A Man, a Dream, & a Money Machine

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It isn’t easy to leave your homeland and make it big in the tough streets of London, but here’s a story of a South African whose can-do attitude turned an innovative idea into a money-spinner. Sadly, he didn’t get to see the revolution he started, but his legacy holds lessons for us all

By Alec Hogg

In my year since arriving in London, I’ve met some really impressive South Africans. And many very successful ones. The Calvinistic work ethic, can-do attitude and cultural affinity makes my countrymen well suited to this great cosmopolitan city.

But one of them stands head and shoulders above the rest. A visionary and an inspiration who I was privileged to get to know as a friend. But, sadly, someone no longer around for one of our lengthy chats.

I met Jeff Paterson through a pal who had moved to London to expand his horizons. While scouting around he’d came across a couple of fellow Saffers who were in the early stages of revolutionising the retail currency exchange market. And he wanted to work for them.

My pal wasn’t actually employed by Fourex when he arranged our meeting, but encouraged me to come along. I took my microphone and spent a fascinating hour learning about the business called Fourex, which Jeff and business partner Oliver du Toit were building into today’s world beater.

Like many great business ideas, Fourex was based on the dream of replacing something expensive and wasteful with a cheaper and better alternative to everyone’s benefit. The business model was a combination of what academics term “disruption” and “shared value”.

The idea was sparked by the serial entrepreneur duo’s travels. They were irritated that most bank notes and coins they brought home were worthless except in the country where they were issued. When local banks did ordain to accept some notes, they charged hefty fees to exchange them. Money changing kiosks dotted around High Streets are even worse.

So for six years Jeff and Oliver collected bits of money from all over the world and charged some of the smartest engineers on earth to develop the technology.

The result was their ATM-like machine that exchanges 30 000 different notes and coins, no matter where they come from, into Pounds, Euros and US Dollars. Okay, maybe not old Zim Dollars. But pretty much everything else.

Today as you walk past a queue at one of the many Fourex machine scattered around London, it seems such an obvious business idea. But until 18 months ago, apart from Jeff and Oliver, nobody else seemed to believe it could work.

So the two of them invested everything they owned, borrowing where they could and encouraged each other to keep going after yet another potential investor wrote them off as crackpots. What seemed so obvious for them just couldn’t gain traction with the cynical majority.

Then Jeff hit on the idea of entering Virgin’s high profile “Pitch for Rich” competition. But getting attention required votes. So the Sandringham High Old boy called up Radio 702 and told John Robbie, who loved the story of the two London-based Saffers who wanted to change the world.

He interviewed Jeff on his breakfast show and listeners made an impact, contributing enough of the 685 000 votes to get Fourex into the competition’s final nine.

After that, Jeff told me, it was up to the judges. But this time he got tell the story to fellow entrepreneurs who lapped it up, just like Joburg’s radio listeners had. Fourex triumphed as the Best “New Thing”, one of three Pitch To Rich categories, the big break they needed.

The prize of £50,000 came in handy, as did the counselling from the head of Richard Branson’s family investment operation. But Jeff said it was the marketing spinoffs that really counted. After the long drought, potential investors started knocking on the door. They opted for South Africans, tying up with Larry Lipschitz’s Genesis Capital Partners. And the rest should have been happily ever after.

Excepting that real life rarely has a fairytale ending. On the one hand, Fourex’s future as the dominant player in its field is assured. But Jeff’s wasn’t. Soon after the Virgin competition he was diagnosed with cancer that required the amputation of his leg.

A week after the operation he was travelling around the London underground checking up on the newly installed machines. But it was only the start of his battle.

We met shortly afterward that and became friends. Jeff possessed a zest for life, an enthusiasm for learning and a gloriously open mind that made people warm to him. He was a seeker, ever probing, always asking questions, obsessed with getting to the truth.

He tackled cancer the same way – head on, refusing medication which promised only to prolong his life at a lower quality. Jeff took up the challenge of beating the disease, switched into investigation mode and experimented with everything from pulse machines and frequencies through to diets and meditations.

Jeff promised to let me write his story. But only after he’d conquered the disease and given the world one more gift, a cure for cancer. There were some notable successes. But in the end he just ran out of time. His strong body had been too weakened by the quest. But in all of that he never lost his sense of humour. And towards the end, gained the gift of peace.

Like everyone else who got to know Jeff Paterson, I’ll miss him. My pal, who got the job and thus worked closely with this gifted entrepreneur, says that his passing has left a huge hole in the rapidly expanding business. And in many lives as well. Because people like him are rare. Leaving footprints that never fade.

* Alec Hogg is the founder of Biznews.com.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

Making Sense of a World Turned Upside-Down

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In snowy Davos, every year, big thinkers in business, politics, and civil society gather to pontificate on which way the winds of change are blowing. The verdict this time round? It’s a hurricane out there. But if we heed the warnings, it could help to usher in a better, smarter world.

By Alec Hogg

You didn’t need to spend January at the World Economic Forum in Davos to appreciate how fast the world is changing. But it helped. For those of us there, the message was delivered with the force of a vuvuzela.

The WEF’s annual meeting began with a communist leading the charge to preserve the world’s free enterprise system. And ended with the outgoing Number Two of capitalism’s biggest beneficiary warning us his USA is about to reverse roles with China and climb into a protectionist cave.

In between we got to hear how the Blockchain will transform financial services in the same way that the Internet revolutionised communication. And got an update on important progress in battery storage where costs are now falling fast, promising to close out the final Achilles heel of renewable energy.

Being invited to the annual gathering in Davos is the highlight of my year. It is the place where, consistently, the global agenda is set for the year ahead. This was my 13th successive participation, adding the benefit of the regular visitor who can track broad trends.

So how does WEF 2017 see this year?

What jumped out is the way long-held myths are being tested and discarded. The Davos meeting’s theme was responsive and responsible leadership. Appropriate given so little of it exists around the world right now.

As the Fourth Industrial Revolution takes hold, much of what we used to take for granted is now being disrupted. Politics is the most obvious, with populist leaders sweeping to power by feeding on the public’s distrust of the status quo and growing fears of the uncertain future.

Although the shock election of Donald Trump grabbed most attention, the disruption of the political status quo is not isolated either to the US or that part of life. Business, too, is being turned on its head with a shareholder focus now replaced by the paramountcy of “stakeholders”. The business of business is no longer to make a profit. Its primary goal has become to earn and retain a social licence.

Similarly education. After decades of following its own agenda – and ignoring the market’s needs – colleges and universities face an existential crisis. Having tired of not getting what they need, companies have been building their own in-house training campuses. They are producing thousands of graduates now preferred by companies as they have skills businesses can actually use.

The media, too, is in a crisis of change. The Edelman Trust Barometer, released on the first morning of the annual meeting, delivered a shocking early headline when chairman Richard Edelman described the results as an “implosion” with an astonishing 85% of the respondents no longer fully trusting the system.

Worst performer of the major categories was the media, which recorded a 5 point index plunge (to 43) with over half of those surveyed in 28 countries no longer believing what the mainstream organisations tell them. Most people today believe someone they know more than they do traditional media.

The second big headline to set the Davos 2017 mood was a sensational claim on income inequality by Oxfam’s head, Winnie Byanyima. She was subsequently besieged by journalists, but I did manage to catch up with her towards the end of the event and was rewarded with a feisty discussion that you can listen to on Biznews.

I was surprised by a few things she claimed, including the decision to rebase the comparison that caused such a stir: last year Oxfam said 62 billionaires owned as much as the bottom half – this year the number dropped to just eight. She admitted her intention was to “shock the leaders into action” on income inequality. Objective achieved.

And what of South Africa?

On a superficial level, Davos 2017 was successful for a team SA contingent ably led by Deputy President Cyril Ramaphosa, who was well supported by respected Finance Minister Pravin Gordhan. Cyril thrived in an atmosphere where he was surrounded by like-minded people, moving decisively and happily out of his controversial boss’s shadow.

Ramaphosa showed us why he was Nelson Mandela’s favourite and reminded us that the chairman of the country’s forgotten National Development Plan is very comfortable operating on the global stage. He was cheerful, warm, engaging and articulate. Cyril also participated in half a dozen formal WEF sessions where, unlike President Jacob Zuma, he looked completely at ease.

For someone who has watched Team SA closely for some years, the other distinguishing feature of Davos 2017 was strong cohesion there between business, labour and government. I cannot remember witnessing higher levels of trust between them.

But, sadly, that trust doesn’t extend far enough. Commentary to the Edelman Trust Barometer grouped the country in with other underperformers in a critical category: “In developing markets such as Brazil, Mexico and South Africa, trust in government collapsed in the past four years in the wake of scandals. Trust in government is now as much as 43 points below that of business.”  Ouch.

*Alec Hogg is the founder and editor of Biznews.com

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

Dream Big, Work Hard, & Change the World

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What does it take to turn a bright idea into a startup that disrupts an industry, and gives people the power to change the way they look at life? Following the announcement of a major shareholding deal between Sanlam and BrightRock, BizNews publisher Alec Hogg sat down with BrightRock co-founder and Executive Director Schalk Malan to get the inside story.

Alec: I’ve been watching the progress of BrightRock over the last five years, and it’s been quite extraordinary to see a company coming from nowhere. More than half-a-million lives that have been covered. The growth rate last year was 72%, and then Sanlam announced that it has bought 53% of the company for just over R700m. You have created nearly R1.5bn worth of value in just five years. Is that beyond your wildest dreams?

Schalk: I’m very excited, but if you look at our product innovation, delivering clients 30% to 40% savings from their premiums, the result was a consequence of innovation on all fronts. We’re obviously, very pleased with this investment from Sanlam and it’s testament to their belief or view of BrightRock and what we have achieved.

We wanted to change the industry and change it for the better. We had a clear understanding of the market and we had a clear belief that through product innovation, driving our clients and assisting clients to buy what they need, through life insurance, and to save them 30% to 40% in the premiums.

That understanding and belief made us excited to come and change an industry and we’re really achieving that.

Alec: Have you aged more than five years in the last five years?

Schalk: When you start a business there’s got to be a little bit of that ambition that defies gravity or belief, and that does take its toll, so yes, we’ve probably aged a few more years.

It’s been an exhilarating period and we’ve learnt so much. If you think about starting off with four people around the dining room table and today, sitting with more than 350 employees.

That is a phenomenal achievement and that makes us proud as well, to have been able to make that type of impact on people’s lives and, also our clients.

Alec: It was you, Sean Hanlon, Suzanne Stevens, and Leopold Malan who started BrightRock. Did you each have a sweet spot? Was it almost as though you looked at each other’s skills and what you were able to bring to the party and said ‘we’re the perfect Four Musketeers?’

Schalk: Our skill-set is absolutely complimentary. We’ve got the various disciplines covered in the market, in the distribution, the product design, and the processing but more so that chemistry that we’ve developed over time – that diverse thinking. I think it’s really been one of the major contributors to this success story.

We debate every single thing, we’ve got a very much a process of reaching consensus and agreements, and that’s really delivered great results. From the consumers to be able to implement workable systems and processes.

Alec: Sanlam is taking 53%, so it will have control of the company in the future. Are you expecting that you might be put together with something else, within Sanlam?

Schalk: No, absolutely not, Alec. I think one of the key things that Sanlam has also stressed with us is this power that sits in BrightRock, this entrepreneurial innovation was very appealing in their space. The business will run separate from the Sanlam business.

We will be moving in a life license inside the BrightRock Holdings Group, being branded BrightRock Life. BrightRock will be running as an independent business.

Obviously, Sanlam will be represented at the board level but they’re very clear in running the business, day-to-day, as an independent business and supporting where they can.

Alec: But you have been a disruptor. Is it likely that there might be some threat to the Sanlam business, given the way that you are disrupting?

Schalk: A lot of discussions were had around that and where I think we’ve reached commonality in our thinking and in our strategy, is that this investment will be aimed to increase market share.

That’s been a key objective of both parties, so we see that this transaction will enable BrightRock to continue on its innovation path, being able to deliver product and continue on its current product development, to be able to grow market share for us, as well as for our shareholders Sanlam.

Alec: Up to this point you’ve only used independent brokers. Are you going to continue along that line or do you now get dragged into the Sanlam distribution network?

Schalk: There has been discussions that the BrightRock product will be available to the Sanlam agency ports. It will be under the BrightRock brand, as we’ve come to know and it will also be administered and serviced through BrightRock. So, in terms of that the whole experience will be exactly the same.

At BrightRock we’re a strong believer in the independence of advice, but if you look at most of the financial services they also have agency distribution.

We believe that’s all exciting, it’s aimed and developed to grow the market share and to take our product message out to a much greater audience. That’s really what we’re excited about because we truly believe that this BrightRock product, in the hands of our customers and consumers, is a very powerful and innovative product to deliver what they actually expect, and that is to take care of their families and loved ones when life changes.

Alec: R700m is a lot of money – is that going into the business or are you guys going to be banking a bit?

Schalk: No, we’re very much committed to the business. The funds will be applied into the business and there’s a lot of excitement to see the results of that and to accelerate some of the business plans, and to really take those to see how we can grow market share. So, no – there’s no result of any sell-outs. It’s there to grow the business.

Alec: What would you suggest to younger people, who want to become entrepreneurs? What is it going to take to achieve this level of success that you’ve managed?

Schalk: I believe first and foremost, in terms of your team and the people around you – like I said earlier, diverse thinking, getting a group of people that’s like-minded in philosophies. That for me is critical. Then you’ve got to have a dream.

You’ve got to want to change the world in your thinking. You need to have a specific objective that you want to achieve and that’s very important. The other thing is you’ve got to prepare yourself for hard work and hard work with partners that are willing to go the distance.

Those are some of the key things that really stand out for me, if I reflect on this journey to date.

*This is an edited version of an interview that appeared on BizNews.com.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

Donald Trump & the Tree People

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Polynesian islanders believe the world can be divided into two types of people. Tree people, who like sitting in the shade and watching the world go by, and Canoe people, who prefer getting into their canoes and seeing what lies beyond the horizon. Which are you, and how do Brexit and Trump fit into the picture?

By Alec Hogg

Funny how one thing develops into the next. A few weeks ago, a friend recommended a movie called What The Bleep Do We Know. It was an introduction to a line of inquiry long overdue for someone who has enjoyed tangible benefits from New Age concepts like mediation.

That movie re-introduced me to the remarkable Joe Dispenza, a chiropractor who was triggered by a personal experience to apply his mind to overcome the physical. The more I read of his work, the deeper the research that followed.

Among Dr Joe’s contributions is how learning new things creates new paths in the infinite potential that is our brains also reaffirming how much there is still for to discover. The more we learn, the more we realise how little we actually know.

Ours is a complex world which we share with billions of other beings, all with the same plumbing and brain capacity as we possess. That’s massive untapped potential. If the reaction of others baffles us, we should first try to hear what they are telling us, rather than reject their opinions as foolish.

The reminder came home with some force through the decision of the British public’s vote to leave the European Union, and for many, the equally surprising election of US President Donald Trump.

With hindsight, though, it’s all pretty logical.

The best explanation I have been exposed to refers to a story told in a book by French author Jean-Claude Guillebaud in which he draws on the distinctions Polynesians draw between mankind’s sedentary and adventurers.

They believe that each of us falls can be categorised as either a “Tree” or “Canoe” person.

The first group are content to remain where they were born and have no interest in knowing whether the grass is greener on another island.  They happily live out their lives in the shade of the island’s trees.

Canoe people, on the other hand, are driven by a need to explore. For them, the best use of a tree is to turn it into a boat to transport them to distant places. There they can learn fresh ideas which can be brought back to enhance their own community.

Polynesians respect both streams of humanity. They say a society which only has Tree People would see no fresh influences. With Canoe People only, there would be no more trees and the island become deserted.

For the past few decades, the world has witnessed the ascendancy of Canoe People, the champions of inter-connected societies where globalisation expands wealth and liberalisation of societies breeds greater tolerance for others.

I was intrigued to separately hear Canoe People described as “Davos Man” – the mythical creature personified by those who attend the annual meeting of the World Economic Forum in the Swiss town of that name.

As a veteran of the event, my experience of Davos is that it is the ultimate banquet of brain food. More than half a dozen simultaneous channels give participants access to the world’s brightest thinkers, most forward looking innovators and leaders of its progressive corporations.

The credo of the World Economic Forum is to make the world a better place. But critics see the annual meeting as a Canoe People jamboree where the global elite share and reinforce their ideas and beliefs in an Alpine echo-chamber.

January will be my 14th participation in the annual event, so I’ve seen enough of “Davos Man” to venture an assessment. And it’s clear that despite some valiant attempts to make the event more inclusive, Davos does remain the preserve of the fortunate.

While this highly educated group of global citizens thrives on trying to understand complexities of this speeded up world, recent events suggest they have also made a terrible error.

In his haste to evolve, Davos Man has forgotten to share. Both financially and in terms of knowledge.

It is in Davos that the latest research of inequality is publicised in the forlorn hope that the rich and powerful attendees will do something to address it. Davos is also the place where politicians are exposed to the reality of the rapidly changing world. I have seen quite a few return home with a very different mindset.

But it is one thing to swap ideas on complex issues in a sealed off Swiss Alpine resort. Another thing entirely to engage at a level where it is required.

Not enough effort has been made to engage left-behind “Tree People”. The inevitable has happened. They are tired of having their trees turned into canoes. And are reclaiming their islands.

In the Brexit Referendum, Boris Johnson and Michael Gove tailored their message for Britain’s “Tree People” – evoking emotion around the cost of European bureaucracy, the perceived loss of UK sovereignty and the influx of immigrants.

