said Martyn Davies, CEO of Frontier Advisory, a consulting firm based in Johannesburg. “ICBC had a few billion dollars burning a hole in its pocket.”
He points to the surreptitious nature of the purchase: ICBC chief Jiang Jianqing and Standard Bank head Jacko Maree shook on a deal less than 60 days after first meeting on the sidelines of an African Development Bank conference in Shanghai in May 2007.
Outside of ICBC and Standard Bank, there has been little to report: Both China Development Bank and Export-Import Bank of China have strong state-backed investment capabilities in Africa, and CDB has the US$5 billion China-Africa Development Fund (CADFund) under its auspices. But neither has made significant expansions or acquisitions since the ICBC deal.
This may say more about the politics of Chinese business than the potential of the South African financial services market. “The assumption was that everyone in Beijing sings from the same hymn sheet,” said Davies. “This is simply not the case.”