European banks' old errors to blame for Barclays' Africa exit: South Africa finance minister

LONDON (Reuters) - Barclays’ decision to sell down its stake in a Johannesburg-listed venture is a consequence of past mistakes at European banks rather than a reflection of Africa’s future prospects, South Africa’s finance minister said.

South Africa's Finance Minister, Pravin Gordhan gestures during a media briefing after he was reappointed to the position on Sunday night by President Jacob Zuma in Pretoria, South Africa December 14, 2015. REUTERS/Siphiwe Sibeko

Emerging markets are often “victims of policymaking” by developed nations and it is wrong to blame them entirely for recent problems such as the collapse in economic growth and the huge capital outflows they face, Pravin Gordhan told Reuters.

Recent news that Barclays Plc BARC.L would sell a 62 percent stake in Barclays Africa, reducing it to a minority holding, was seen by many as another blow for a continent hit hard by China's slowdown and low commodity prices.

But Gordhan rejected that idea.

“Barclays is not about Africa,” he told Reuters on Monday on the sidelines of an investment roadshow in London.

“It’s about Europe and European banks and the way they mismanaged their affairs and...found themselves in difficulties in terms of capital requirements that the financial stability board established by the G20 and British authorities required of them for overseas operations.”

He was referring to rules brought in after the 2008 financial crisis that make it more expensive from a capital perspective for banks to hold stakes in other banking organizations.

These rules would force more European banks to retreat from overseas markets in coming years, leaving U.S. and possibly Chinese lenders in the fray, he predicted.

Barclays’ Africa chief has also said Barclays’ move did not reflect on Africa, noting a 10 percent annual profit rise and 17 percent return on equity (ROE) there. The parent company has cut back across emerging markets, aiming to become a “transatlantic” bank with a U.S. and UK focus.

But in pounds, the numbers look less rosy. ROE for instance falls to 8.7 percent, below the parent bank’s 11 percent target.

Legacy issues are also hurting: Barclays has doubled its provisions against regulatory missteps.

“Barclays Africa will expand its operations and customer base and create more service centers in different parts of Africa... it will remain as an entity and thrive. What changes is the ownership of the enterprise,” Gordhan added.

World powers need to find ways to direct surplus capital into long-term projects such as infrastructure rather than into short-term yield-seeking trades, he urged.

“Yes there are domestic issues each of the EMs have, but it’s wrong to point fingers at EMs when all of us recognize that the side effects or the ramifications of the 2008-2009 great recession are still being felt around the globe,” Gordhan said.

“Whenever it’s convenient, emerging economies become less favored and become victims of policymaking within advanced economies,” he added.

South Africa embodies many of emerging markets’ problems.

Appointed last December after the sudden sacking of a predecessor, Gordhan is battling to boost South Africa’s growth which is running below 1 percent and to persuade ratings agencies not to cut his country’s credit rating to junk.

Investors appear unconvinced however, despite Gordhan’s prudent budget unveiled last month. A public spat between him and revenue service chief Tom Moyane has sapped confidence, and there are worries about whether Gordhan has the full backing of President Jacob Zuma.

Gordhan noted that his roadshow incorporated government officials, private sector leaders and representatives of South Africa’s powerful trade unions, indicating a shared understanding of the country’s challenges.

“We understand growth is the key issue, if that denominator changes everything changes with it,” he said, adding that the budget’s fiscal measures demonstrated the government’s determination to act on the deficit.

On the alleged clash with Moyane, Gordhan said only:

“Mr Moyane is merely the administrative head of an entity and you cannot equate a minister in a government with the head of an administration.”

“The president a week ago expressed confidence in the minister of finance, that’s why the minister is here with his team and private sector team to meet with people who are invested in the South African economy,” he added.

Reporting by Sujata Rao; Editing by Hugh Lawson