Against that, the intellectual arguments on the wealth creation of free trade fell flat, so their opponents led by former Prime Minister David Cameron resorted to a self-destructive “Project Fear”.

US President Donald Trump followed an identical line, promising to be the representative of the forgotten masses who believe globalisation has gone too far, immigration is too free and the elite have subverted “We The (Tree) People”.

His opponent’s arrogance in branding Trump and his supporters as intellectual morons backfired spectacularly.

South Africa is witnessing a similar battle between the two branches of society. The challenge for “Canoe People” is to communicate clearly and swallow a dollop of humility. Failure to do so will condemn the country to repeat the mistakes of some continental neighbours. Not least Zimbabwe.

The stakes couldn’t be higher. But for the Canoe People of South Africa, the first step is to appreciate that one should never under-estimate the intelligence of the common folk, and know that provided they are well-informed, they will always do the right thing.

* Alec Hogg is the founder and editor of Biznews.com

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

The Day My Identity Was Hijacked on Twitter

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The Internet is one of humanity’s greatest innovations, right up there with the wheel and the printing press. But in an age of constant access to information, the dark side of social media can leave you wondering who is who, and exactly what’s on. Here’s why it’s worth being extra careful online

By Alec Hogg

This is a very difficult message to share. For the last 20 years I’ve been a staunch supporter of everything Internet. Its immediacy, reach, ability to empower by democratising access to information. For me, Tim Berners-Lee’s invention is right up there with the discovery of the wheel.

But in recent weeks I’ve been having second thoughts. An ugly malignancy has infiltrated this revolutionary blessing. Something evil and destructive. And I’ve felt the sharp edge of this cancer’s toxic touch.

It first happened just over a year ago on a memorable Sunday night. After waiting for three days without their response, we started running a series of articles that helped expose two South African white collar criminals who were running a global Ponzi scheme.

Within a couple hours of the first story being uploaded to Biznews.com, our website was under attack. The would-be hackers somehow got into the website of a global travel insurance company, and used it to send tens of thousands of page requests, dropping our site’s speed to a crawl.

Fortunately the attack was seen off by escalating our security and in a couple days – and few thousand dollars later –our website was back to normal. But it was a jolt, and a practical reminder that all the talk about Cyber Security is a lot more than hot air.

But like the frog in a kettle slowly brought to boil, out of sight was out of mind. The North Korean attack on Sony did register, but it was a bit like hearing someone in another city had been hijacked. Disturbing, sure. But not exactly moving my own “worry” dial.

So the universe decided to deliver another reminder in January.

My report about President Jacob Zuma not pitching for a televised Davos focus on investment in Africa, went viral. While the site and the story was accessible everywhere else on earth, access to South Africans was suddenly blocked.

The official reason we received was some that Telkom cable had been severed. A day later, once other media outlets picked up on the story and the heat was out of it, everything returned to normal once more. So it was easy to downgrade the incident to an unfortunate coincidence.

Those unheeded warnings came back to bite us last month.

By way of background, as its reach has grown, social media’s micro messaging channel, Twitter, has evolved into something the founders never expected. It has become infected with professional guns-for-hire who target those critical of their clients.

Their standard approach is to create many new Twitter accounts on behalf of fictional people, and then apply them in an apparently spontaneous attack against targeted individuals.

These “trolls” snipe away in the hope that their target or some authentic commentator takes the criticism seriously enough to spark a Twitter storm. Or even if there is no reaction, they rely on the belief that if you repeat a lie often enough, people will eventually believe it – a philosophy straight from the Joseph Goebbels school of propaganda.

It is not only those with commercial interests who have deployed this approach.

The trolls struck pay dirt when attacking economist Chris Hart, a gentle soul, when an innocuous weekend tweet was interpreted by them as racist and demeaning. Hart got drawn into a ridiculous “do you beat your wife” debate. Next thing, he was being falsely accused of having faked his qualifications. Hart was put on suspension by his employer, Standard Bank, and resigned soon after.

Twitter also hosts a feisty pro- Zuma pack which rallies to his defence anytime something critical is published about SA’s President.

At Biznews, our credo is to promote democracy by supporting free enterprise and attacking corruption. By definition, that means we expose crony capitalists and talk truth to those in power – Zuma included.

My Twitter account has a significant reach, so has also become a magnet for the trolls and the pro-Zuma pack. Some months back I applied the “mute” button to shut off messages A don’t wish to see. There’s temptation to respond if you never see the criticism.

But last month things took a sinister turn. Something which is a warning for all of us.

Someone decided to create a “parody” account on me – they registered @allechogg (note, two l’s) and copied my pic into the official profile photo. The “parody” has been around for a while, but has relatively few followers so not too many people were taken in.

Unfortunately a well-intentioned lady, let’s call her KM, was tricked. She struck up a conversation with my “parody”, who made some ridiculous statements of how he would manipulate other media outlets to promote a particular agenda. First I knew of this was when talk show host Redi Tlhabe, who has a massive Twitter following, asked me why I’d made such outrageous statements.

What we subsequently discovered was that the people who had created my “parody” had hacked into the unfortunate KM’s account, copied the conversation she thought she was having secretly with me, and sent this evidence to a leader of the pro-Zuma Twitter pack.

As it suited this fellow’s “white monopoly media cabal” theory, he spent the next few hours distributing his proof to everyone who cared to listen.

Here’s the thing. In the rush to attack, and afterwards, nobody seems to be asking the real questions. Like who created the “parody” account and why? And who committed the obviously illegal act of hacking into KM’s private space.

My learnings. You can never be too careful on social media. Or on the Internet at large.

The platform has become so powerful, so important in shaping opinions that those who practice the dark art of media manipulation are applying lots of effort to hijack it to serve their own nefarious ends.

Best to always double check what you read online. Only trust reputable sources. And have another look at how your account can be accessed.

We’ve implemented the free Google-driven two-phase password system which secures access to our Twitter, Facebook, email and publishing accounts in the same way financial institutions force us to treat our bank account.

And if you’re publishing anything, even on your own family blog, listen to the wise heads who recommend you apply computer generated passwords. The risk in using the name of your child, the family pet or your date of birth far exceeds the convenience. You never know who might be out there, itching to steal your identify.

  • Alec Hogg is the founder and editor of Biznews.com

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

The Vietcong General Who Changed Madiba’s Mind

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A chance meeting at a snowy Swiss resort inspired a sudden shift in South Africa’s economic policy. As always, life’s unexpected paths open up when we least expect them. By Alec Hogg

The game of life has many forks in the road. Sometimes, we get opportunities to make conscious choices. But often things just happen. Things that end up having a massive impact.

At 17, one such event over which I had no influence pushed my life onto a different road. The expected path in lawyering was diverted through a shove into journalism, steering my future into an unexpected direction. One, as it turned out, ideally suited to my skill-set and temperament.

Unknown to many of its citizens, South Africa was the beneficiary of similar good fortune.

It happened in the beginning of 1992 when then President-in-waiting Nelson Mandela was invited along with FW de Klerk and Mangosuthu Buthelezi, to share the podium at the World Economic Forum in Davos, Switzerland.

Mandela arrived at the Alpine resort a devotee of socialism; a believer in economic policies applied so disastrously in the past couple of decades by Venezuela’s Chavez and Argentina’s Kirchners.

Mandela wasn’t shy to tell anyone prepared to listen, that nationalisation topped his economic agenda. If it was South African and moved, he said, the State was going to own it.

Western leaders agued vociferously with Mandela, trying their best to turn him away from that ruinous path. But their logic fell on deaf ears. Even though these policies had caused the economic collapse of the Soviet Union, Mandela – and the ANC – remained steadfast.

Yet when he returned after that week in Switzerland, Mandela had done a complete turnaround. The socialist dogma was replaced by a pragmatic, market-driven approach which served the nation well through the late 1990s and noughties.

His economic transformation came from one of those unexpected forks in the road.

Also on his first visit to Davos that year was one of Mandela’s own heroes, Vietnamese general turned politician Vo Van Kiet. Although he remained a staunch communist, the general was among the first in his nation to realise what worked in politics didn’t translate well economically.

We’ve tried what you are preaching, the Vietnamese Prime Minister told Mandela, and it leads to poverty and pain. Much better to keep political control, but free up the economy, encourage people to build businesses, create wealth and pay taxes. That’s the way to transform our society and uplift the poor.

Van Kiet is remembered as much in Vietnam nowadays for his approach to the economy as he is for soldiering. He is revered as the genius who inspired a system which has led to Vietnamese per capita wealth rising at an incredible compound growth rate of 12.8% a year for the past 22 years.

Sadly, for all the good initial intentions, South African leaders failed to follow through on the sound Vietnamese advice, allowing ideology to divert them somewhat.

As a result, South Africa’s GDP per capita has posted compound growth of just 2.7%. The relative impact has been dramatic. In 1992, the average earnings of a Vietnamese citizen was one 25th of a South African. Today it is one third.

But that would have been so much worse had Vo Van Kiet not been among the lower profile visitors to the 1992 World Economic Forum. Or had the former prisoner’s hero been unable to grab a few invaluable minutes to change the path for Nelson Mandela – and South Africa.

Another new road has opened up for South Africa. This one involves its battle against corruption, that insidious cancer which has been the root of such hardship and poverty in many developing countries.

During his first spell as Finance Minister, from 2009 to 2014, Pravin Gordhan tagged Government procurement as the key area where taxpayer money was being wasted or misappropriated. From inflated contracts for cronies and payments for services not provided through to simple mis-management, State resources were being diverted into the wrong pockets.

Gordhan worked hard at creating a central office to oversee the State’s purchases, but when he was demoted in 2014, his initiative lost momentum. Not as well known is that after his reappointment in the wake of the dramatic developments of December last year, this stalled plan was one of the first things Gordhan focused on.

His appointment of Kenneth Brown as head of the Office of the Chief Procurement Officer (OCPO) is one of those quiet moves that is starting to reverberate loudly. Such is Gordhan’s confidence in Brown, that in the February Budget the reinstated Finance Minister could announce that the nation would avoid a VAT increase Brown’s team would lick in the required R25-billion a year from savings on what the State spends.

A recent update from the OCPO suggests Gordhan’s confidence is well founded. For instance, national and provincial Government spends R10-billion a year on travel and subsistence. But despite pocketing R1-billion in commission, travel agents always charge the State top dollar and never pass on any negotiated discounts.

Another example is phones, where national and provincial Government spends R3.2-billion a year. Brown says a simple consolidation of the account is saving an immediate R400-million a year. Similarly, with the building of new schools, pretty much anything used to go – but now there’s a cap of R35-million on a 4 000 square metre school. And so it continues.

After his demotion in 2014, 66-year-old Pravin Gordhan must have been sorely tempted to swap his suits for a rocking chair. But he hung in there. And Nenegate, over which he had zero influence, threw him onto a different path. That opened the way for a renewed attack on corruption through championing the efforts of a rejuvenated Kenneth Brown.

Life has a funny way of doing that. New avenues open up in the most unexpected ways . Sometimes, as with Pravin Gordhan, it’s a case of simply hanging in there, just showing up. Because we never do know what tomorrow might bring.

 * Alec Hogg is the founder and editor of Biznews.com

* The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

Yes, the World is Changing, Mr Zuma

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In the age before information broke free, few of us would have even heard of Nkandla. Now, whispers grow into roars through the power of social media. Welcome to the Second Renaissance of humanity. By Alec Hogg

One memorable evening during our farming semi-sabbatical, I tumbled onto the meaning of modern life. Well, if not exactly some deeply philosophical meaning, at least an appreciation of what  makes our modern wired generation so different to their parents.

Friends from the city were staying over. After a few bottles of wine, as it does, the conversation moved onto weighty subjects. Soon we were debating the most important thing to transform the world.

In polite language, it was a vibrant discussion.  And as tends to happen at such emotional times, my wife’s sharp shin kicks were a reminder of a host’s required decorum.

But this time the bruises were happily accepted. Because as my case was argued, it suddenly dawned that everything I’d ever been thinking about this Information Age was true. Things really are different. The world has become a very different place.

Quite simply, it’s because mankind is now differently networked.

When I was growing up, folks phoned each other on their expensive landlines. When pals were far away pals, it was handwritten letters. Even the serious stuff. My in-laws courted that way for two years before moving to the same country.

This forgotten way of life was especially prevalent in smaller towns. There, one’s reality was shaped by books, encyclopaedias, newspapers. People trusted what they got from within local circles. Bank managers, church ministers, a local doctor, accountants, the headmaster – these were the pillars of society.

Those who governed were far away, occupying themselves with stuff too important for the rest of society to reflect over, let alone question. For most of humanity, out of sight really was was out of mind. Life was blinkered, but a lot simpler.

Even after moving to the big city, my own mind only really started opening after reading John Naisbitt’s 1982 masterpiece, Megatrends. The result of a decade’s research, it predicted 10 major changes that would flagpost our collective future. Mostly it explained how free flowing information was about to transform our lives. Preaching the reality that while ignorance feeds stagnation, information stimulates progress.

It was that message that encouraged my dedication to journalism. Until reading Naisbitt, I’d planned to spend a few years as a newspaper reporter to learn about the business world before moving into an area offering potential.

But after Megatrends, it seems I’d fallen into exactly the right place. If information was going to change the world, then surely there could be no better place to be than at its focus hub? That decision sent me onto a never regretted path of lifelong learning. On such small things lives turn.

It has been an amazing few decades. Paul Merson explains the transformation well in his entertaining autobiography “How NOT to be a professional footballer.” Hell-raising Merson reckons were he born 20 years later, his affection for drugs and alcohol would have killed his career before it even began.

Dalliances which in Merson’s heyday remained secret would today become public in minutes, thanks to smart phones and social media. So Merson’s favourite pasttimes, like snorting cocaine off an obliging breast in the back of a London cab, would have terminated his career overnight.

Travails of South Africa’s deeply compromised President Jacob Zuma offer another example of how the world has changed. One of the reasons why the 74-year-old is baffled by the fact that everyone else is so agitated by his antics.

In a different era, the world would never have discovered the overindulgence of Nkandla; known about, much less questioned, Zuma’s close friendship with the Guptas; discovered his dodgy deals with African dictators; or been aware of Zuma’s penchant for trading favours for cash.

Entrepreneurial politicians have been a curse on the public service long before Cicero got decapitated for opposing them in 43BC. But in our age of Twitter, Facebook and Instagram, getting away with devious behaviour is tough.

Take the woman who opened the first crack in the previously impregnable partnership between Zuma and the Guptas.

Deliciously named ANC stalwart Vytjie Mentor spilt the beans about the Gupta role in appointing Zuma’s cabinet when posting an otherwise innocuous reply to a Facebook friend. Only after her comment went viral did Ms Mentor appreciate the relevance of her experience, realising hers wasn’t an isolated example.

Returning to our shin-kicked dinner party, developments like Vygie’s help me believe the bragging rights are mine. Not only has the Information Age transformed the world. But it has also changed our lives very much for the better.

Inverting shows us how.

Imagine that instead of being a Constitutional Democracy, South Africa were governed like its biggest BRICS partner. There is no Facebook in China, nor Google. Every news organisation there, every journalist, is licenced. And all content passes through one of the Government appointed censors in situ in the newsroom. Outside the formal media, any online commentator regarded as even slightly subversive is immediately blocked and often jailed.

To use a recent example, Chinese citizens remain blissfully unaware of the #PanamaPapers, the global scandal sparked by the leak of 11.5m secret client documents from a dodgy law firm. Among those implicated are family members of China’s President Xi. Geddit?

Given our often unappreciated level of freedom, this stuff can be difficult for South Africans to absorb. For all its well documented faults, this is one of a minority of the earth’s inhabitants where a vibrant media applies every ounce of freedom enshrined in the nation’s supreme legal document.

Those who prefer operating in the shadows would love a return to the old world where information was controlled. Life, as mentioned earlier, was a lot simpler. But it was also very unfair. Open societies are complex and challenging. Free flowing information, however, endows huge benefits.
A famous South African export, Oxford University Professor Ian Goldin, is putting the final touches into a new book called The Second Renaissance. His thesis is that the explosion of accessible knowledge has been unleashing human ingenuity on a scale last seen during the original Renaissance.

This time, though, instead of a small pocket in Europe having the lock on creativity, the modern Michelangelo might come from Orange Farm, the new Da Vinci from Vosloorus.

When information flows freely, truth enjoys a deserved premium. Rebalancing the scales of life ensure equal opportunities are available to everyone everywhere. That, surely, is the best way to address the global scourge of inequality where assets owned by just 62 multi billionaires equate the collective wealth of mankind’s poorest 3.5 billion.

  • Alec Hogg is the founder and editor of Biznews.com. 
  • The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

David O’Sullivan talks #WEF16 with Alec Hogg

After Davos-veteran Alec Hogg shared some some of the vital take-outs from the World Economic Forum’s 16th Annual Meeting (#WEF16), he sat down with media veteran David O’Sullivan to talk about South Africa’s economic and political prospects for the year ahead.

BrightRock illuminated all Alec’s news coverage and analysis from Davos in BizNews.com, before he presented the key take-outs from Davos during a breakfast for BrightRock’s Laureate advisers at Blue Valley Golf Estate in Midrand after his return from Switzerland. Watch or read the full conversation below:


Transcript:

[DAVID O’SULLIVAN] Alec, if I could start with a couple of issues you raised right at the end there. And they are the topical issues. We have the State of the Nation Address; what do you think, and I’m not going to ask you what Jacob Zuma is going to do, but what should he be saying in his State of the Nation Address to appease foreign investors that South Africa is still the place to be?  Now that was his expression in Davos. He said to foreign investors that this is the place you should be. What should he be saying to persuade foreign investors that South Africa is still an option?

