Zambia's U-turn halts FirstRand's African expansion
Three weeks ago FirstRand announced the acquisition of Finance Bank, Zambia's third largest retail bank. It was a significant step in the South African bank's strategy of growing and expanding in Africa. The plan was to integrate the newly acquired business into First National Bank (FNB), FirstRand's retail arm, and proceed with the immediate launch of new products and services. "We'll embark on a significant expansion in Zambia," said Danny Zandamela, FNB Africa chief executive. "There is a lot of potential for growth and Zambia has a robust economy that offers many opportunities."
This week, FNB's plans were abruptly halted when the newly elected president of Zambia, Michael Sata, declared the $5.4m sale had not been conducted properly and was therefore void. Mr Sata also sacked the governor Caleb Fundanga and the entire board of the Central Bank, accusing them of rushing through the sale without calling for competitive bids. Finance Bank had been put under administration by the Central Bank last December and FNB had been called in to rescue it. Now, however, the bank looks set to return to its previous owner Rajan Mahtani, who last year was arrested for money laundering, and who, according to unverified rumours, is a close ally of the new president.
For FirstRand it was a big shock. Michael Jordaan, FNB chief executive, defended the sale, saying the central bank was advised by local and international independent legal and financial advisors and the whole process was "completely transparent". "We strongly believe that due process was followed and that the agreements reached were concluded in accordance with Zambian law," Mr Jordaan said. The bank can appeal but it is clear that the political wind has turned against them.
"It was a small acquisition so it would not have had a dramatic impact on FirstRand's African strategy," says Faizal Moolla, banking analyst at Avior Research in Cape Town. " But it is a bad precedent and leaves a bad taste". Only last month FirstRand pulled out of a bid to buy Sterling Bank in Nigeria, saying it was overpriced, and admitted it was going "back to the drawing board" in that country. Two months ago it entered the Tanzanian market launching a new retail bank. "We can still do acquisitions in Africa," says Laurie Dippenaar, FirstRand chairman. "Africa is a big focal point of our growth strategy and this will be either through greenfields or acquisitions."
More in general, Zambia's U-turn highlights the perils of investing in Africa. Political risk has decreased on the continent as more countries implement investor-friendly policies, but the case of Private Bank shows it has certainly not disappeared. "I think the view is this is Africa and the rules can be changed at any time," says Michael Fraser, manager of financial services at recruitment consultancy Robert Walters SA.
