This past week, ICBC, the world’s most valuable bank (valued at $319 bn) took a 20% stake in Standard Bank, Africa’s largest bank by assets. The deal is worth $ 5.5bn.
This is the largest foreign investment by a Chinese bank anywhere in the world. And it is the the largest ever foreign-direct investment in South Africa. The transaction is the latest example of China’s growing interest in Africa, and also illustrates the expanding web of trade and investment that links together emerging markets and their growing weight in the world’s economy. Other deals are now in the pipeline, with China’s mobile industry looking at African heavyweights, such as MTN.
Where are the American banks and telecomms companies? They seem to be focused on the Middle East – a much higher-value-per-person market. But, the future is likely to belong to those companies that seek the “fortune at the bottom of the pyramid“.
The Economist concluded,
China has become an attractive source of cash for Africa. It comes with fewer strings attached than money from the West. Multi-billion dollar lines of credit or investments have been arranged in places like Congo and Angola, now the largest single supplier of oil to China. Africa’s private sector may now join the party as well: more transactions like the on between Standard Bank and ICBC could be on the way. Other South African companies, such as Anglo American, a mining conglomerate, and SABMiller, a giant brewer, moved their listings to the London Stock Exchange to finance foreign expansion. But this is not something that interests Standard Bank. “ We want to do it from South Africa,” says Jacko Maree, the bank’s chief executive.
The growing trade and financial links between China and Africa is what Standard Bank and ICBC want to tap into. No doubt many of ICBC’ s 2.5m corporate clients, which include some large state-owned companies, are keen to do more business in Africa. ICBC will get access to Standard Bank’s extensive banking network in 18 countries across the continent—not to mention its expertise in commodities. The South African bank, which has a small presence in China, now expects to operate in the Chinese market more easily. Both banks are keen to join forces to expand their presence in other emerging markets as well. They are also planning to create a common $500m fund to invest in oil and mining.
Chinese interest in Africa is unlikely to cool at any time soon. The latest deal is a landmark and could provide a template for many more to come.