 

[ALEC HOGG] Shoo, David. I think the reality of where we find ourselves as a nation is a little bit like a company that has just had its reputation destroyed. Reputational risk is something that we should all be aware of. Warren Buffet says that you don’t ever do something that will land you on the front page of a newspaper that all your friends are going to read and you will not be proud of. And we’ve done that. We’ve landed not just on the front page of the paper that all our friends read but that all our enemies read as well. What happened to this country in December and the reputational risk that was created, at that point in time and through Nene-gate and prior to that, just emphasized the direction the country was going economically. The challenge that now exists is rebuilding that reputation. And that’s not going to happen overnight. But Pravin Gordhan has been…you know, the business hasn’t met with government seriously for about seven years, literally, and Pravin Gordhan is now initiating that process. Zuma literally goes along to those meetings and sits there and chuckles and Pravin runs them. There’s a process that is now moving in the right direction. I guess the best … what we should be hoping for is a return to sound economic policies; a realisation – and this is really what the big story is – after 2008 we had quantitative easing. Quantitative easing, just pump money into the system. So it didn’t matter how good you were or how bad you were – you just flourished. The whole world flourished. Even a moron – and he is a moron – like Chavez, he’s dead now and you can’t defame the dead so let’s go for it. But what Chavez did to Venezuela is unconscionable. He had an oil price of $100 a barrel and he could do what he liked. He could employ crazy policies. Venezuela has voted out the socialists after 16 years and voted in a new government but the old government doesn’t want to let go. I mean it’s a crazy thing. Argentina had the same situation but the new government is in there.  But the reality was that when you had this easy money just flooding the system you could get away with anything. And you did. So 21st century socialism flourished – including in South Africa. In South Africa if you take a look at how our budgets have been structured over the past few years – it’s been more spending on the social net and less spending on developing the economy. It’s been more tightening of the socialist type rules which restrict growth and less freeing up on those market type rules which promote economic growth. As a consequence we’re one of the worst performers on economic growth at the moment. A reversal of that tide is going to require political courage; and if we can see a start in that direction, first in the State of Nation and secondly in the budget, then we’ll start going in the right direction.

 

[DAVID O’SULLIVAN] He’s certainly sending out signals to foreign investors that things are good in South Africa. He was saying we are open for business. From the people you were talking to in Davos is that confidence that the President is exuding is that shared? Is there a belief that South Africa at least still provides opportunities for foreign direct investment?

 

[ALEC HOGG] Well, again a lot of these things are a process. You might recall that there was a very rapid visit to Angela Merkel by Jacob Zuma towards the end of last year. And after he arrived back Mercedes Benz announced a R4 billion investment. Now the timing was not coincidental. There were certain guarantees, no doubt, that were provided in those discussions. The Brand South Africa every year in Davos takes the Kirchner Museum which is a landmark area. It was like a morgue this year. There wasn’t interest. The trouble is you screw up and then you say: ‘Oh hell I’m sorry, please come back.’ Or, things aren’t what they seem to be, or … the first step to recovery is admitting we’ve got a problem. And Pravin has done that. The President is in a different zone.

 

[DAVID O’SULLIVAN] He was talking about, also, in his statement – in his speech – in Davos; he spoke about Invest South Africa; this initiative to ease constraints to get rid of the bureaucratic slowdowns to ease foreign investment in South Africa. Is it making South Africa more investor friendly? Is that an initiative that’s going to bear fruits at any stage do you feel?

 

[ALEC HOGG] The problem is he signed into law the ‘Promotion of Investment Act’ in mid-December while nobody was paying notice. That’s the worst thing that you could think of. In this day and age we have many social imperatives in this country and really we can all buy into them. We can buy into BEE, we can buy into the fact that the previously disadvantaged need to be brought into the system. And it’s true. And it has to happen. But you can’t say to a foreign investor to come to the country but give away 50% of what you put in. Why? Why would they do that? They’ve got the rest of the world to choose from. So, you’ll find where the investments are happening here are where there are special dispensations. The ‘Motor Industry Development Plan’ is extremely attractive to the motor manufacturers. As a consequence we have very happy motor manufacturing companies who are expanding it. When the tide goes out; when the easy money tide goes out – you see who’s been swimming naked. To use another lovely Warren Buffet term. Both Christine Lagarde of the IMF, and there were other commentators as well, said that countries like South Africa and Brazil have not taken advantage of the good times and now they have to struggle through the bad times. So when you hear Gordhan talk about structural reforms and grasping the nettle and spending less than we earn etc. then for the first time we are hearing the right language. For the first time, literally since the Zuma administration took over. The Zuma administration I would remind you, were saying a few years ago that we’re going to create 5 million jobs by 2015. And then it’s we have a good story to tell. And, and, and… I don’t know if it’s because the Presidency is very poorly advised, or whether within the Presidency there’s just no grasp of these major issues. But there are people within the cabinet who are … and there are people within the top six of the ANC who are very mindful and very aware of these issues. And if you go back to the ninth of December when … you know that was like the final straw … with this guy who was chased out of Carletonville as the mayor being appointed as Finance Minister. And Trevor Manuel said afterwards … and then being painted as superstar … Trevor Manuel felt strongly enough to actually issue … to write a statement to City Press newspaper, an open letter, where he said that if this guy was such a star why did I never see him in the five years I was an MP in Parliament? So that whole thing has now unravelled. Sometimes you need to push the envelope just that little too far and it appears as if 21st Century Socialism did that and it’s now being reversed. So, if you were to take South Africa, would I rather be sitting in South Africa today or on the 8th of December? I would choose today a lifetime. Every lifetime, because we actually hit that issue that opened everybody’s eyes … to the reality to where we might have gone to. And the problem is if you’re used to bullshtting, it’s very hard not to bullshit. If you’re used to propagandising or thinking that people listen to your propaganda it’s very hard to reverse that. And until you van grasp the modernity of a complex economy like South Africa where everybody’s informed … I mean the Edelman’s Trust Barometer was something if I were running the government I would be terribly concerned about. Because if only 16% of the people of this country believe that they can trust the government … if you had 16% of the people believing they can trust your company you don’t have a company. So those are the realities that are being grasped in certain quarters but it’s politics … and politics, and sometimes you have to get the votes.

 

[DAVID O’SULLIVAN] Let’s talk about Pravin Gordhan. We’ve got the budget coming up. You’ve mentioned those IMF figures dropping the forecast for economic growth from 1.3 to 0.7%. Pravin Gordhan in one of the addresses Davos said that the challenge is to see what we can do differently to surprise the IMF. Is he able to pull the rabbit out of the hat as soon as the budget; is this a longer term process for him? What are you anticipating for the budget?

 

[ALEC HOGG] He’s got, we’ve all got as South Africans, a long road ahead of us. We blew it in the good times and now we don’t have the advantage that some countries had from the good times. Many of the enlightened countries took the money, even Nigeria from their boom, and they stuck it away into special funds which they can now draw on. We don’t have that benefit. And the most important thing that one has to look for in the budget is that Pravin is actually following through on what he’s been saying. If he is as … you know R.W. Johnson who wrote that magnificent book, if you haven’t read it, ‘How long will South Africa survive?’… It’s a … to be an informed citizen of this country you should read it. Because it often … people just go by headlines and then go by reality and he makes the case quite forcefully of what really is going on in the country and has been going on in an economic sense. And his view still is that at some point in time we’ll go into junk status and then have to ask the IMF for a bailout which he said is a good thing. Because when that happens the IMF gives you certain conditions which are common sense economic conditions and then you get rid of all the rhetoric and you can you blame it on the IMF. You have to do this, like flexible labour legislation and all the other obvious things that they’ve been saying for years and that we’ve known for years is wrong with this economy. So the reality of where South Africa is going … Pravin says we can avoid junk status; R.W. Johnson says it’s just a matter of time. Pravin has the tools at his disposal politically to make those changes. R.W. Johnson says Pravin is ‘unfireable’. And I think that anybody who saw the tailspin in the Rand after Van Rooyen was brought in and before Pravin was re-appointed will have to agree with that. But then again, stranger things have happened in politics so let’s just hope we don’t go and blow both feet off with one shotgun.

 

[DAVID O’SULLIVAN] But you don’t expect a kind of Rubicon-type reaction to the budget? The budget is going to be something that will consolidate our position. Just steer us in a steadier course than we have been.

 

[ALEC HOGG] Well, Nene was a very good Finance Minister. And he managed to, against all odds, to balance the books. He did it through sleight of hand; if you know the numbers and look at them. Last year we had the Unemployment Insurance Fund which was … which was … got plenty of money. He took R16 billion from that; effectively it was supposed to go into the Road Accident Fund and never made it there. It went into the coffers which as, as far as an international investor’s concerned is not a bad thing. Because it meant you balanced the books. But if you took that R16 billion out you might have been in a more difficult situation. What the world looks at are just a few stats really. The big one … it’s like when you look at international companies you see what’s their PE ratio, what’s their dividend yield and you can then scan many companies at the same time. When you looking at countries you look at their budget deficit, percentage wise, and their debt/GDP ratio and then the higher, the worse it is. So in South Africa we’ve gone from a debt to GDP ratio of 26% when Trevor Manuel was running the place to over 50% today. In a developing country you shouldn’t really get to 50%. You should try to keep it at least below that. However, the good news is Japan is at 200%. So rather be a South African than Japanese at the moment.

 

 

[DAVID O’SULLIVAN] Right, let’s take some questions from the floor. I did see a gentleman with his hands up over there. Please wait for the microphone because are recording this and need to capture the sound of your question as well.

 

[QUESTION FROM THE AUDIENCE] Good morning colleagues. I would like to ask the gentleman a question and then from there I’ll make a statement. My question is would you prefer Jacob Zuma to be President for six months or rather have Thabo Mbeki to have four terms as a president?

 

[ALEC HOGG] No question. If we go the route of fiddling with the constitution then I don’t believe South Africa has a future. We’re a constitutional democracy with a constitution where the constitutional court is the supreme body in this country. So I would … I know where you’re going with, I think I know where you’re going with his … If Mbeki had wanted a third term as has been widely speculated and believed at the time then I think the whole country did the right thing by not allowing that.

 

[QUESTION FROM THE AUDIENCE] But the reason I asked the question is that reality is that we don’t have many candidates … who … fit candidates to be president of this country. More especially from the ANC. Cyril Ramaphosa, I’ll count them one-by-one, Cyril Ramaphosa he has already dented himself with Marikana to be part of the mess that the country is in today. So he’s not a fit candidate. Mmusi Maimane doesn’t speak to the ordinary masses of this country. So I’m simply saying, I’m suggesting or my view is that we need to change the constitution to allow people who are fit and proper to run this country. Because we cannot have a situation whereby we are limited by the constitution to have any guy who just stays for two terms and from there we get another guy who is incapable who brings the country down.

 

[ALEC HOGG] I can’t disagree with you more. Thankfully we are in a free country where we can have our own statement. I would just say to you though to remember that power corrupts and absolute power corrupts absolutely. All we have to do is look to examples on our continent where constitutions have been changed; where we have presidents-for-life. Supposedly good presidents and unfortunately that is part of the human condition.

 

[QUESTION FROM THE AUDIENCE] And then secondly … I also …maybe this is political. I disagree with the fact that Africa contributes 3% to the global GDP, you know? If you look at Africa as a continent it’s the richest continent in the world. The problem is just that the Europeans are systematically destabilizing Africa. They take resources from us. And they actually depend on Africa to survive. So that need’s to change so that they come and invest in the country and also empower the citizens of the country. I just believe that there’s just so much in Africa which Europeans are not doing for the indigenous people of the countries.  I’m also against BEE because it only empowers the few black elite.

 

[ALEC HOGG] We agree on lots … we are always going to disagree on the numbers. The numbers are clear. Africa’s contribution to global GDP is 3%. You can take all the GDP on the continent and add it together. But we do agree on a lot more. My approach to these things is that we cannot be emotional. The world doesn’t need us. The world doesn’t need Africa. And it’s shown. You know there’s massive amounts of aid that are pouring into this continent through the good people of other parts of the world; not necessarily the politicians. We have no right to anything, we have to pull ourselves up by our own bootstraps.

 

[DAVID O’SULLIVAN] I think you are right; the potential for Africa to be a greater contributor to global GDP should be a lot higher. But as Alec said the reality is at the moment it’s 3%. Raise your hand if you’ve got any more questions; we can send the microphone. …

 

[QUESTION FROM THE AUDIENCE] Howzit, Alec, I’d like to just…uhm … you mentioned briefly Britain and India being … you know … apart from the rest. India’s almost been quiet in the news. Just quietly growing by 6%. And from the people I speak to there, they’re very happy with their government. Also a massive economy. What are the views out there in terms of their contribution to the global picture? Because it’s almost, from a media perspective, it’s dominated by China and Brazil and these places but it’s been quite quiet in India. These are good things. I would just like to hear what the Davos reviews were on India?

 

[ALEC HOGG] India is an interesting country for us to look at as a model. Because when the liberation movements finally succeeded in India it took 60 years of reimplementation of the Raj – the licenced Raj they call it – before they threw out the socialists. Which they did last year and Narendra Modi’s party was voted into power. What is interesting, and it’s a similar situation that happened in Argentina, in India Modi was running one of the states. And the state was an outlier to the rest of India. The policies he had implemented there were modern economic policies. There’s no reason why the United States should have 26% of global GDP with only 5% of the people. The only reason is that they have economic policies that promote the efficient distribution of goods and services. It’s that damn simple; when you put obstacles in the way of human ingenuity then you will not grow as fast as those who allow human ingenuity to grow. So what happened in India last year when they changed their government was that they started implementing lots of new policies. They grew last year at 7.5%. The Finance Minister, Arun Jaitley, was quite celebrated in Davos this year and he was saying that it should have been higher than 7.5% but they had a really bad monsoon on which two thirds of the Indian population rely. So they’re expecting a base-load of 5% he said; they won’t go below five and they’re expecting quite a significant increase over that. The Indian example tells us how corruption can destroy a country’s fabric. When the British colonialists were in power they ran it like a colony and as a consequence anything you wanted to do you had to have a licence for. So when it transitioned to the new government everything you wanted to do you needed a licence for … And if you can imagine a more fertile ground for corruption than that; you have to pay someone to get the ability to actually do something. And they’ve suffered under that for 60 years. India is … you won’t find more enterprising people. We know this from our own group of people from an Indian background in South Africa. Massively aware of value, very enterprising, very hardworking, very able to develop business pretty quickly in the most difficult conditions as they did in apartheid South Africa. And when you unleash that potential then you have another China happening. The reality is now that with that potential being unleashed; with just a different approach towards governance and corruption, India is the next driver. It’s pretty consistently believed around the world that that’s what’s going to happen. Britain is a small population. India has a billion people, Britian has 60 million. Although Britain is well positioned for the fourth industrial age, and it really is, because of the history of the British. They are tolerant, they are educated. You know why do the Russians and the Iranians and the Israelis buy expensive property in London? Because they think that the political system is stable and continue is going to. The advantages that Britain has in this fourth industrial revolution that we’re going into is enormous but the size of its population means that it will never be the driver that India or China would be.

 

[DAVID O’SULLIVAN] You met some very interesting people in Davos, Alec. You spoke about Ian Golding, The age of discovery, the new renaissance being led now by the developing countries; you spoke about India, China. You also mentioned in your address, you touched on Argentina. Just flesh out a little bit more about the lessons that Argentina is teaching us? What’s happening there?

 

[ALEC HOGG]It’s a wonderful time. It reminds me of ’94 when we had the ANC government is South Africa about to take over; with idealism, with bright eyes, with enthusiasm, with the determination to fix everything of the wrong of the past. And to make it new and to make it fresh. We have a … Davos is like the typical Swiss. They have a number of different organisations that the more you go there the more you move up the hierarchy. I’m a member of the International Media Council. There are about 70 people who are on this. And we have a day that they organise presidents, three presidents to come and see us. It’s a small little group, maybe 30 who are there, because not everyone in the International Media Council comes along. And the presidents usually bring along their entourage. The president of Iran, Rohani, came a couple of years ago when they were trying to woo the world media or the world really for investments. And he had to huge big bodyguards standing either side of him. Which is the only thing I remember of what he said. Last year the Turkish guy was there who was quite aggressive. And this year we had like three different presidents. We had a guy who is a top coder, who’s the Prime Minister of Canada, Rock star president – Justin Trudeau.  I mean he really is. He looks like he could be a Justin Timberlake or something. And young. Very young. And then we had a 66 year old Princeton professor who is an Afghan and went back to Afghanistan and stood in election and was elected as president in that country. And left this very privileged existence in the West to become dedicated to the cause of his own country. If you think you’ve got problems in your own country, that’s the wonderful thing about Davos, just look around you and you will see they just pale into insignificance. He was fascinating. And then the third of these was Mauricio Macri, who is a little like Modi in India in that he ran Buenos Aires as a more modern economy, just the city. Just like Bloomberg ran New York City. And he made such a success of it that he used the prospectus of Bueno Aires as a prospectus for what he would do for the country. And there was a massive swing in Argentina, again after a decade and a half of socialism. They voted the socialists out. Voted Macri in. One of the first things he did – there was a running fight between Kirchner, the previous president, and the international community over bonds that Argentina refused to pay – he went and settled them. He said, he told us, it was all off the record but I can tell you this now because it’s happened. He said: ‘My first priority is we got to get back in the international capital markets. We can’t be an island on our own; we need to embrace the world. We need the world’s money. And that’s what people often forget about a developing country. Developing countries need the world’s money. We in South Africa know it better than most when in 1985 when PW Botha’s Rubicon speech was made, Willard C. Butcher, the chairman of Chase Manhattan Bank, after that cut off credit lines. And if those of you with memories will recall that between 1985 and 1990 South Africa had what was called a debt standstill and we had to export capital. And as a consequence, we just didn’t have capital to export, and the economy then just imploded on itself. The consequences were that the transition to democracy came a lot more rapidly. That was exactly what Macri has seen. He was a business man. He understands business. And increasingly around the world you’re seeing business related people who are getting into more positions of authority. And if there was an ETF in any country in the world today I would buy in Argentina. You just see they just hit rock-bottom. The people have gone through so much pain that they’re just not prepared to carry on with it. And they’ve rejected the ideological issues that have taken them into this trouble and started embracing the old-fashioned ideals of let’s work hard and we’ll make it happen.

