Barclays Wealth intends to grow "aggressively" the size of its wealth management team serving African clients offshore, and double the headcount over the next three years.

Barclays Wealth intends to grow "aggressively" the size of its wealth management team serving African clients offshore, and double the headcount over the next three years, director Christopher Hocking, who heads up the Africa team for the private bank, told WealthBriefing in an interview. This adds to Barclays' already strong pan-Africa footprint, which also includes a retail banking presence in 10 countries, and a corporate banking and investment banking offering.

Catching up quickly

“It’s a very exciting market,” says Hocking, adding that it's one that’s perhaps changing more quickly than any other. This could be related to the “catching up” process, a phenomenon whereby less-developed countries can benefit more quickly from new technologies, because they do not have outdated systems which carry inefficient costs. An example of this is the spread of mobile phone technology on the continent, with some countries largely bypassing the fixed-line phase of telecommunications.

A lot of banks are reviewing their strategies to emerging markets, says Hocking, taking stock of the dramatic changes that have taken place in recent years. “And during this process they are realising that while they have developed strategies for India and China, for example, they don’t have an Africa strategy,” he said.

“They are asking themselves: where next does the growth come from? And they realise they haven’t built a strategy there, because it is difficult; political risk is a big problem, and the markets, including regulation, are still very immature,” Hocking continued. 

Despite these challenges, he said, “there are many considerable opportunities in Africa. South Africa is important, but Nigeria is also extremely exciting and growth will be significant.”

The big four

Of course the continent is huge and diverse, and South Africa is a story on its own, said Hocking. There the bank has its Absa subsidiary, in which it took a majority stake-holding in 2004, adding around 10 million customers to its books.

“If you’re serious about Africa, you have to be in South Africa,” stresses Hocking, adding that from a wealth perspective the key markets are Kenya, South Africa, Egypt and Nigeria. “If you get these right then you’re a long way towards achieving success – but they’re the focus markets in our view,” he said.

In terms of other markets, aside from the big four, you have “pretty much the whole of North Africa”, as well as markets such as Botswana, which are more secure than others. “What we’ve found is the greatest opportunities are frequently matched by the biggest challenges” said Hocking.

The continent is so varied that culturally there are a number of differences, which is reflected in how the team is structured. Clients based in North Africa fit in with the bank’s MENA offering, while the rest of the team is divided into sub-groups covering West, East and Southern Africa. Hocking stressed the importance of this, and said that understanding the nuances of individual countries and cultures is crucial.

Types of clients

In terms of the types of wealth management clients the bank serves in Africa, they tend not to be clients with inherited wealth, but rather quasi-investment banking clients.

“This is not the fifth or sixth generation wealth you might see in Europe, for instance. These are usually entrepreneurial clients, who want to quickly increase, as opposed to preserve, their wealth. They have not always had access to global investment propositions, and want a global partner to provide them with this, and with security,” said Hocking.  

He says that while people often feel loyal to their own countries, they recognise that local institutions often can’t provide the level of security they need. This is, however, a changing picture. In the past competition tended to be from other foreign firms, but Hocking says local competitors are increasingly gaining ground and developing credible propositions.

Another consequence of the historical insecurity on the continent is that there is strong demand for advisory and wealth structuring services. While stability is spreading, there are still risks surrounding regime change and asset appropriation.

“In the back of [clients’] minds, although the picture is improving, there is still the feeling that, ‘I want to protect my wealth’. So offshore services have historically been a big thing, helping to mitigate political risks,” said Hocking, noting that this may also change as countries gain confidence in their political regimes.

Challenges

There are, though, enormous challenges for banks, and Hocking compares it to doing business in Russia 10 years ago. For instance, there will inevitably be links between wealthy clients and political regimes, present or past. Meanwhile, the desire and need for banks to be compliant with developed market regulators, as well as international anti-money laundering initiatives, has never been greater. Therefore, taking on clients can “require robust controls and risk management and a fundamental knowledge of the market in which its doing business,” said Hocking, and banks must be careful not to deal with people who fall short of developed-country regulations.

There are also issues relating to legal and governance structures. “For instance, you have issues such as auditing standards in Angola falling short of that experienced in more mature, developed markets. And you have to understand these nuances in a number of different countries. For companies who don’t have an alliance with them, it can be incredibly difficult.”

There is, in Hocking’s opinion, political will for change on the continent, which has “come from a maturing of local regulatory regimes”. This is not something unique to Africa: the landscape globally for wealth management has changed dramatically, as the focus on tax evasion and money laundering has come under scrutiny since the financial crisis like never before.

Consequently, another difficulty in providing offshore services is dealing with cross-border regulation. In South Africa the bank has built its first onshore wealth management offering on the continent. Although branded as Absa Wealth, it is part of Barclays Wealth, and the business is currently three years old.

Opportunities and synergies

Africa has lately benefited from a global commodities boom and increased trade with Asia – notably China. While many African countries still make the news for the wrong reasons, some have attracted attention over their strong recovery and growth since the crisis.

Perhaps due to this strengthened economic confidence, opportunities are opening up from an improved regulatory picture. In South Africa, for instance, exchange controls were only recently relaxed. Meanwhile, the regulator in Nigeria has taken a hard look at the laws there, and the banking sector has emerged in a better shape from its near-collapse in 2009, said Hocking.

“There will be significant wealth creation from trade, as well as pure commodities wealth. But it is important not to lose sight of the difference between pure wealth management and wealth creation, and clients here are really looking for a full-service proposition to help them with both of these activities. So bringing together the capital and wealth management service is, for the bank, essential,” he said.

To this end, there is a team within the bank’s wealth management arm dedicated to linking clients in wealth with the right investment banking advisor. There are also links between the retail and wealth operations; client contact points are a key opportunity for business generation.

Talent shortages: a drag on growth?

“Talent is one of our main challenges, and it has traditionally been challenging to attract top talent in Africa,” said Hocking. “There is a talent shortage within wealth management generally, and in an African context it’s like a problem squared.”

With the private bank wanting to double the size of its Africa team over three years, this could pose a problem. Hocking says finding people with experience is difficult, but that the bank is keen to train people to cover the African markets. It sees training experienced private bankers with the relevant skill set as one way of getting around this problem.

“Yes, we love experience, but it is rare, so for people with top skills who are being crowded out of the low growth markets, we can use our experience to teach them about this market,” said Hocking.

 “Africa is a really interesting theme – the emerging markets of Asia are almost today’s news, while tomorrow’s news is Africa," he said.