Goldman Sachs Group Inc.’s rush for post-pandemic profits in South Africa puts it on a collision course with the country’s biggest banks.
Already one of South Africa’s leading government bond traders, Goldman is stepping up funding in the continent’s most industrialized economy, establishing itself in an area dominated by local lenders such as Standard Bank Group Ltd. and FirstRand Ltd.
In anticipation that South Africa will quickly recover from its worst recession in a century, Goldman is moving to a larger office in Johannesburg and plans to add a handful of hires to the 30 employees it currently has, Jonathan Penkin, head of the Wall Street Sub-Saharan Africa firm, said in an interview.
âIf you look at risk management and forex in South Africa, the portfolio of the top five banks is over $ 1 billion,â said Penkin. “Sure, they have much larger franchises, but we want to be able to be a part of them.”
As Goldman embarks on a hiring in large emerging economies like China, it is also expanding its presence in South Africa, adding fixed income and foreign exchange products for businesses and institutional investors to its existing investment banking services.
The lender recently obtained approval from the Johannesburg Stock Exchange for a license to trade futures contracts. In 2019, he partnered with Investec on equity trading.
âWe came to a time when other banks were pulling out and our balance sheet and our willingness to invest capital in businesses were appreciated,â said Penkin. âThe consulting sector has been much more active than last year, mainly with mergers and acquisitions. “
The American bank, present in South Africa for more than 20 years, continues to progress after embarking on a dynamic of expansion about two years ago. While several other foreign companies, including Deutsche Bank AG and Credit Suisse Group AG, reduced its operations, Goldman strengthened its offer in the markets and added licenses to develop its activity.
Penkin took over Goldman’s Johannesburg office in late 2019 after working on Sale of Saudi Aramco shares, the world’s largest initial public offering. A graduate of the University of Cape Town, he was previously Chairman of Goldman’s Equity Capital Markets unit for Asia ex Japan.
Goldman’s senior ranks include other bankers of South African descent, including Richard Gnodde, its international director who helped oversee the expansion in the country from 2019.
âFinance and Risk Management – by combining our new brokerage firm in South Africa with the advisory side and providing corporate finance and risk management solutions – this is where we see very significant growth. Penkin said. “It’s already the case.”
Goldman is expanding its business in South Africa as President Cyril Ramaphosa pushes ahead with reforms that investors have sought for many years.
The government has started to take action against alleged perpetrators of corruption and has raised the limit on private power generation as the country’s main electricity supplier. Eskom Holdings Soc Ltd. faces ongoing maintenance issues. This month, the country sold a majority stake in its national airline after it emerged from bankruptcy proceedings.
Way to go
South Africa’s ability to resolve issues with other struggling state-owned enterprises and provide finance will be an important factor in its growth prospects, said Penkin.
“We still have a positive, non-consensus view of growth in South Africa and believe the outlook for inflation may be temporary,” he said. âThis will obviously be positive for the economy, as will the reforms announced last week around the production of electricity for self-consumption. These will take a while to have an effect, but it is a very welcome decision. “
Goldman is not alone in to be optimistic. Standard Bank and FirstRand are among South African lenders who have also signaled a change in sentiment regarding the country’s growth prospects as signs of an economic recovery begin to emerge.
The country is expected to rebound from the Covid-19 epidemic with 4.2% growth this year, according to its central bank, and lenders are anticipating better profits.
As businesses strive to grow by taking advantage of consolidation in various industries, South African businesses have options. They can “either double their investment at home or seek acquisitions abroad,” said Penkin.