 

[DAVID O’SULLIVAN] Any questions from the floor? I’ve got a few more issues that I would like raise with Alec as well. This issue with this new age of discovery, the new renaissance; where does South Africa fit in as a player? Do we … are we up to speed? Do we have the skills? Do we have the education to be part of this revolution as it’s unfolding?

[ALEC HOGG] David, I’m very positive on this because we are in the top … remember we are a small country. There are seven billion people on earth; we have got 54 million. We’re manageable and that was the thing when I spoke to the guys in India about our challenges in South Africa. They said: ‘We’ve got 300 million people who are in deep poverty in India’. So although India is moving in the right direction; the challenges that they face are just so much greater. We in South Africa are in a very very privileged situation. We’ve got the first three revolutions. We’re in the fourth revolution. We have very smart people. You just look at people around the world from South Africa and what they’ve done. The greatest entrepreneur in the United States today is Elon Musk and Elon Musk is from Pretoria. The people who are transforming the whole solar energy market are a company called Solar City. It’s run by two brothers, the Rive brothers from Pretoria. Maybe it’s just Pretoria. [Laughing] No. We do have an engaged population that are well educated, or if you like, a sliver who are well educated. We have a desire that not many other countries around the world have to do good. There’s an ability by South Africans to embrace the new world that we’re going into. I mean not everybody likes some of the restrictions that have been applied to doing business in South Africa but you kind of embrace it. People in South Africa do social responsibility because they want to do it not because they have to do it. So there are a lot of things that are to our advantage but the biggest thing, why I’m most excited about this, is that we have the tools with which to take those 54 million people and to give them the opportunity to participate in the fourth industrial revolution. You know that the Vice-President of Nigeria was saying that they literally don’t have the resources to go out and build a 100 000 schools. So what they’re doing is taking mobile phones and training teachers; 600 000 teachers in the next few months on mobile phones. And using mobile phones as a way of educating those millions of kids in a country of 160 million people who otherwise would just have no education whatsoever. So it’s that leapfrogging. We’ve got the infrastructure. We’ve got the telecoms infrastructure. We’ve got the desire. We’ve got the incentive. We’ve got the desire. Everything is there; we just need to unleash that human potential. Sometimes you need to hit a hard place where you realise that people actually do a hell of a lot better when they are given the opportunity to have their own potential unleashed rather than being fed. And I’ll use probably the most remarkable person I met in Davos this year was Mohammad Yunus, a Nobel Peace Prize winner. As it happened, you know you get lucky sometimes, we were staying in the same 3-star hotel. And he … I had a half an hour with him … and what he said … and my wife who has obviously sat in on a lot of these interviews just to listen said that she’s never ever been so inspired. He’s a short little guy. He started a thing called Grameen Bank. He’s feisty as anything. Some of the questions I asked he didn’t like and he kind of almost wanted to box me over them. But Grameen Bank is in Bangladesh and again you think we’ve got problems; look at Bangladesh. What he did there was he found illiterate, unemployed women and started off lending them $30 and the $30 loan, once they’d been able to repay that, they would get more. It was all to do with giving the ability to employ themselves. And it’s been a massive success story. Hundreds of thousands of unemployed illiterate Bangladeshi ladies have created business because of Grameen Bank. It’s why he won the Nobel Peace Prize. It has been that successful. In fact the Indian Finance Minister went to visit with him and applied something that he’s applied, which was what was really inspiring to me, to create a hundred thousand new businesses in India in the last few months. He said the problem was, after 30 years on, after all these illiterate ladies from Grameen Bank had taken their kids and sent them to university and their kids came out of university with their degrees they sat at home and  waited for someone to give them a job. You see that’s not the way the world works, when we came out of wherever, mud huts, caves whatever or that time our ancestors came out of those places they didn’t put together their CVs and go around and asked people to employ them. The human condition is self-employment. Other people are not there to give us a job. We need to create our own jobs. So he took these kids who were sitting there, far better educated than their parents, he’s taken them back to university – to his Grameen Academy – and he starts teaching them about entrepreneurship. Most of them didn’t have a clue of what business to start. So as a consequence – because he asked them for business ideas – as a consequence for the next six months you’re going to work with your mother. And you learn from your mother about entrepreneurship. And so as a consequence once you come back we will lend you the money. We will own a 100% of your business from day one. But as you repay the loan … You own a 100% when you have repaid in its entirety. Last year he started 5000 new businesses this way. This year he started 30 000 new businesses. And the Indians have applied the same principle and started 100 000 new businesses. It’s all a question of allowing the human potential to come out. They’re doing it in Bangladesh; they’re doing it in India. It’s possible in this country.

 

[DAVID O’SULLIVAN] I’m sure this strikes a chord with a lot of our audience here as people who I’m presuming are running their own brokerages, the self-employed, this philosophy of social entrepreneurship that Mohammad Yunus has been talking about must ring true. I wonder though how appropriate and fit that model is for South Africa? Is that something we could be borrowing from?

 

[ALEC HOGG] It’s the only way. If we are looking at a 50% youth unemployment rate in South Africa, which we are, and we’re looking at an overall unemployment rate of 25% and our best ideas got us there; we need to find new ideas.

[DAVID O’SULLIVAN] And you reckon this is an answer, this is a model. Has anyone in South Africa expressed an interest in this model that Mohammad Yunus has come up with?

 

[ALEC HOGG] David you know our people aren’t lazy. And when I say our people, as you know I spent two and a half years farming in Mooiriver. I took a semi-sabbatical. And the tragedy about Mooiriver was that it’s got 80% unemployment. Mooiriver is a little town, dirty little town, halfway between Pietermaritzburg and Ladysmith in KZN. And the reason it’s got 80% unemployment was they used to have a very big textile factory there called ‘Mooiriver Textiles’ – what else? And Mooiriver Textiles because of demands from the labour pushed up the salaries to the point where they no longer could compete. And the Taiwanese came in, just after democracy, and the place was going to be closed down. And the Taiwanese then did a deal with the government which no one really talks much about because it’s not politically that correct; where they could pay different wages. So they’re paying really really poor wages to people but they’ve just got jobs. Some of them; of course they cut this workforce down to a fraction of what it was before. We were getting on the farm people coming to us. A lot of people, as many as we could possibly employ who would do anything for R60 a day just please could I work for R60 a day. Now, it’s not a question of people not wanting to work. It’s not a question, and I hear this often, that South Africans are entitled. Chris Hart got into a lot of trouble for that. I don’t believe it’s got anything to do with that. I think … I really believe it’s do with just being able to get off, or get into, the game. Get into the game. Even if it’s through having buying a sewing machine. Finding someone that will lend you money to do that. Everybody, as Mohammad Yunus says, is a born entrepreneur. We get taught through conditioning … he says it goes back to slavery but also through the industrial hierarchical structures that we don’t need to fend for ourselves anymore or that someone else will fend for us. And it is part of the human condition that’s been adopted and is now having to work out just as human beings. Remember, when Craig Venter did the DNA testing he discovered that 99.9% of our DNA as humans is identical. Forget about black and white; think about someone who is Papa New Guinea or an Intuit in Canada. And yet we take that 0.1% and make it the be all and end all of our existence whereas we should be looking at the 99.9%. And I think the human condition is one of we want to all do better – just give us a chance.

 

[DAVID O’SULLIVAN] Some final thoughts, Alec, before we wrap up. I was looking back at December and having covered South African politics for 30 years; I’ve seen us on the brink of civil war so many times, the slumps, Rubicon, all of those things that I had the fortune or misfortune of reporting on … I don’t think I had ever been as demoralized as I’ve been in December. Reading BizNews.com there are a number of articles that you write the words ‘hope springs’ into them; giving me a reason to think things are going to start turning around. We do know 2016 is going to be a rough year. I look at a bunch of … a group of brokers here who are looking to do business in 2016. How rocky a road is it going to be? Is it a train coming towards us or is there real light at the end of the tunnel?

 

[ALEC HOGG] I love what Warren Buffet says about these things. He says that these big trends are too difficult to call. You should just stick on what you can actually influence. Your circle of competence. That’s something every South African should look at. I remember having a conversation with … I was called in to a group of grumpy white old guys who were very upset about corruption and pointing fingers like crazy. And we had quite a vibrant discussion because after they had told me how bad everything was I said: ‘But well what are you doing about it? What are you doing in your own company? What are you doing about within your own little patch?’ Because I don’t know why Jacob Zuma’s got four wives. I really don’t. I don’t understand it. It’s … and I don’t even … I cannot judge it. It’s his culture, it’s where he comes from, it’s his mind-set, it’s through his ten years on Robben Island, and it’s through everything that he has had to do in his life. I don’t understand that, and by the same token if I don’t understand it, how can I try and change it. What I can change though is make damn sure that when that traffic cop pulls me over and he asks for a bribe; I tell him to “F you!” And if he wants to take me to the police station I’ll go to the police station with him. And I’ll make sure that I tell as many people as possible who he is and why he’s done that. Those are the little things that civil society can do. The kind of country I want to live in is one where I can just … You know that beautiful story of the starfish on the beach? A little girl…a guy come along there, there’s a little girl there. All the starfish have been washed up through the tide and the little girls is pick up the starfish and she’s throwing them back into the sea. And he says: “Stop it, man. You’re just … you’re just wasting your time. You’re not making any difference.” And you see what it is to him. And that’s my kind of philosophy on life. It … it just … I can operate within my circle of competence; the things I know the things I understand. I believe that there I can make a contribution. There is a lot of good everywhere but sometimes the mood will take us into a place where we don’t see the wood from the trees. We … we … we wake up in the morning in a frame of mind … and these poor people who drive from here into Johannesburg everyday … and … I … I guess they got an excuse but the rest of us really don’t.  We wake up with a frame of mind which says oh woe is me … I can’t leave the country … I am going to meet grumpy people today … Everything is going to hell in a handbasket …woe is me. I don’t believe that that’s the human condition either. I think it’s more a question of how can I approach things within my circle of competence. And when we see things happening in the country that are positive then we need to acknowledge them.

We have a fantastic Minister of Education and if only somebody could realise that this lady is taking on such unbelievable corruption and difficulties but she’s bravely attacking them. You know in … in education … in certain parts of education you buy headamasterships. So once you buy the headmastership through the union … and it’s all in court, I’m not telling you new stuff … you own that budget that comes from the department. And she is trying to change that. She’s working really hard and standing up and saying that it’s wrong. We had Nhlanhla Nene, the Minister of Finance, who was summarily dismissed, saying: ‘There’s terrible things happening at SAA and I will not allow it any longer. There’s no way I’m going to countenance the nuclear deal.’ And he got fired for it. Those are the kind of people who are role models for us. Those are the kind of people we should be inspired by. And I believe, unlike one of the early commentators, that we have many options and many many alternatives to the current leadership situation because we have great people in this country. We’ve seen it time and time again. But it all starts at home and it starts in the way I perceive this. And it starts with going to the … you know, when I go to the garage and fill my car up with diesel and have a chat with a very smiley guy there who gives me his point of view on the day. Or … when I’m walking down the street in South Africa, I wave at someone and smile and they’ll wave and smile back. Not many parts of the world where that is. So, sometimes we kind of get a little bit too caught up in the big stuff; in the stuff we can’t influence and we can’t change and we forget that there’s lots that we can do within our circle of competence.

 

[DAVID O’SULLIVAN] If there aren’t any further questions … Oh, there’s a question over there. Can you just wait for the microphone to come your way?

[QUESTION FROM THE AUDIENCE] You spoke about robotics. And we this this is fast becoming a reality worldwide. Would this destroy South Africa? Or build South Africa? Considering we have a very low skills base here?

 

[ALEC HOGG] That’s a really good question. The … the … the old way of thinking is going to give us more problems from the transformation. The new way of thinking is going to give us opportunities. So we can either look at this and continue along the path, the lemming path, that’s going to take us over the cliff; or we can look it and say that we really need to think differently. We need to bring in the thoughts of a … a Grameen Bank …a Yunus Mohammad … Mohammad Yunus. His kind of approach. Because the way we are doing things now … with the fourth industrial revolution coming on top of it then we really are … are looking at … a … A lovely story I would like to just share with you … uhm … when the Blue train at one point in time was on the same track as a cargo train…it happened some years ago and…uhm…the two were heading towards each other and they hit each other as they were going to … uhm … the SABC sent out a camera crew to interview the driver. And they said to the driver of the Blue train: ‘What did you do?’ and he said, ‘Well, what happened was I was looking there. And I had a look around the side and I saw this train coming at me and I thought O my God hier kom kak.’ And if we do the same thing, if we just look at the fourth industrial revolution as ‘hier kom kak’ then we’re going to find it. But if we use it as an opportunity, as has happened in the aftermath … I mean the loss of value to this country … of Nene-gate … was R500 billion. We’ve done the numbers. Go and calculate them. That’s what we can quantify. The unquantifiable cost of that is … probably significantly higher than that. But we got a shock. We got a wake-up call. Nothing else was going to change this network of patronage as rapidly as that event. And the fourth industrial revolution when it’s overlaid onto this does require a new way of thinking. The good news is there are people in government who understand it, who’ve been researching it, who’ve been looking into it and are aware. The other good news is we only have 54 million people. Imagine you are India with a billion people. Imagine the issues that you have to deal with there. So, I’m hopeful, I really am hopeful. We just need to change our mind-sets and realise that we have … we have … you know, it’s like companies. I used to remember often reading … reading annual reports of companies and they’d say that people are our most important asset and then you’d go in there and they’ve got a human resources department. So you might be the most important asset but actually it’s just a bag of kilojoules that’s in the … it’s a resource. If humans … if people … are the most important asset of any society of any nation, which they are, give them the ability to actually fulfil their dreams and there hopes. At the moment I get this feeling we’re just not hopeful anymore. So it’s … embrace this new thing. But that takes leadership … and … you know… leadership and courage. And those are the kind of things that we’ve had in abundance in this country in years gone by. Who else has had a Mandela and a bishop … Archbishop Tutu … at the same time? Who has had even one of them? So, we’ve got it. It’s there. We just need to … and it’s going to happen …you know I’m a great believer that the ‘big boss’ he looks at this … and we make our plans … and he laughs … but he’s got something special for this country. Because this country was heading for that hier-kom-kak-moment very rapidly and we avoided it.

 

[DAVID O’SULLIVAN] So many times we stared at that hier-kom-kak-moment. Ladies and gentleman, I think we’ll wrap it up there. There will be an opportunity to do some networking, enjoy … I’m sure there’s little snacks and drinks outside. But please give a big round of applause to Alec Hogg.

South Africa didn’t shine at #WEF16, but sanity might prevail – Alec Hogg

Shortly after his return from the 16th annual World Economic Forum in Davos (#WEF16), Switzerland, award winning journalist Alec Hogg shared some thought-provoking take-outs during a breakfast for BrightRock’s Laureate advisers. Watch the video of Alec’s presentation or read the transcription below, and don’t miss the interesting conversation that followed afterwards between him and former 702 radio presenter and MC David O’Sullivan, which can be viewed at this link.

Transcript:

Well …it’s really a privilege to be talking to you today. To be going through the feedback from this year’s World Economic Forum. In fact they called me … they … I was accused of being … of spreading lies and mischief. And I see mischief is …it’s the old … my … my old homeboy from Newcastle, Mac Maharaj, used to love talking about mischievous journalists. Well, something had happened at the World Economic Forum this year lead to the Presidency … calling me mischievous; so it is a badge of honour. It’s the second in the last three months in fact that they had a go at me. The previous one was when Cyril Ramaphosa was talking about creating five million jobs. And I mentioned it in editorial that if he were to create five million jobs by 2020 that meant … every month from here until 2020 as many jobs would have to be created as are currently employed First National, ABSA, Nedbank and Standard Bank – every month. To which he said that it wasn’t jobs he was talking about; it was job opportunities. Which I then discovered was if you give a guy a pick and shovel for a day that’s a job opportunity. Politics… Anyway, let’s move on to the World Economic Forum. It’s the 46th time that I’ve been to Davos. Sorry, the 46th time the WEF has had their presentations in Davos; the 13th time that I’ve been there and most of my visits have been very pleasant. South Africa has punched way above its weight. In 1993 … was the first time I went there. We were the belle of the ball just before the election in ’94 and then again in 2010 just before the FIFA World Cup; South Africa was really doing extremely well. At that point in time Trevor Manuel in 2010 was leading the delegation. In 1993 it was a very strong delegation just ahead of the elections in ’94.

