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.
Now that ICBC commit to 20% stake in Standard Bank this sheds new light on the situation with regards to marginalising of SA Chinese citizens at Standard Bank for separate treatment for EE and BBBEE initiatives.
SA Chinese citizens, who also in the past have been historically and previously disadvantaged, are now unfairly treated on grounds of race at Standard Bank.
People do not realise that FACE is of utmost importance in Chinese culture.
Face goes hand in hand with guanxi. Guanxi is the way that business gets done in China.
Face is defined as “having a high status in the eyes of one’s peers, and is a mark of personal dignity.”
Chinese are “acutely sensitive” to “face” and that losing face is bad.
You can cause someone to lose face by insulting them or criticizing them in front of others.
You cause harm when you attack their personal dignity and treat unequally and this is in contravention of the SA Constitution.
Standard Bank may have realised this but maybe too late.
From the outset when this saga began, all that was asked was for equality and the same decorum to be afforded to all races including minority Chinese at Standard Bank.
The request at that time was to have the same FACE as everyone else, to be included until clarification and not to be marginalised.
This is reinforced by the decisions at all the other major financial institutions to include Chinese pending clarification at the courts with regards to EE and BBEE. This saves face.
Will the ideology of FACE be comprehended?
Who will have face only time will tell?
Vernon Whyte 2007/11/09
(1) This is not surprising. As a student in China in the late 1990’s it was clear that China was forging ties with citizens of African countries, particularly Angola, Cameroon, Congo, Zaire, amongst many others in order to create strategic relationships that would pay off in business down the road. This was often exercised through Chinese government scholarships given to students from African countries who were willing to study petroleum engineering and other related disciplines (in other words, China was creating strategic partnerships that would give them access to the needed natural resources to develop China’s emerging country). These students were treated relatively well by Chinese standards and were put on par with many other foreign students in China in the 1990’s (something that was surely welcoming to African students who may not have had opportunity or fair treatment in America or Western Europe). Now that these students have grown into their professional positions in their home countries, China is cashing in on those scholarships. This is not directly what is driving ICBC’s investment in SA (most likely not), the point is that China has been eyeing Africa as a source of business and political partnership for many years (this is nothing new). This move by ICBC is simply to set up a financial channel to do things in Africa that China has been planning on doing for a long time. Furthermore, China knew that to do battle with the powers who held sway over the Gulf region was not a smart move, rather China has rightly looked to alternative sources of oil and other resources. China smartly has stayed out of the big conflicts and has moved its pieces into position very quietly. (Until recently with Iran, China has been able to sidestep most big conflicts) This is certainly China’s strategy with South African banks. China, a young investor if you will, is willing to take risks that an older, conservative investor is not willing to take. Additionally, China appreciates a system that may not have fully created a stable and fully transparent environment. This leaves room for maneuvering.
(2) With regard to Where are American banks and telecomms? America is much too tied up in its problems to be savvy enough to develop strategic relations with South Africa the way that China seems to be doing. All the worse for America. Distracted in the middle east, America’s cost for lost opportunity is much greater than what is popularly estimated.