In Egypt over the weekend, Premier Wen Jiabao stepped up China’s courtship of African countries with promises to extend US$10 billion in concessional loans, debt cancellation and construction of 100 clean-energy projects. No one should be surprised. As consumer demand in the West withers, Chinese exporters are eagerly looking for new markets – including Africa’s 1 billion people.
China is now Africa’s third-largest trading partner after Europe and the U.S. “You do see a lot of companies, not just Chinese but also from other Asian countries, starting to come and set up shop,” says Jose Ribeiro, director, trade and global transactional banking, at South Africa’s Standard Bank
. “In time you will see them building up into a bigger organisations.”
Ribeiro and Dipak Patel, Standard Bank’s global head for transactional products and services, spoke to CFO Innovation’s Cesar Bacani about the bank’s partnership with ICBC, China’s largest bank
, and business opportunities for Chinese and other Asian companies in Africa. ICBC owns 20% of Standard Bank, which is the continent’s leading financial institution with branches in 18 African countries.
Trade between China and African countries surpassed US$100 billion last year, but it seems to be more oil and commodities coming out of Africa rather than Chinese products going into the continent.
Dipak Patel: In fact there’s a large number of Chinese businesses on the continent and we have quite a few of them as clients . . . We seek to match or pair in large part South African corporates, but now more and more Nigerian corporates, with potential partners in China who, once we make introductions between them, we could see that we become advisers to one or both of them, in order to pursue a potential merger or strategic partnership between them.
We all know that prior to the current economic crisis, China was probably the largest interested party in resources from the African continent, but secondly, Africa, in spite of its developing world status, was also seen by China to be an export destination.
Jose Ribeiro: You do see that a lot of the flows is raw material, yes, a lot of it going to China, but we also have a huge amount of goods coming from China into Africa. Garments, clothing, retail products – obviously, value-for-value, the shipping of oil and such [out of Africa] comes to much more, but you do see a lot coming in from China.
Typically, it’s the shop owners opening up shops, selling garments, selling things . . . not just Chinese but also from other Asian countries . . . They may be small retail SMEs today, but in time you will see them building up into a bigger organisations. You are also seeing bigger Chinese populations coming in. There’s a lot of construction taking place by Chinese companies in Botswana, in Ghana and Rwanda.
Would you say that Asian cultures, Chinese culture, are so different from African cultures that perhaps there are things both sides have to be sensitive to when setting up businesses and entering into partnerships?
Jose Ribeiro: That’s a tough one. I think at first you don’t know what you’re going to get. You know what you know through the media. When we first landed in Beijing, man, we were blown away. The architecture, the cleanliness, the people…it was unbelievable.
I saw a culture that is very driven to succeed, and there’s a lot of that in many different countries in [the African] continent as well. It’s the culture of ‘let’s get this thing done, let’s get this sorted out.’ Yes, there are differences. The language is quite interesting…you’re in a room with an interpreter…half our meeting was conducted in English, the other half we had an interpreter. So it’s these things.
Dipak Patel: The business relationships are on a commercial basis. I have been to Beijing in a year and a half, four times now. The relationship was [initially] difficult, of course. Language is an issue. Culture is an issue. Trust is an issue. But all the reports that I’m getting are pointing in the direction of all levels now understanding that we are ICBC’s strategic partner in the African continent, and certainly for us, ICBC is our strategic partner on the Chinese mainland.
LESSONS IN PARTNERSHIP
Let’s talk about the ICBC-Standard Bank partnership, which is a fine example of how large corporates in Asia and Africa can forge a business relationship. How did ICBC end up owning 20% of Standard Bank?
Dipak Patel: We’ve always had an interest in Asia and the ICBC transaction, when it came along, was obviously completely complementary with our vision. We realised that, as China came into its own economically in the world, it would be unlikely for us to actually get up to strength in the domestic environment in China on our own. And so when ICBC proposed the deal [in 2006] whereby they would buy 20% of Standard Bank Group, we saw the complementarities and synergies.
Two aspects: one was obviously getting a welcome partner from a part of the world where we were particularly keen and interested in doing deals ourselves; but secondly, we shared a common objective in [our desire for] capital and strategic synergies. Our CEO is on the record as saying this is not just an equity strategic deal but in fact it’s a business strategic deal. So ICBC got two seats on our board and is prepared to host a fairly large contingent of our own staff in their operating headquarters.