This time around it was very different. The South African Delegation was invisible and I’ll give you some of the reasons for that in just a moment. Just a little bit of background: The World Economic Forum brings together 2500 leaders from around the world from business, government and academia. And in essence what happens during these five days is they set the economic agenda for the world for the next 12 months. It started in 19971 at a little place called Davos. It’s a picture postcard town in Switzerland. The decision to have the very first event in ‘71 in Davos was transformative for the town. When you go there today you will see many five star hotels in what was really a little village. In fact it is quite reflective of Europe itself. And the religious issues that they had in Europe that we in South Africa being a new world country in many ways don’t really relate to. But in Davos you’ve got 12 000 people roughly live there. There are two towns in one town. One’s called Davos Platz that’s where the Protestants live, you know the wild livers, they have the casinos in Platz, they have their own schools, and they have their own churches. And then Dorf is where the Catholics live and they have their own churches and schools. And indeed both have their own railway stations even in a little town of 12 000. So it’s quite an interesting place. And every year that I’ve been there and every time that I’ve had the opportunity of visiting and spending five days I’ve realised that it is a place to open minds.

And this is a lovely story. In 1992 on the stage you see Nelson Mandela and FW De Klerk and on the screen behind them is Mangosuthu Buthelezi. Now in 1992 Mandela had recently been released from prison. He went to Davos with an agenda to nationalise everything. At the time I was working on SABC television. I can remember speaking with a lot of the ANC leaders. You know it was just Thabo then it wasn’t Mr Mbeki. It was just Tito then it wasn’t Mr Governor. It certainly was Trevor and Jay. These guys had never been to the SABC before so they quite enjoyed the green room where we had pretty good whiskey and they’d never drunk SABC whiskey and they made sure that they had their fill because they had been banned for all these years. But they were very much on a nationalise everything agenda. A bit like Julius Malema today. He was going to nationalise all the banks. He’s going to nationalise all the mines. That’s the starting point for him. It was very similar there. So Mandela went to Davos in 1992. The first time that he, De Klerk and Buthelezi shared the same stage. And when he returned from Davos he came with a completely different economic agenda. Nationalisation was off the table. It was all about a mixed economy. It was about the country pretty much that we see today. What happened, well, lots of people in Switzerland say that the western world got hold of him and that they convinced him that everything he had believed in was wrong. In fact it wasn’t so. There was a man named Võ Văn Kiệt. A very fascinating human being if you’d like to go and look him up. He was a general in the Viet Cong army and he had become, recently, the Prime Minister of Vietnam. He was one of Nelson Mandela’s heroes because if you’re sitting in Robben Island and the West has put you there and the West is supporting those that you are fighting with [then] clearly you would like to support those who are giving the West a hiding – which the Vietnamese were doing, or had done, against the United States.

 

So when Mr Võ Văn Kiệt got hold of Mr Nelson Mandela in Davos he said to him that this idea you have of following the Soviet route is flawed. We’ve tried it in Vietnam and we have been in desperate trouble. But I am now introducing a reform agenda in Vietnam. And this reform agenda is making … the Communist Party which I lead still runs the country … but the economy is completely free enterprise. And it’s a very similar model to the one that the Chinese used and one that Mandela came back to South Africa with. So, if you think it’s expensive to send our politicians to Davos just imagine how expensive it would have been had Mr Võ Văn Kiệt not had that conversation with Nelson Mandela in 1992.

Opening minds is a very big part of the whole forum because these 2500 people who are there are literally the power mongers of the world. You have Nobel Prize winners there; you have at least half of the leaders of the G20 [there]. And when you are in a room as an A-type personality, as judging by the awards that were given out a bit earlier a few of you are, A-type personalities like to achieve and they also like to tell other people their opinions and you can imagine if you’ve got these from all over the world in one place at the same time it is quite a lot of talking. But increasingly when you have esteemed people from other countries you also tend to listen and remember God did give us two ears and one mouth for a reason.

The networking I would say is another big part of the World Economic Forum. That’s a picture I took this year of Pravin Gordhan together with Martin Wolf who is one of the leading columnists in the world. He writes a column on economics for The Financial Times of London. He is also a big star in Davos. He facilitates many of the very big sessions there and a thought leader in his own right.

This was an event that Pravin gave … one of the few … In fact I think it was the only near public event that South Africa’s delegation in Davos gave this year. It was to a group of senior journalists from around the world and in this Pravin Gordhan gave us an outline of how he sees the economy in 2016. To give you an understanding of how well this was received or how much interest was in this, given the state of South Africa as we know what happened with our weekend special finance minister on the 9th of December, there were 65 000 views of the video on our website that we embedded. Quite incredible. The World Economic Forum said they’d never seen anything like this for an economic briefing. Clearly Pravin Gordhan did speak from the heart and he made some very pointed statements. But he was fighting a rear-guard action because the country’s reputation took three very big hits before the forum started this year. All of them from organisations who tend to use this showpiece as an opportunity to amplify the announcements that they are saying.

The first of these was this newspaper article which appeared in the second biggest newspaper in Switzerland. It was distributed for free to delegates of the World Economic Forum and it reads … as you can see it’s a full page on Jacob Zuma and a very unflattering photograph which … under the headline ‘A toxic president’.

Next came the International Monetary Fund’s release of its latest economic forecasts. In October it had put a forecast for South Africa of 1.3% economic growth. Of course it didn’t just talk about South Africa; it talked about the whole world. In the whole world it expects to grow 3.4%. South Africa 1.3% in October. In January it adjusted that growth rate to 0.7%. So it halved our economic growth rate because of what happened in December. If you think the blunder, the Nene-gate as we call it, was expensive, well, the International Monetary Fund confirms that.

The third big hit that the country took was from the Edelman’s Trust barometer. This is a survey that is done around the world. Edelman is a big investor relations and public relations company based in New York. A global business. They interview 33 000 people from various countries and they like to work out in those interviews the trust of the public in government, business and the media. [laughing]. I’m not going to tell you about the media because that’s been on a slide for long, long time. Business is actually surprisingly stable but government or trust in government is declining all over the world. Richard Edelman, who made the presentation, said to us that in certain developing countries it has now fallen to a catastrophic level. His words, not mine. He disclosed that in Brazil … he highlighted two of these countries … in Brazil the trust was 21% i.e. the public of Brazil 21% of them have trust in the government and they’re trying to impeach their president at the moment. In South Africa the figure was 16%. So considering those results … and the interviews of those were based before Nene-gate in December … it wasn’t really a place where you’d expect Team South Africa to be proudly flying the flag.

The impact of these three issues on the South African cause was graphically illustrated on the second day of the World Economic Forum when there’s traditionally a high profile Africa investment session. Now in Davos, at any one time, you have a selection of five to ten different places you can go to. And this session on Africa, over the years, has become increasingly popular. In fact if you don’t arrive there 15 to 20 minutes before you can’t get in or you haven’t been able to get in in past years. There’s been … I remember one year arriving a little bit too late and there was such a long queue that I just never … I never got in to see it. South Africa has always been the centrepiece of this particular session which is televised live and between South Africa and Nigeria you would find that most of the attention is being focused. This year, however, President Zuma pulled out. He says ‘a few days before’; my information was ‘at the last minute’. He offered Pravin Gordhan to come in his place. Pravin Gordhan was unacceptable to the President of Ethiopia who didn’t want to be downgraded or have the session downgraded. And as a consequence there was no South African representation there and the Paul Kagame from Rwanda was a last minute replacement for Zuma and it looked it. The audience unlike in previous years which was absolutely chock-and-block … you could see that I turned around in my seat and took a photograph … as you can see rather disengaged and quite a few empty seats. So, the opportunity that South Africa had given the first three blows was perhaps missed. On the other hand there was a wonderful cartoon by Zapiro which showed one with the president being present and the one with the President not being present and said well which of these two scenarios is better for the country – suggesting the second one was. We did have a statement from the presidency to say that he had met with the Swedish Prime Minister that morning, Stefan Löfven, one of the last socialists who’s still in office.

The consequence of that was after I had reported it I was accused of mischief and spreading lies; there was no real explanation of what was going on. Unlike every previous time that I’ve been in Davos this year Zuma restricted his engagements to tightly controlled invitation-only audiences where the agenda was one-way delivery. The Presidency issued a statement after Davos claiming it had been a great success. Having been there I would suggest that wasn’t completely true. And also the #ZumaMustFall even made it to Davos; there were a few people demonstrating outside the area Brand South Africa had taken over. Quite extraordinary. But, it wasn’t all bad for South Africa. There were some South Africans who really shone and continued to shine on the global stage and indeed at the World Economic Forum.

As I mentioned earlier Davos is used to amplify announcements like the International Monetary Fund updating its economic forecast and various others. Amongst these is a lady you might recognize she was the deputy president of South Africa, Pumzile Mlambo-Ngcuka, who left the country after her husband who you might remember was with the NPA and said that we have a prima facie case against Jacob Zuma who at the time the Deputy President. And he was then accused of being an apartheid spy. He, Bulelani Ngcuka is his name, and Pumzile after the transition from the Mbeki administration left the country. She went and did a doctorate in Mobile Technology; mobile meaning cell phones. And she’s now one of the top five at the United Nations. In fact she’s here later this week and I hope to see her either on Friday or Monday on her visit to South Africa. She runs the women’s stream at the UN – hugely successfully – and with her knowledge and understanding of mobile technology, she’s put together a program called ‘He for She’, which is bringing males who support gender equality. And really Pumzile is one of our superstars out there in the rest of the world and doing extremely well at it. What she announced in Davos this year was gender equality … her strategy … she’s brought in ten companies. Ten global companies that she’s now got on board and they are going to assist in forwarding … she’s leveraging basically their bases and those companies include Unilever, McKinsey, Barclays, Vodafone, PWC, so these are heavyweight business and their CEOs were all there to support her in this and they promised that by 2020 they will have gender equality in executive ranks and in the boardroom. Extraordinary, from a South African who’s driving that.

Other statements that were amplified and are continuing to reverberate long after Davos include income inequality. You might have seen what Thomas Piketty, the French economist, has been proposing. Well, he and many others have been picking up on an organisation called Oxfam whose Kenyan head for International Affairs, Winnie Byanyima, is again one of the star attractions in Davos. This year she disclosed, quite a spectacular statistic, that half the people on earth, in other words 3.5 billion people, their wealth is equivalent to the wealth that is owned now by 62 people. So the richest 62 people have got as much wealth as the bottom 3.5 billion. That’s in itself is quite extraordinary but it’s come from 388, five years ago. So the rich are getting richer. What they are doing about it now is interesting. Some of the targets are tax havens and all the politicians … you might have seen recently a settlement between Google and the British Government for a £130 million in taxes that was not on the table. These multi nationals are being forced to pay more taxes but as far as you guys are concerned particularly for your clients if they have funds in tax havens I would strongly recommend that you tell them not to try and hide it. These are … increasingly the tax havens are being attacked not just by one or two governments but by all governments and it’s on the politically popular platform of income inequality.

Other issues that are under threat at the moment on income inequality is intellectual property. The laws on intellectual property at the moment trump human rights laws and there’s a groundswell of opinion to say that that can’t be right.

The other big trend or the other big thing that the World Economic Forum does is identify trends early. This is a picture that I took two years ago and the guy on the right is one who is important. He’s name is Erik Brynjolfsson. He is a professor at MIT and he wrote a book, called ‘The Second Machine Age’, together with another professor at MIT – which is by the way the most difficult university in the world to get into – his name is Andrew McAfee. And the two of these guys essentially went and had a look at things that robots weren’t supposed to be able to do but were doing. Because as we know for well over a decade now artificial intelligence and robotics has been taking over many of the jobs that human beings did in the past but there are certain jobs that human beings just would always be doing; like driving a car. Wrong. They investigated Google’s driverless cars initiative and discovered that there were now literally hundreds and thousands of kilometres that Google driverless cars had been driving around on Californian roads. Completely safe, well, not completely safe; they had had seven accidents in this time in all these years. Six of them they were rear-ended and one of them was a Google employee who decided to take over the driving of the car himself. [Laughing]. The developments that they identified in 2014 have accelerated and continue to accelerate. It’s all about artificial intelligence, 3D-printing, technology getting smarter and smarter. And if you understand the way that mankind has evolved you would then easily be able to identify with what Klaus Schwab, who is the man who created the World Economic Forum, called this year’s event, which was ‘The Fourth Industrial Revolution’.

The first industrial revolution was something we well know. The centre of the world then was Manchester. Some people who follow football still think it’s the centre of the world. Not so much after last weekend. But Manchester was where the first industrial revolution started; where people left the fields and started going into the cities. You might recall, around this time, there was a fellow by the name of Ned Ludd. And Ned and his followers didn’t like the fact that machines were taking over their jobs so they got the old-fashioned version of a ‘bobbejaanspanner’ and they went and smashed up some machines. There were a few shootings. Those days the police were not quite as restrained as they are today and Ned Ludd and his followers are forever remembered as luddites. So, when you are called a Luddite by somebody who thinks they are intelligent they are actually insulting you if you believe modernity is a good thing; if you believe that technology should go forward. However, if they call you a Luddite and you think all this world development is not a good thing then you should actually be pushing out your chest.

The second industrial revolution came in the early 1900s with the discovery of electricity. So you had steam for the first one and then you had electricity for the second one. The interesting thing about this is that half of the world, half of the world, is still in a second industrial revolution so they haven’t even had electricity in many countries. Those 3.5 billion people who have the same amount of money as the top 62 don’t have electricity which kind of tells you something. Interesting development.

The third industrial revolution began more recently. That was the computing power. We all know what life was like, or most of us in this room know, before computers. Before excel spreadsheets, before or rather in the days of telexes when I started. Does anyone remember what a telex is? Fax machines? And as the development of the third industrial revolution went through it was of course accelerated by Tim Berners-Lee who discovered this wonderful thing called the internet. On this one as well half of the world’s population is still not there. In South Africa, wherever you want to look at us, we’re in the top half because we do have the internet and we do have access to computing power.

But now we’re into the fourth industrial revolution and this is where it’s starting; with the ubiquitous internet. What does that mean? It’s a big word but it just means that in my hand, in all of our hands with a smartphone … and I don’t even have an iPhone 6 yet … but my smartphone is as powerful as all of NASA’s computers with which they put a man on the moon in 1963. And as a consequence of that you probably have all of their computer power, all of the computing power IBM had at the time and plus all of the Russians as well and it’s just in your cell phone through a thing called Moore’s Law. If you haven’t heard of Moore’s Law, it’s a professor who in 1965 wrote an article for Fortune Magazine where he said that his analyses of what’s happened in the past few years suggests that computing power will double every year at the same price. Now the exponentiality of that has a massive impact on development, on human development, and we’re seeing Moore’s law now being enacted right across many parts of the world we’re living in. An expert in the fourth industrial revolution is Ian Golding. He is a South African. He is a professor at Oxford University. You see there were some of our guys really flying the flag very high there. And he’s got a book called ‘The Second Renaissance’ which comes out in May. The renaissance you might remember was the period in history from 1450 that transformed the world. Leonardo da Vinci, Galileo, Copernicus, even Martin Luther – the cleric who rebelled against the church at the time – they all came from the renaissance. He believes that the second renaissance, or the fourth industrial revolution, is all about a battle of ideas as exactly it did happen during the first renaissance. How did that happen? There was a guy called Johan Guttenberg, who lived in Germany, who in 1450 invented the Guttenberg press. Up to that point you could have taken all the books in the world, all the knowledge in the world, and put into one big wagon. After the Guttenberg press was invented, which is the invention on moveable type, you started producing books and lots of knowledge. So for the next 250 years you had this explosion of knowledge but it was still only in a tiny little corner of Europe where it began. His thesis is that the knowledge is now exploding through that very same smartphone that we have. Everybody on earth has access to the same information simultaneously. If you want to become the world’s best lawyer the only thing that’s stopping you is your own initiative. You can tap into Yale University, you can tap into Harvard, and you can go into even MIT. Many universities around the world will give you free access to as much learning as you can take. That is the reality and he says that the next Michelangelo could be sitting in a shack in Orange Farm. The next Copernicus could be beavering away on his smartphone in Nairobi. And this to his view, to Ian Golding’s view, is a massive advantage to people previously excluded.

Just by way of a stat that really jumps home to me, and should to you, economies generally should be the size of the globe that their populations are. And we’re seeing this happening in Asia. Asia’s got 60% of the world’s population. Asia’s share of global GDP is slowly edging up towards it. Europe has got about 12% of the world’s population; its share of GDP is slowly edging down towards 12%. Africa has 13% of the world’s population; it has 3% of the world’s GDP or wealth. Now the only similar example that we have in history was in the United States of America between 1870 and 1915 – the golden era of the Unites States economy where it grew at a growth rate of 4.4%. Projections for Africa, despite the oil price falling and the exposure that this continent has to Africa, are that it will grow 5% or more for the next 30 to 40 years much like we’ve seen from China. During that period of time the United States created six of the ten richest people in history. So you have two very interesting things happening here: You have a rebalancing of the world’s wealth through the initiative of individuals because they have access to information. And the second thing you have is a continent that is really so far behind, i.e. Africa, but has just as many smart people as anywhere else in the world that is now getting the opportunity to leapfrog. Africa itself has a lot of issues. I see there are worries that a quarter of the Zimbabwean population will starve this year because of the drought. The president of Rwanda wants a third term despite in the constitution only having two terms and so on.

But there’s also lots of very good news if you’re start looking at places like Ghana. Even today one of the worst of the examples on this continent is Chad but the president of Chad has announced although he took power in a coupe 25 years ago and he’s announced that after this election that he’s probably going to win – because he’ll probably rig the votes again – the next guy is going to have his time limited to two terms maximum. So there is progress wherever you might look.

