Debate (with recommendations) the foreign exchange risks and exposures that can impact on Standard Bank's planned expansion on the African continent. (25 marks)

case study

Why Standard Bank opts for Africa over its Chinese interests. Standard Bank is currently engaged in talks with the Industrial and Commercial Bank of China (ICBC) as it plans to sell its entire stake in its joint venture with its Chinese counterpart. It wishes to divert more money to the African continent, which it expects will become a hive of economic activity in the near future. Standard Bank had hoped that this partnership would bring opportunities to finance trade between Africa and China. Instead, the joint venture put a drag on Standard Bank's earnings, and Tshabalala said that the decision to exit it will help the bank to reallocate capital from areas that deliver low returns on investment, to high growth opportunities, and Africa has these opportunities in abundance. As private sector investment in infrastructure increases in Africa, Standard Bank plans to lend more to both small and medium sized businesses, if it can free up the capital invested in ICBC Standard Bank Plc (ICBCS). This would enable it to have the capital to finance opportunities such as partnerships and acquisitions. Standard Bank wants to increase its exposure in West Africa, since it already has existing operations in Cote d' Ivoire, and wants to invest further, since its markets there are increasing in size. Standard Bank is also considering entering markets in Senegal and Ethiopia. Sim Tshabalala emphasised that that there are many opportunities in other markets on the African continent, including oil and natural gas projects. He expects e-commerce penetration to increase on the African continent too. He said, "We want to position ourselves to provide the capital and lending to people that will be making these types of investments". Following the global financial crisis, in 2011 Standard Bank announced their strategic decision to exit all activities that required capital outside the African continent. "We want to utilise the capabilities that we possess in Africa, to become the African champion", emphasised Tshabalala. Standard Bank's active consumer base increased by 6% to 5.5 million customers in 2021. Businesses and commercial clients, the growth area that Standard Bank is most excited about, grew customers to 500,000 in South Africa and by 12% in African regions to 261,000. Their African corporate and investment banking operations are now bigger than their home market. In 2020, Standard Bank's business and commercial clients' operations in Africa delivered a 100% improvement in headline earnings. Its loan advances grew by 26% and deposits by 4 HBMN333-2-Jul-Dec2022-FA1-RP-V.3-24062022 14%. At that level of growth, Standard Bank expects greater profitability, since in future the backbone of the African continent will include small to medium-sized businesses. Most African countries are volatile, and many companies which ventured outside South Africa have now closed their operations and returned home, but Sim Tshabalala says that Standard Bank understands these markets better than most of its peers and is in a better position to make its subsidiary, Liberty a pan-African player as well. Standard Bank has been operating on the African continent since 1980's, and as such has developed strong relationships with both regulators and societies. As a result, the bank believes that it knows its environments on the African continent well.