Did ICBC try to renegotiate the deal when the financial crisis struck?
Dipak Patel: No, to their credit, they took the strategic view. We finalised the deal in principle round about October 2007, just before the crisis. They had a number of opportunities, if they wished, to get out because the deal was not yet approved by their regulators. But they stayed true to the terms we agreed in spite of what happened in the world with respect to the financial crisis.
That must have buttressed your confidence. It’s a good lesson for other companies on how to see a relationship off to a strong start.
Dipak Patel: Absolutely. As much as our share price was affected, so did theirs. The entire world re-rated equity values in banks and we were in the same boat. They took a strategic view. To their credit and to our relief and the strength of our relationship, ICBC stuck with it.
It’s been a year since the deal finally went through. How’s the partnership coming along?
Jose Ribeiro: I can give you a sense on that from this trip that I just came from. There’s commitment from both sides and there are very clear targets on what we have to achieve within three months, six months, 12 months. Their teams are quite excited; they see the value.
One of our executives went out on a road show with ICBC. We had about 40 corporates that came to the presentation. She talked about the relationship between ICBC and Standard Bank and what we are on the [African] continent. Right then and there, 10 or 15 companies signed up for banking services between the two [Africa and China]. So obviously it shows that this partnership is starting to work. We are still working on an understanding of how things work, but we are starting to see momentum.
BANKING IN CHINA
It wasn’t very long ago that ICBC and China’s other major banks were state-owned enterprises that were granting loans at the behest of bureaucrats, not on a commercial basis. A new generation seems to have taken over top management of most banks, educated abroad, with international vision and so on. I wonder, though, what the situation is like at the operating level.
Dipak Patel: The first few meetings, we’re talking about a year and a half ago, were difficult. ICBC has something like 250,000 staff and it takes a long time for people to start getting the message.
My first trip to Beijing I found was very strange. I went to meet my counterparts, who were general managers of the various products that make up transactional products in our scheme of things, and they had heard about the transaction, but they weren’t in the chairman or the president’s office, where the deal was conceptualised, structured and finalised. We have reached a point now where language might be an issue, but the operational synergy that exists between us is absolutely established.
Jose Ribeiro: When I look at ICBC’s technology as it relates to cash management and treasury – I’m not talking about the whole banking financial systems – I find it very advanced. The thing that is interesting about China for me was the number of people you are able to deploy [to develop and implement technology]. They talk about teams in IT of hundreds, sometimes thousands of people.
What I also find is that ICBC has a very clear view of where they want to get to, whether technology or any other aspect of operations. This is the milestone, and everybody aligns [to achieve that]. We had a meeting with their technology partners and our technology colleagues from our bank. What we saw was a very sophisticated technology capability and a real ability to scale. It’s a company that has thought big and they have really impressed me; they blew us away.
In China you don’t starve SOEs of bank financing because a lot of people will lose their jobs. Political and other non-commercial reasons enter into the equation as to who banks lend to, how much and at what terms. Is this a concern at all for Standard Bank?
Dipak Patel: Standard Bank in its recent statements talked about being relevant in the societies where we operate and I think while we are very commercial, while we are completely focused on shareholder returns, and while we’re absolutely committed to competitive practices in the market, there are certain strategic things which we acknowledge.
We will do [what we need to do] in our environment, just as ICBC or any other bank will have to do [things they need to do] in their environment. As it relates to SMEs, we will take a cue from ICBC with respect as to whether there is a place for us to be involved in the SME market in China. As it relates to SOEs, as it relates even more to privately owned Chinese corporates, we now have enough of our own information to understand where the connection lies between Africa and China and who are those corporates that we see on the ground in Africa that we would want to have a commercial relationship with.
We would check with ICBC if those companies bank with them or not. If ICBC does not bank with them, then we would propose for those clients a joint marketing team, between ourselves and ICBC. When we do that pursuit, the pursuit is on the basis of commerciality and competitiveness.
We actually had amazing cooperation in that sphere from ICBC. So, where we wanted introductions to large corporate clients, or potential clients in China, we’ve had no difficulty in partnering with ICBC, whether it’s at the regional level, sometimes at the branch level, because ICBC regions are as large as our African operations.