The problem about the second renaissance or the fourth industrial revolution is two-fold: Status Quo kicks back against it; people don’t like this kind of thing. If you’re a beneficiary of the Status Quo like the church was during the renaissance, like kings and queens were during that time you didn’t want things to change. That’s part of the human condition. And we are expecting to see lots of kickback. We’re already seeing that in the United States with the kind of people that they want to vote into power there. People are very unhappy, there’s more extremism. We’re seeing the extremism growing in certain parts of the world. There’s a lot of that attention in Davos about the Middle-East; about immigration into Europe.

But the second big thing about it, as much I’ve given you the bright side that everyone has access to information, it also is a very dark side in that anything that is done by rote or rules-based; done by rote, we think that is easy to understand people who are manufacturing bring a robot in to change it. Rules-based, something we don’t really think about, white collar. People who are doing accounting, tax advising, that machines – artificial intelligence – can do better. Those jobs are at threat. What isn’t at threat are those who deal in human relationships which I guess, for once in your life, you can actually say: ‘Okay I got a tough job but it’s actually one that isn’t going to go away.’ Whereas there are many, many other jobs … in the United States there are no tax advisors left. Literally no tax advisors because you just buy a program because it is rules-based and the program would tell you how much tax you should pay. The US has calculated that 47% of its existing jobs will disappear in the next 20 years. And the UK has worked out that one third of its jobs will disappear. And just to give you a little touch of this; in future if you are going to buy a pair of shoes you won’t be going into a shop that sells shoes imported from China in some large factory you will in fact go around the corner to a 3D-printer which will print out your pair of shoes exactly to fit your feet. So the changes are dramatic and they’re happening and the emphases, the new emphasis, now is on re-skilling and entrepreneurship. Entrepreneurship as you know has been very difficult for many years. As an entrepreneur myself I sometimes get terribly frustrated by the obstacles and I know you would share that concern with me but more and more this is becoming the way into the future.

Just to go into the kind of the last little bits of the World Economic Forum; what does 2016 hold? This is the closing economic panel. The one I love going to because after five days of engagement and interaction, people would like to know where the economy is going to. Christine Lagarde, she’s the lady with grey hair in the middle there, the very impressive managing director of the International Monetary Fund; is one of the brightest stars in Davos. Her thesis is that the big threat that many worry about – the hard landing of China – remember China is the place that’s actually pulled the rest of the economy for the last 10 years and that its economy is going to hit troubled times. She doesn’t believe that that’s likely. And George Soros, was in Davos this year as well, he’s now 85 and one of the great thinkers of the world, he was agreed with her that China has the resources to pull itself out and not to have a hard landing. Not so easy in Europe. The bright spot for the world though is Britain and India and Argentina. And perhaps in our question time we can talk about that a little more.

Where the issue does come in for China though is that they are trying to do three things at once. Three transformations at once. And amongst those, the three ones are… overlaid by President Xi… you know when he went to India, his name is X I, they called Mr Eleven. President Xi has a war on corruption. In fact if you are a billionaire in China and you’ve been doing it through dodgy business you kind of disappear. Simply disappear. That happens, when you read the Financial Times of London as I do, you’ll see quite often that Chinese business people who have a global presence just don’t … you just don’t hear from them anymore. So the war on corruption is very real in China and very aggressive. They do however have to move their economy from manufacturing to services. They’re moving it from export driven to internal and they’re trying to move it from investment to consumption. Those are huge challenges and issues that they are going to be dealing with into the future.

The other thing is something Lagarde calls asynchronistic monetary policy; I had to look up the word. What it means is when you synchronise things that it all works together. Asynchronistic means in different speeds. In America they are pulling the money out of the system; and in Europe and Japan they’re still putting money into the system. So that could help generally for the world and that’s probably why the International Monetary Fund says that they still looking at 3.5%/3.4% growth this year.

Britain, those of you who have connections and I think many people in this country do with Britain. The big story there is Grexit. Last year we had Grexit. Greece’s exit from the European Union which was averted at the 11th hour. Now the Brits are going to be voting later this year on a potential exit there. The British who are the fastest growing economy in Europe and who are on track to overtake Germany in the next 25 years as the biggest economy in Europe; they don’t want to be aligned with economic policies in Europe. They say that those economic policies are doomed to fail and as a consequence they want to be part of Europe but be told not what to do. That’s a very tricky place to be. If you follow the media in the UK you’ll see the likelihood at the moment anyway is that the British will vote to go out of the European Union which has all kinds of implications of not having the free trade. But it is an issue and a development that needs to be looked at from a global perspective.

Just to sum it all up from a South African side; we didn’t shine in Davos but then again if you had to look at the performance of our share price, the Rand, in the month or so running up to Davos it was very hard to see how we were going to shine.

The good news about that is, and I would like to end off here by giving you a couple of the things that Pravin Gordhan said in his economic briefing. The good news is that it does appear as though finally sense is starting to prevail within the economic management of this country. We’ll know for sure tomorrow? Tonight? At the State of the Nation. I would urge you to try and stay awake through it and to absorb the reality of what’s being said in there. If not you can always go into BizNews tomorrow and pick up the highlights. And then the budget speech next Wednesday where Pravin Gordhan has promised us that he’s going to give us some pleasant surprises. That’s not pleasant surprises in that the taxes are going to go down; Pleasant surprises in that things will be done to avert, hopefully, a junk status for South Africa’s debt. To go into Junk status would be a very serious problem for this country.

But I will end with this: Pravin said: “We’ve got to take a harder look at the challenges and how we’re going to deal with them. Tough questions have been asked within government about what we need to do differently. We need tough reforms on education and the skills area. We need to create co-investment with the private sector. There are a significant number of us within the ANC who want to restore our integrity.”

Thank you.

 

It’s Time for a Good Revolution

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From the snows of Davos, every year, come bold plans to make the world a better place. Can we make it happen this time? By Alec Hogg

In Davos this year, power mongers mulled challenges and opportunities presented by the fledgling Fourth Industrial Revolution. While most of South Africa is up to speed, it’s sobering to think that half of humanity still hasn’t engaged with the “third” such revolution, one that’s been with developed nations for almost half a century.

Niall Ferguson, author and history professor at Harvard, reminded us of this at the World Economic Forum’ when unpacking the history of previous Industrial Revolutions: Manchester-centred Steam and Coal from the 1780s; onto Electricity in the early 1900s; and the Third Revolution, sparked by computerisation, since the 1970s.

As the First World streaks ahead into the new age of ubiquitous internet, big data, 3D printing and robotics, three and a half billion souls have yet to discover even the most basic computers. How to reconcile these different development speeds was one of the major themes at a gathering where the mood was subdued, perhaps because of the fresh challenges emerging at every turn.

Some of these were sparked deliberately.

Over the years, organisations have come to realise their messages get amplified when they are announced in Davos. Among those that came this year was Oxfam telling us how the richest 62 people on earth has as much wealth as the bottom 3.5 billion (another cost of not participating in the Third Industrial Revolution?).

There were a couple of other announcements that would have jolted Pretoria’s growing complacency around South Africa’s well-documented Drift.

First, the International Monetary Fund announced a cut in SA’s 2016 economic growth forecast from an estimate of 1.3% three months earlier, to just 0.7% now. Damage wrought in December by President Jacob Zuma’s musical chairs over his Finance Minister, continues to reverberate.

Even worse came in the annual Edelmans Trust Barometer, where CEO Richard Edelman told how in some developing countries trust in Government has reached “catastrophic” levels. He highlighted Brazil, where just 21% of the population trust their Government, and wooden spoonist SA, where the figure is an appalling 16%. The Edelmans survey is compiled from 33 000 interviews and is highly respected globally.

But over the past dozen years of making the trip to the Swiss Alps, I’ve realised WEF meetings are not just focused on those at the forefront of humanity’s progress. The WEF’s mission is a commitment to improving the state of the world. Sometimes that means helping to build the basics.

One of the most interesting examples of this in 2016 is the Rockefeller Foundation’s (RF) $130m YieldWise campaign, an effort to address massive, avoidable agricultural waste, mostly in developing nations.

The YieldWise website trumpets how one third of food produced today is wasted, most of it rotting between harvest and distribution. It apparently generates so much CO2 that were food waste a country, it would be the third largest contributor to carbon emissions after China and the US. Add in the direct income loss of $990-bn to subsistence farmers and the loss of 66 million tons of water a year, and the point is rather well made.

Like the Oxfam, IMF and Edelmans releases, YieldWise was launched in Davos to amplify its impact. But being a “do good” initiative targeting the bottom of mankind’s pyramid, it didn’t have a sensational headline to grab the attention. Even so, it got mine as it should all of ours.

YieldWise builds on an agricultural theme the RF has championed since seeding the Green Revolution in the 1940s. The subject is also a passion of long-time RF President Judith Rodin, author of a couple books on the subject, who describes food waste as a quiet crisis, “one with unspeakably harmful implications.”

In her quest to tackle the scourge, Rodin has established practical partnerships with multinationals Coca Cola and Nestle, plus Nigeria’s Dangote Food and the World Food Programme in East Africa. Launching it in Davos was deliberate. As Nestle CEO Paul Bulcke quipped: “The WEF has shown that when something is put onto the agenda here, it tends to capture global attention. This is the start of a big thing.”

The dream is to spark a catalytic initiative that repeats Coca Cola’s experience in China where a similar education and support project expanded from 10 local farmers in 2014 to 30 last year and is being rolled out to 12 000 this year.

Mamadou Biteye, MD of the RF in Africa, told me in Davos that YieldWise is focused on four projects, all in the region of greatest need, Sub Saharan Africa. Its partnership with Coca Cola is with Kenyan mango farmers who are now guaranteed a market, and are benefitting from simple adjustments like using smaller boxes, more modern irrigation techniques and extending the shelf life.

The Tanzanian partnership is with the World Food Programme and assisting maize farmers with their processing, storage and sales. The other two partnerships are in Nigeria – Nestle’s with cassava farmers, and Dangote Food on tomatoes.

Dangote, Vice President of Nigeria’s biggest family controlled company, explains the RF partnership has transformed a 17 000 hectare area in Northern Nigeria which has been under irrigation since the 1970s, but because of piecemeal planning previously lacked any processing facilities.

A new $30m tomato processing plant located in the middle of the irrigated area, he says, has changed the lives of 4 000 farmers. The company offers a guaranteed price for 1 200 tons of tomatoes daily. It has also helped them form co-operatives to ensure, for instance, better prices on bulk fertiliser purchases.

Dangote reckons success already achieved has encouraged the company to plan expansion of the factory to 4 000 tons a day, which will support 20 000 farmers. The company has also replicated the model in the south of Nigeria with a pineapple processing plant opening in June, also offering farmers a guaranteed price for their product thus eliminating their major obstacle of getting their fruit to market.

RF’s Mamadou says a holistic approach makes Yieldwise different to many other interventions that have tried but failed to address the obvious problem of food wastage. He told me: “We’ve brought together key elements that are nothing new, but now we’re integrating them. Market linkages, farmer training and aggregation, access to appropriate and affordable technology, and links to financing.”

Seems obvious, doesn’t it? On the upside, the RF is throwing plenty of money behind the project and has recruited some of the biggest corporate names. And it focuses on the kind of low hanging, wasting fruit that is so abundant in Africa.

On the downside, after starting with a bang, many similar initiatives have died through infrastructural challenges, rent-seeking corrupt officials or simple neglect. Hopefully YieldWise doesn’t land up in the same depressing graveyard. Launching in the WEF’s global stage gives it a good start.

*Alec Hogg is the editor of Biznews.com. This year was the 13th time he attended the World Economic Forum annual meeting in Davos.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

The New Expat Revolution

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Seizing bold opportunities in a fast-changing world, a new breed of South African entrepreneurs is making the most of their sought-after skills in London, while retaining their ties to home. It’s called arbitrage, and it’s a new way of making a living in the networked global economy. By Alec Hogg

There’s not much to see when you visit the Johannesburg Stock Exchange nowadays. A modern building in the heart of Sandton, its nine stories are stuffed with techies and compliance officers, administrators and managers. Those who make the SA market’s heart beat are based off-site, connecting to the nerve centre via electronic networks.

This wasn’t always the case. Until technology took over, the JSE pounded with energy and excitement. It even had a public viewing gallery, where you could watch brokers operating banks of phones in a theatre-like basement looking down on the “floor”.

On the packed stage below, traders jostled, shouting out prices at which they would buy or sell, confirming trades with a wink or a handshake. Perched above them were markers manually chalking up prices of the latest deals alongside names of listed companies.

These chalked-up changes were, in turn, recorded by Reuters staff who tapped them out to dedicated telex machines with in-built bells that rang when particularly important transactions were done.

Back then stockbrokers specialised in particular shares or sectors. The best paid were sharp-witted traders with calculators for minds who traded the gaps between stocks priced in Rands and Pounds, traded simultaneously in Johannesburg and London. The arbitrage guys.

Economists define arbitrage as taking advantage of a price difference between two or more markets. The arbitrage traders on the old JSE could spot a pocket of profit quicker than a Great White smells a distressed seal.

But it is an era is now long gone. In the same way as technology killed the “open outcry” in stock markets, it also eliminated profitable arbitrage of stocks quoted in different currencies. The currency and pricing translation is now simultaneous.

The practice of arbitrage, however, still survives in wider applications. I came across a number of these when visiting South Africans in London last month, hearing how they do business there.

It was also part of my own on-the ground research. You don’t need too many R80 cups of London tea to realise there’s a major dislocation between what your money buys in South Africa and in the UK.

The most obvious arbitrage is seen all over South West London, an enclave created by the concentration of hundreds of thousand SA émigrés. There are specialised shops on every street, carrying biltong, rusks, Mrs. Ball’s chutney and other SA “delicacies” – and judging by the prices, those going through the hassle of importing these products get well rewarded.

My interviews with some inspiring expats, though, exposed how most our countrymen have been arbitraging something far more valuable – themselves. And it is this asset, the combination of elbow grease and intellectual capital, which has drawn so many of them to the UK. Temporarily, most of them they hope. One thing you cannot arbitrage is the weather.

My favourite aunt, Trisha, was an early adopter. An entrepreneurial nursing matron, she left the hospitals a couple decades back to start one of SA’s first labour broking services for nurses. But after some years of everyone winning – nurses were paid more, private clients got a better service – the red tape became too onerous.

So Trisha decided to arbitrage herself, travelling to the UK where she soon found assignments caring for the elderly or ill, a fair chunk of celebrities among them. My aunt spent years travelling back and forth to Britain, squirreling away her hard-earned pounds. Last year she had enough of a nest egg to return home, building her own little house on the prairie in the non-metropolis of Porterville.

Thomas is a more recent convert to the arbitrage process. A highly qualified marketing specialist, in his mid 50s he gave up the rat race and retired to his dream home on the KZN north coast. But last year a global group threw out a challenge he found impossible to resist. And, delighted by London’s indifference to his race or age (it’s dictum: “just do the job”) Thomas, now 60, is deeply into his second career.

Although Thomas and his partner have found a London house with a garden for themselves and three dogs, using devalued Rands means it couldn’t compare with their palace in Ballito. But there’s a new Five Year Plan, at the end of which they will have the choice of moving into the British countryside or back home.

Thomas is arbitraging himself, earning a multiple of what an employer could afford to pay him in South Africa. In the process, creating options he wouldn’t previously have dreamed about.

Robby, on the other hand, is an entrepreneur who used to focus on the lower end of South Africa’s property sector. Because the pickings are less, this sector of the market is neglected by property professionals around the world. It is also highly specialised, with success built on knowledge that can only be gained through experience.

At home in SA, Robby was focusing on properties of between R150 000 and R500 000. In the UK, the same segment starts around £50 000 – that’s R1-million when converted to Rands. Provided you apply the same processes, Robby reckoned, there was a multiple to be earned from the same effort.

Having been in his new base for almost a decade, Robby has proved the point. His company now manages a R140-million portfolio which holds around 60 properties at any point, buying or selling 20 a month. He has been able to use this base to expand up the food chain. When we visited, Robby was in the process of finalizing a £3-million home development, a price point beyond his reach in Johannesburg.

Although Trisha, Thomas, Robby and many others have applied the concept of arbitrage by physically relocating, they’ve only touched one slice of the opportunity of leveraging SA’s low cost base into countries like the UK.

Using the networked economy to build something digital here and sell it “over there” is an equally obvious opportunity. Getting onto that path requires no more than a rudimentary appreciation of arbitrage. Once you “get” it, add a touch creativity and a little risk capital, and the world can become your oyster.

  • Alec Hogg is a media entrepreneur, founder and publisher of Biznews.com, his second online publishing venture after he started Moneyweb in 1997, listing the company on the JSE in 1999.

This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

 

Elon Musk’s Guide to the Galaxy

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Hailed as a cross between Thomas Alva Edison and Steve Jobs, Elon Musk is one of the greatest entrepreneurs of his age. He’s come a long way from his days of being bullied at school in South Africa, and today he holds the key to the future of space travel, the motorcar, and solar energy. What can we learn from his incredible journey? By Alec Hogg

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When declining a recent invitation to see one of the State’s showpiece projects, I explained that running a young business requires constant attention.

The bureaucrat responded by wishing me luck with my PEP – what he called a “personal employment programme.”

I’m still not sure whether this was in admiration or sarcasm, given that the self-employed contribute to the tax base, which public servants absorb.

But it did get me thinking that some people are quite comfortable living off taxpayers. Others take orders from bosses for the security of a regular salary. Then there’s around a tenth of humanity who require independence. Those we call entrepreneurs.

Google it and you’ll find many definitions of the word. All do agree, though, that an entrepreneur is someone who works for themselves. People happiest rowing their own boat because they see a better route to shore.

I’ve been among the entrepreneurial class for two thirds of my career. Staying in corporate would have been a considerably better financial proposition. But no regrets on that side.

Where much improvement could have been made, especially in my earlier years, was learning through others.

Wisdom, you see, grows when we’re able to study and apply lessons from our fellows, in contrast to mankind’s usual road of learning only from our own experiences.

Which brings us to the focus of this article, 44-year-old, Pretoria-born super-entrepreneur Elon Musk.

 

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Although relatively unknown in the country of his birth, which he left at 17, Musk is a household name in his adopted America. Described in leading US media as a mixture between the great inventor Thomas Edison and Apple founder Steve Jobs, had inspires the brightest youngsters in Silicon Valley, who profess they want to “be like Elon.”

Musk spends his week between the two companies he built and controls, SpaceX and Tesla. The first, a business that delivers supplies to the International Space Station and sends satellites into earth’s orbit; the other, a revolutionary maker of electric cars.

He is also chairman and major shareholder in SolarCity, a R60-billion business, the US market leader in building and installing solar panels. SolarCity adds almost 800 MW a year (what Medupi hopes to supply next year) to the American electricity grid. It is growing at over 80% annually.

 

The three Musk companies have delivered the biggest advances in decades for the world’s motor, space and solar power industries.

When Tesla shares were listed on the New York Stock Exchange in 2010, it became the first motor manufacturer to go public in over half a century. The company, founded only a dozen years ago, is now valued at R425-billion, double that of SA’s venerable, century-old Anglo American.

Musk is personally worth R150-billion. For context, that’s 15c of every Rand paid in South African taxes during the whole of 2015. By comparison, Musk’s wealth is 50% above that of the Ruperts, this country’s richest family.

The story of Elon Musk has a long way to run. But there are already key lessons the rest of us can take from his experiences. Here are three that stand out:

 

1)  Keep re-investing in what you believe in

At 24 and fresh out of university, Elon Musk founded an Internet start-up called Zip2. Described by biographer Ashlee Vance as a primitive version of “Google Maps meets Yelp”, it was sold by Musk four years later for $307-million.

He reinvested the $22-million he got from that sale into a new company then merged into global payments start-up PayPal, where he became the biggest single shareholder.

When PayPal was sold in 2002 for $1.5-billion, Musk injected every cent into his three new businesses: $100-million to SpaceX, $70-million into Tesla and another $10-million into Solar City, managed by his cousins from Pretoria, Lyndon and Peter Rive.

Musk is the purest example of an entrepreneur you’ll find. He regards money as energy whose purpose is to change the world for the better. Definitely not something to be hoarded.

 

2)  Never, never give up

With his companies now flourishing and his wealth exceeding that of a small nation state, it’s easy to forget Musk did it the hard way. Six years after starting his new businesses, all the cash he’d invested into them had been used. He even needed to sell his car to help fund on-going losses.

Musk went through the fire, personally and financially. After the first three SpaceX rockets exploded, literally incinerating tens of millions of dollars, he kept on trying. When problems with Tesla cars delayed their launch for years past deadline, he never wavered.

Even after Musk had burned through all his money – and plenty more borrowed from friends – he still believed in his dream, refusing to compromise.

Just when all seemed lost, the fourth SpaceX rocket flew straight and Tesla’s all-electric car became a huge success. In 2012, Musk was suddenly an “overnight sensation”. But not before absorbing pressure which would have buckled many a lesser being.

 

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3)  Read, read, read

Growing up, Musk was geeky and possessed a reserved personality. A late developer, he was bullied mercilessly at school. One of these incidents, where a gang attacked him, put him into the Sandton Clinic for two weeks, where his face needed reconstructive surgery.

He took refuge in books. At 14, Musk discovered Douglas Adams’s Hitchhiker’s Guide to the Galaxy. He devoured other sci-fi classics like Isaac Asimov’s Foundation series and Robert Heinlein’s The Moon is a Hard Mistress.

It wasn’t unusual for Musk to read for 10 hours a day. The youngster eventually ran through everything he cared to consumer in his school’s and neighbourhood library. So he worked his way through Encyclopaedia Britannica.

His voracious reading, combined with his photographic memory, bred in him a love of knowledge, and insights that served him well during the years to come. And look at where that has taken the boy from Pretoria.

 

* Alec Hogg is the founder of Biznews.com, started in August 2013. It is his second online publishing business after JSE-listed Moneyweb, which he created in 1997 and left 15 years later.

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

 

 

The life lessons I learned from a Ponzi scheme

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In the midst of headline news of a financial scandal of breathtaking proportions, come lessons that can serve us all well in the business of life. 

By Alec Hogg

 

About a decade back my old company was approached by a Vancouver publisher called Infomine. It was a similar operation to Mineweb, the mining website we owned. The Canadians wanted to do business. It all seemed to make sense. My flight was booked before I bounced the hush-hush collaboration idea off our team. They were horrified.

Infomine, I was told, were a bunch of crooks. They were copying Mineweb articles and republishing as their own. What we call theft in the publishing business.

Suddenly that flight half way around the world lost its appeal. But cancellation penalties are high, I was now really intrigued and had never been to Vancouver. It was a memorable first day, but none of it to do with admiring the beauty of this city with skiable mountain slopes and clear blue ocean. Groggy from the overnight flight, I was fascinated during a two-hour presentation from the Infomine team. After my umpteenth cup of tea, they finally asked for feedback.

Looks great, I remember saying, but we won’t be able to do business. My team say you’re stealing our content. Canadians have a well-deserved reputation for courtesy. But that trait failed this bunch. We don’t steal your stories, they responded. We pay top dollar for them, probably too much.

In a flash, the company’s accountant was summoned, bearing proof of such payment. It didn’t take a rocket scientist to work out what had happened. Every month for a couple of years, funds totalling a quarter million Rand had been deposited into the former editor of Mineweb’s bank account in Mauritius.

They showed me his email instructing them to pay it there. Even though he’d left us some months back, the editor had forgotten about his standing order. Or maybe thought the two parties would never connect the dots.

This month I was reminded of that awful episode. Memories of Mauritius and malfeasance flooded back while I was working on the sensational Belvedere Ponzi scandal, one of the most fascinating and confusing projects of my three-and-a-half decade career.

Having been tipped off early, I enjoyed a five-day jump on the rest of the local media, mainly because there are so many claims and counter claims that it was really tough to make a call. Fortunately, doing that is the responsibility of the court of law, not a mere journalist. But even though the story has weeks, maybe months to run, there are clear lessons worth sharing.

The story started when a US-based website, OffshoreAlert, fingered Belvedere as a massive Ponzi scheme. Its editor, David Marchant, an investigative journalist specialising in offshore financial centres, had worked on the story for three months before concluding that the two South Africans who run the Belvedere empire were fraudsters of breath-taking proportions.

My attention was piqued because countrymen were involved. That expanded when hearing Belvedere is based in Mauritius. And the story had me captive after seeing names of the purported kingpins.

The Mauritius-based partner is one David Cosgrove who single-handedly killed JSE-listed mCubed by landing his employers a R140m SA Reserve Bank fine for driving a tuck through exchange control regulations. The local end was run by Cobus Kellermann, a man closely associated with Basileus Capital, which was itself linked to a R3-billion Ponzi scheme.

Involvement by these two likely lads, overlaid by a headquarter in an offshore financial centre with well documented challenges on oversight and ethics, quickly got my diary cleared.

Especially after the introduction of the high pressure selling organisation deVere, whose clients helped fund Belvedere but then switched to the pack of hunters.

After pumping R50-million of its South African clients’ funds into the Mauritian-based company, DeVere changed from friend to foe by feeding information to OffshoreAlert. It then went public by branding Belvedere a Ponzi scheme even bigger than the fabled Bernie Madoff misadventure. DeVere’s intervention reminded me of my own experience in Canada.

Especially when Kellermann and Cosgrove suddenly re-emerged, with a high powered lawyer, to point their own fingers at deVere. The sales house, they claimed, had a vested interest in Belvedere’s liquidation.

In my case, after sitting with a mouth full of teeth on the day he was confronted with the facts, our former editor later claimed, again with his lawyer in tow, that it was I who had given him permission to transfer those Infomine funds into his Mauritius bank account.

I guess he had to come up with something, so settled on simply making it his word against mine.

So apart from a fascinating tale, what do those Belvedere Ponzi headlines mean for you and I? A great deal, as it happens. For one thing, it’s a reminder for each of us to take responsibility.

There is a very clear distinction between delegating and abdicating. All too often, we opt for the softer, easier road in areas of complexity, as financial matters invariably are. If you allow them to be.

My suggestion: before signing onto anything financial, do a quick calculation. Work out your total commitment through multiplying what you’ll be kicking in every month by the time you expect to be doing so.

It is often like a cold shower when you’re confronted with the big number.

And ask questions. Lots of them. Don’t be shy. Get to know every aspect of what you’re buying. What precisely are you getting? What could go wrong? And if it does, what happens?

Financial services are a service like any other. Excepting that a mistake costs a lot more than a bad meal. And once you’ve signed up, you can’t simply walk across the street and expect better.

Do your own research. Use Google, Twitter and Facebook. Take responsibility. Nobody cares about your money the way you do. Certainly not those wise guys peddling wares through offshore financial centres.

 

* Alec Hogg is the founder and editor of Biznews.com.

 

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

When truth meets its Waterloo

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Two centuries after the battle that led to the downfall of Napoleon, the myth of the banker who manipulated the markets refuses to fade away. In this modern age of reason, why does propaganda still have such a powerful hold on us? By Alec Hogg

 

In June next year, it will be two hundred years since the Battle of Waterloo, a bloody affair that ended the career of Napoleon Bonaparte, France’s greatest warrior.

The battle changed European history, introduced a verb into the English language, and spawned the 1974 song that launched supergroup Abba. It also generated a financial myth that is sure to be revisited as the anniversary approaches.

One of my recent lunchtime television interviews provided a reminder of how deeply that myth is entrenched. It happened the day former Finance Minister, Trevor Manuel told us he would be joining the global Rothschild Group. An otherwise sober-minded guest took the news really badly, ripping into Manuel.

How could a respected politician join them, he ranted, when everyone knows their business was born in sin and has remained a web of deceit ever since. My guest explained his ire by trotting out the Rothschild myth, right down to the “fact” of Nathan Rothschild’s actions after Waterloo.

That he caused London’s share market to crash by spreading rumours the British had lost – then scooped up piles of shares on the cheap. It’s a safe bet similar information will start being repeated as fact in the months ahead. It’s a fascinating story. The only problem is, it is also 100% wrong.

But it does prove propaganda has a tendency to live longer and seep more deeply than we might think possible. And, sadly, even many years later it can trump the truth.

South Africa’s continued flirtation with full blown socialism, a long bankrupt ideology, is a case in point.

I’m hoping with information as close as their cell phones, the younger generation won’t be fooled as easily as their grandparents. But you never can tell. Propaganda is a powerful tool.

Throughout history, those who “knew” what was best for us have imposed damage and misery on mankind. They used any means available to impose their warped will on society, including mass murder. Reasoning that the end justified any means.

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It seems impossible today to consider that Mao Zedong, one man with a Little Red Book, was able to trigger executions of millions of Chinese through his Cultural Revolution. Or that his northern neighbour, the five foot four self-proclaimed Man of Steel, Josef Stalin, could engineer “Purges” that murdered at least 20-million Russians.

In the West, our favourite “know-all” is Adolf Hitler, the man who brought us World War Two. Comical as his bottlebrush moustache and goose-stepping walk looks today, Hitler’s dark legacy remains. Including the Rothschild myth, something Nazis created from thin air that is proving so powerful, it remains embedded in otherwise sober minds.

In 1940, Hitler and his Propaganda Minister, Joseph Goebbels commissioned three full length movies to reinforce their anti-Semitic message.

Best remembered was The Rothschilds, their tale of how Jewish bankers had grabbed control of Germany’s greatest enemy, England. And surprise, surprise – the plot was spun around Nathan Rothschild using advance knowledge of Waterloo’s result to manipulate London share prices and create a financial empire.

Scots-born historian, Niall Ferguson, a prolific author and History Professor at Harvard University, tells the real Rothschild story in his excellent book The Ascent of Money. Ferguson’s best-seller was so popular it became a TV mini-series. The truth is fascinating. Indeed, Ferguson describes it as “one of the most audacious trades in history”.

The Nathan Rothschild pilloried by Hitler and Goebbels, is praised by Ferguson as a man of patience, courage and great intelligence. Faced with almost certain ruin after raising piles of gold to help England’s fragile Treasury fight a long war against Napoleon, after the Frenchman’s swift end at Waterloo, Rothschild was sitting on a pile of cash nobody wanted.

He resisted the urge to panic, bought as many British Bonds as he could find and sat on them. Backing a belief that the rest of the world would eventually realise with Napoleon out the way, England would no longer need to borrow to fund lengthy wars. So its Treasury would improve and its bonds rise in value.

Ferguson writes that it was almost two years later that Rothschild cashed in his bonds, banking a profit worth £600m in today’s money and securing the foundation for a global financial group that still exists today.

He had turned almost certain disaster into a profit by holding his head when others lost theirs. Rothschild applied patience and a firm belief in his assessment of the economic reality.

Similar, in many ways, to the hugely profitable trades Warren Buffett made in the wake of the 2008 Global Financial Crisis. Actions for which Buffett is universally admired. Funny what a couple hundred years can do.

The Rothschild story is a timeous reminder. Too often we abdicate our responsibility of being active citizens by elevating clay-footed politicians onto pedestals.

Perhaps it’s because we’re sometimes too lazy to double check what they’re saying. Or reluctant to bring their outrageous vote-baiting promises to account (erm, where are those 5 million new jobs, Mr Zuma?)

That’s surely part of the problem. But perhaps an even bigger issue lies deeper. That the re-writing of history – or ignorance of it – implant Rothschild-like myths into our minds.

Socialism has been an unmitigated disaster everywhere attempted. Its consequences were so dire, the “know-alls” who proposed it were only able to impose it through force. Like the Iron Curtain, a high wall with machine gun turrets that Russian overlords erected right across Eastern Europe.

Soldiers were instructed to shoot anyone who tried to cross from one side to the other. Thousands died trying to leave Communism for Capitalism. Not one person tried scaling the wall in the other direction.

Surely that’s a reality we need to remember as misguided politicians employ hot air propaganda while they move this country ever closer to their fantasy of a Marxist Utopia?

Alec Hogg is the founder and publisher of Biznews.com. A writer, broadcaster and media entrepreneur, he has won several prestigious awards in the financial media space – including accolades for introducing business radio to SA and for his creation, in 1997, of Moneyweb, an online publishing pioneer. He left Moneyweb in October 2012. Apart from his full-time focus on Biznews and regular keynote business speaking engagements, Hogg anchors Power Lunch on CNBC Africa.

* This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

The invisible hand of fortune

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The highlight of my teenage years was being selected to attend the World Scout Jamboree in beautiful Lillehamer, Norway. It was at a time when South Africa was deeply mired in Apartheid.

The Scouts, though, refused to march to the Government drum, particularly not when participating in global events.

It was the adventure of a lifetime. Six weeks away from home touring Europe with lads of the same age, including a week with a Danish family.

Then came 10 days at the Jamboree itself, meeting boys from all over the world and, especially, fellow South Africans by sharing a four-man tent with two dark brown and one light brown Scouts. It opened my eyes to the reality that despite what most adults believed, skin colour is truly irrelevant.

After that it was never going to be easy for any 15-year old to ease back into the slow, artificial life of small town, white South Africa.

Having tasted the real world, I wanted more. So didn’t take much convincing when my best pal suggested the two of us fly to England and become professional footballers. What seems far-fetched today was entirely plausible to our adolescent minds. Soccer wasn’t a school sport, certainly not in Northern KZN.

So Graham and I, obsessed as we were with the beautiful game, used every spare moment to practise. We had progressed through the juniors to play for the town’s adult team. And as there were hundreds of professional teams in England, why not take our chances?

After first agreeing to pay for the ticket, my father later decided against it, calling the whole thing madcap. Just as well. Although Graham’s speed and tenacity would have given him a shot at a reasonable living, I would almost certainly have starved.

My limited talent would likely get me a job at nothing higher than perhaps the Fourth Division in the home of football.

There was a reminder of this teenage me story during the Christmas holidays.  Among my favourite pursuits when time allows, is reading about the great old economists, especially the father of them all, Scotsman Adam Smith.

It was his book, The Wealth of Nations, which got leaders in business and government to start understanding economic realities. His book was published in 1776, the same year Americans signed the equally revolutionary Declaration of Independence. Both became global game changers.

Smith’s thesis is best remembered for a description of what he called “the invisible hand”. The way he saw it, every human being is born with an in-built desire to improve their own circumstances, a trait which never leaves them.

Economies work best, Smith explained, when people are given the greatest possible freedom to achieve their aspirations. When circumstances allow this to happen, it’s as though an “invisible hand” guides each person to contribute in their own self-interested way, but to the betterment of all.

Those Founding Fathers who gathered in Philadelphia to sign the other great document of 1776 were the forebears of a nation which, better than any other, proved Adam Smith was spot on.

Leaders of what became the United States of  America have always deferred to the “invisible hand” – the unseen force unleashed in a market economy.

By getting Government out of the way, they created mankind’s most efficient way of delivering goods and services. In the process, they transformed a backwater with literally zero percent of the global economy into the locomotive that creates more than a quarter of the world’s wealth with only 5% of its population.

With such a compelling success story, you’d have thought people elsewhere would have demanded the same. No human has a remote chance of calculating what is best for any nation’s economy; there are simply too many moving parts.

Unfortunately, most of humanity has been cursed with political systems designed to feed man’s dark side – arrogance combined with a thirst for power that corrupts sane thought. To a point where a leader may actually believe they have the right to plunder common resources for personal benefit.

Smith’s “invisible hand” is the most solid cornerstone of any true democracy. It is the obvious enemy of those who believe they know better than the market; those with a preference for idealistic but the ruinous economic systems of communism and socialism. 

In their defence, the more noble of those who imposed such destructive dogma did so in a belief the poor and downtrodden needed protection from the marketplace. That is one of the great fallacies of the modern era. The reality is, if allowed, the “invisible hand” guides every participant, the “poor and downtrodden” among them, to the place where they are make their best possible contribution.

All man actually requires is a foot in the door, a toehold in a system where progress is proportionate to effort and application.

Block that, consciously stop Smith’s mysterious force from working its magic, and it’s like releasing a virus into the economic system. A deadly disease that eventually implodes – witness the Soviet Union, Europe’s Eastern Bloc, Venezuela and now Cuba.

So what does all this have to do with my aborted journey into professional football? A lot. Because the “invisible hand” works most powerfully in professional sport.

Had those two hopeful teenagers made the trip to England, my limited talent would have landed me, at best, playing for a club where I’d be paying more on getting to matches than receiving in appearance fees. Pretty soon I’d have been forced into something else where I could actually earn a living. Like writing.

That’s the beauty of the market economy. It forces participants to apply their talents where the collective needs them most. Adam Smith’s invisible hand sees to that.

 

* Alec Hogg is the founder and publisher of Biznews.com. A writer, broadcaster and media entrepreneur, he has won several prestigious awards in the financial media space – including accolades for introducing business radio to SA and for his creation, in 1997, of Moneyweb, an online publishing pioneer. He left Moneyweb in October 2012. Apart from his full-time focus on Biznews and regular keynote business speaking engagements, Hogg anchors Power Lunch on CNBC Africa.

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

To Save South Africa, Think Like Albert Einstein

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Twenty years after the start of democracy, we’re still struggling to fix old inequities and grow the economy. What will it take to make things work? A little of the same radical thinking that made E = MC².

The Americans have a wonderful way of extracting wisdom from their society’s best. They use something called the Commencement Address, a motivational speech by an invited guest to graduating college students. The more prestigious the university, the more that’s expected of the presenter. California’s Stanford is among the leaders. This year its Commencement Address was by Bill and Melinda Gates.

In 2013 it was New York Mayor, Michael Bloomberg.

But the most famous of all was the 2005 masterpiece by Apple’s founder, the late Steve Jobs.

The YouTube video of that 14-minute speech has been downloaded more than eight million times. It’s a must-watch for anyone seeking a burst of inspiration.

Most Commencement Addresses offer advice to the rising generation on the right things to do. But occasionally someone takes the opposite approach, using inversion to advise what not to do.

Specifically, super-rational vice chairman of Berkshire Hathaway and Warren Buffett’s business partner for 54 years, the inimitable Charlie Munger.

There are two ways, Munger says, of finding the solution to the most difficult problems. The first is to explain it to someone who simply nods in response.

It’s what Munger calls the Orangutan Method. If you enter an orangutan’s cage, give him a banana and explain the problem to him, when you leave the orangutan will still be eating the banana. But you’ll be a little closer to the solution.

The second is encapsulated in his 1986 Commencement Speech to his alma mater, the Harvard School. Drawing on the experience of the great algebraist Carl Jacobi, he urged the graduating class to “Invert, always invert.

What Munger (and Jacobi) meant was that even the toughest problem can be solved if approached backwards. That the solution often emerges after trying to discredit your assumptions.

Munger used namesake Charles Darwin as an example of one who wasn’t afraid to attack theories he cherished. And, in the memorable Harvard address, quotes Albert Einstein who put his string of successful theories down to, “curiosity, concentration, perseverance and self-criticism – the testing and destruction of his own wellloved ideas.”

Right now, South Africa could do with a generous application of Einstein’s approach. After Nazi Germany, this country comes closest to world champion of social engineering.

First we had Apartheid, present since European settlers arrived in the 1600s but institutionalised after DF Malan’s National Party took power in 1948. The essence of which was discrimination based on the colour of a person’s skin.

Soon after democracy arrived in 1994, the nation celebrated its new Constitution, the most admired on earth. This provided a foundation from which to unleash human potential. The ultimate law of the land. The blueprint for a democratic, non-racial, nonsexist, happy and prosperous nation.

But no sooner was this magnificent document unveiled than the social engineers got back to work.

We were told the past needed redressing. Those one tenth of South Africans who benefitted under the old regime needed to be put in their place in the new. They must give back their ill-gotten gains. And stand aside for previously disadvantaged brethren.

On sports fields, at universities, in business. Everywhere, the New South Africa was to reflect the “demographics”. Leaders of the previously advantaged population group (ie whites) supported these calls. Under their stewardship, shareholders of public companies gave away hundreds of billions to Black Economic Empowerment schemes.

Sports administrators applied racial quotas to select national teams. White graduates, realising they weren’t wanted, sought employment outside the country.

We all knew it was against what had been written in the Constitution. But redress was required. And this was the way everyone agreed it should happen.

Two decades later, we have a serious problem. Those who made the transfers of wealth believed it was a one-off. A temporary adjustment to hasten normalisation of the new democratic society. Those in charge of the redressing see things differently.

For them, those initial BEE deals were only the beginning. The previously accepted principle of once empowered, always empowered has been tossed aside. The agreed Sunset Clause in Affirmative Action, too, has vanished.

Twenty years after democracy dawned, new laws are being enacted to ensure the transfer of wealth is continuous and accelerated. In effect, they will entrench a situation where the previously advantaged, judged purely on the colour of their skin, become permanently disadvantaged.

Based on the ridiculous premise that the 90% majority need protection from a 10% minority. Social engineering at its most repugnant. But this time, so warped that even its protagonists fail to provide any rational argument.

The biggest problem with all of this is no matter how hard they toil, the former “haves” are too few to generate enough to make any difference to lives of the previous “have nots”.

Racially driven legislation might sate vengeful instincts of those with longterm grudges. But it does not address the nation’s underlying jobless problem. No country in history has borne as high a level of unemployment for as long. During the US’s fabled Great Depression, unemployment only briefly exceeded 20%.

South Africa’s has remained stubbornly above 25% for many years.

THIS OBSESSION WITH RACE IS ONE OF THE BIG THINGS HOBBLING A POTENTIALLY PROSPEROUS NATION. ANOTHER IS THE LEAST FLEXIBLE LABOUR LAWS IN THE WORLD, A CORNERSTONE OF THE RULING POLITICAL PARTY’S ANTIBUSINESS PHILOSOPHY.

Something that’s ingrained into its mostly Socialist-trained leadership. A gremlin lying so deep these otherwise rational beings remained blinkered to abundant evidence of the economic destruction their dogma has wrought everywhere applied.

Insanity is described as doing the same thing over while expecting a different outcome. South Africa is a near perfect example of this. Our leaders talk about creating jobs. They delude themselves with unrealistic economic growth targets.

But instead of smelling the coffee when the predictions are undershot, repeat the same, tired rhetoric, believing this time it will be different.

What the nation needs right now is a large dose of Einstein with some Munger and Darwin thrown in. A backward examination of its problem. A “testing and destruction of wellloved ideas.”

That will liberate solutions which can restart the country’s motor. And unshackle the best Constitution on earth. Allowing it to unleash human potential champing at our collective bit.

* Alec Hogg is the founder and editor of Biznews.com. He presents Power Lunch on CNBC Africa daily from noon (DSTV channel 410).

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

 

Hey, Big Dreamer

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Small dreamers don’t stir big passions, or change the world in big ways. What’s your big dream? Alec Hogg reports from the world’s most famous shareholder event.

Every year, Warren Buffett, 83, superstar investor and creator of America’s 5th most valuable business, plays host to shareholders of Berkshire Hathaway.

I’ve been seven times to this unique event in Buffett’s hometown of Omaha, and this year joined a record 38,000 “pilgrims”.

Buffett and his 54-year business partner Charlie Munger, 90, Berkshire’s deputy chairman, spend five hours answering spontaneously posed questions – about the economy, their company, investing and life.

Both are avid readers, so usually throw in a book recommendation. This year’s selection was Dream Big, a recent translation from Portuguese which chronicles Berkshire’s new private equity partners, 3G Capital of Brazil.

Dream Big. Think about it a moment. Here are two of

the world’s most talented business practitioners, urging us to read a book promoting the apparent antithesis of their rationality. Dreaming is, well, for dreamers.

Business, we’re taught, is about logic and numbers. Not all that airy-fairy stuff. That’s for artists. But there you have it from two of the world’s greatest exponents of wealth creation. If you want success in business, they say, don’t just dream. Dream big.

By the time I got to the Berkshire bookshop the 3G book was, predictably, sold out. So I haven’t read it yet. But I do get what the Oracle of Omaha and his wise sidekick are trying to tell us.

Accounting might be the language of business. But it is just the scorekeeper. Imagination and planning makes the difference between a good and great company. Between thriving and just surviving.

Having recently started Biznews.com, this kind of stuff is very appropriate right now. As it is for every entrepreneur.

When creating Moneyweb from the room above my garage in 1997, I was able to dream as big as anyone. But a couple of years later we listed the company’s shares on the JSE. Priorities changed.

Instead of dreaming up schemes, my life switched to engaging with shareholders, ensuring we delivered acceptable margins. Strict “corporate governance” – ergo long, boring meetings – suddenly became the priority.

Part of the human condition is that once you get something knocked out of you, it’s hard to rekindle. Especially if, like dreams, that thing is perceived by the world as childish – unsuitable for “mature” beings.

But over the past few weeks there’s been this encouragement to dream again. Not just from the Berkshire duo.

I’d never heard of Kevin Gaskell. He’s a tall, slim Brit who describes himself as a businessman who occasionally gives talks. It was my good fortune to be in the audience for his keynote at this year’s PSG Konsult annual conference.

Gaskell is a business turnaround specialist – a person bankers and investors call in when all hope appears lost. He delights in achieving the impossible.

Like at Porsche UK, where sales had dropped 90% and customer satisfaction surveys ranked the business 31 of the 31 companies operating in the country. Gaskell happily shares his secrets. Because to him they aren’t that.

They start, he says, with a dream to create something extraordinary. That’s the only thing that inspires passion and provides a common purpose. And then, he reckons, the magic happens.

Within four years, Porsche topped the UK’s customer satisfaction polls and sales surged to new records. And Gaskell has done the same thing a number of times for various other lost causes.

He says every plan starts with a dream big enough to align the team, to provoke them to make a difference. Most of us, he says, are overworked and under-utilised: “People are extraordinary and they enjoy making a difference. Having a dream is the start of that process. It’s rare that you are able to out-spend the competition. But you can always out-think them.”

Host at that conference was Jannie Mouton, one of South Africa’s great entrepreneurs and a personal inspiration for many. Fired just shy of his 50th birthday from the business he created, Mouton has spent the last 18 years building the PSG Group into a R20-billion empire.

His genius has given us Capitec Bank, the Curro schools and a financial services group that manages R165-billion worth of savings for its 150 000 clients.

MOUTON’S ADVICE: “BELIEVE IN YOURSELF. HAVE A DREAM. READ A LOT, LOOK AT EVERY OPPORTUNITY, DREAM IT AND THEN FORMULATE YOUR PLAN. A MAN WITHOUT A GOAL IS LIKE A SHIP WITHOUT A RUDDER.” AND KEEP DREAMING OF THE UPSIDE.

Mouton’s favourite quote is from Winston  Churchill who said “a pessimist sees the difficulty in every opportunity; the optimist sees the opportunity in every difficulty.”

As we are all on this mortal coil for such a short spell, why not make the most of it? By dreaming again. And dreaming big.

*Alec Hogg is the publisher of Biznews.com. He presents Power Lunch on weekdays on CNBC Africa.

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

The Power of Positively Thinking

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In our fast-paced, hurry-up-the-ladder, get-out-of-my-way world, we rarely take the time to stop and think about where we’re going and how we ought to get there. A little reflection can be your secret weapon in business and in life, says Alec Hogg.

Life is like an onion. A progression of layers peeling away to reveal something new, usually to our embarrassment. Dicoveries often turn beliefs on their head.

One of my thickest layers was shed during a workshop on the French Riviera. It was 2006, a day before the annual gathering of Hedge Fund managers. The sponsors felt I’d benefit by rubbing shoulders with these Masters of the Universe before the conference proper began. They were right.

The workshop was run by a short-sighted, Levi’s-and-loafer-wearing New Yorker of Lebanese extraction. He called himself Nassim. Full name Nicholas Nassim Taleb.

A self-described financial activist, he already enjoyed cult-like following among “hedgies” because of his best-selling book, Fooled by Randomness. Taleb was later to acquire mainstram fame after The Black Swan predicted the Financial Meltdown few others expected. But even in 2006, he didn’t lack confidence in his convictions.

Looking back at my notes is instructive. They include “feeling like an ancient Briton being exposed by a Cicero speech on philosophy”.

Overawed. Out of my depth. Confused by a genius who sprouted about fractals and a Gaussian world. It was the steepest of learning curves. But as the message sunk in, it produced an appreciation that working hard just gets you into the game.

Success, Taleb teaches, is often a function of good fortune rather than brilliance. Lady Luck randomly allocates her favours. Holding onto the consequences of her largesse is where the true skill lies.

A few weeks ago, I had breakfast with the boss of one of SA’s top companies. As one does, we got talking about business and his view of the world. And the competitors – the ones on top and those who just cannot get out of their way.

Taleb’s writing helps us appreciate the role of randomness in climbing the ladder. My breakfast partner provided a reminder that staying there requires another under-appreciated quality: Reflection. The importance of being able to stop and think. Because without doing so, it’s easy to forget how you got there in the first place.

Our speeded-up world is full of those who act at lightning speed. People who believe opportunity only knocks once. And when it does, the door needs to be smashed open.

Some describe them as entrepreneurs, but in reality they are opportunists. They grab any golden monkey that passes. Without considering the consequences.

The head of a media company once told me how her sales team were encouraged to embark on what she described as drive-by muggings. New potential customers were quoted outrageous rates. In their ignorance, some signed. Innocent lambs being fleeced. The profit margins were handsome. And although such customers never returned, she wasn’t overtly concerned, because there were plenty more where they came from.

There is a similar approach by many in the hospitality sector. Call a hotel reservations service and you’ll hear the “rack rate”. A price is often double that charged to corporate customers. Is it any wonder Air BnB is gaining momentum? As are its equivalents for other off-line industries where a similar attitude prevails.

The biggest problem with the high-speed, opportunistic approach is the way it fools the beneficiary. Human beings are given to self-absoption. And self-justification. Only through honest reflection do the vagarities of Lady Luck become exposed.

A man gifted millions simply because he was in the right place at the right time (with the right tone of skin) can hardly be blamed for losing perspective. If money can be transferred so easily by fearful executives and ignorant shareholders, why not grab more of it?

Reflection produced the humility required to understand reality. Providing a reminder that for 99.9% of mankind, wealth creation is slow and difficult. A process of sacrifice. Of thinking rather than doing. Appreciating life is more like a five-day test than a T20 slog slog fest.

Berkshire Hathaway chairman Warren Buffet, who built his company from a near-bankrupt textiles business into the fifth most valuable corporation in the US, puts it best:

“I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.”

At 83, the ever-reflective Buffett says he tap dances to work every day, doing what he likes because he tends to be better at those things. And he studiously avoids working with anyone who churns his stomach. I wonder how many of those married to the wham-bam-thank-you-ma’m approach are able to say the same?

* Alec Hogg is the founder and publisher of Biznews.com. He presents Power Lunch daily at noon on CNBC Africa.

This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

Hi Ho, Silver Lining!

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The gloom clouding the global economy is lifting, as we get set to head for sunnier climes. That’s good news for Africa, although we’ve still got a lot of catching up to do, reports Alec Hogg from Davos

To the outside world, the annual gathering of 2,500 business and political leaders at Davos in the Swiss Alps is about big themes, selfimportant people and lots of talk. Inside the tightly secured Congress Centre, it’s rather different.

Participants are served a smorgasbord of high-octane knowledge. Unmatched networking is on tap. And for those who listen closely, they receive a unique insight into the coming year’s global economic agenda.

This was my 10th successive participation in Davos. It was also my best yet. After five years of gloom, the mood has lifted.

American confidence is back to pre-2008. They’ve been buoyed by the way their money creation strategy they call Quantitative Easing (QE) lifted a moribund economy.

Underlying it all was the invention and wide application of hydraulic fracturing on the nation’s enormous shale gas reserves. Fracking has transformed the US’s energy equation with electricity and gas prices having halved since 2006.

With their costs having fallen so sharply, Americans are actively pursuing “reshoring”, bringing back manufacturing that was previously “off-shored” to cheaper locations.

After a decade and a half of flat lining, the Japanese version of QE (“Abenomics”) has dispatched deflation. Europe’s four sickies – Greece, Spain, Portugal and Ireland – are out of intensive care.

There’s steady 7% plus growth from China; the promise from India that its 5% will jump to 8% after May’s national election; and Brazil is reaping growth benefits from a massive privatisation programme.

Overlay all of this on the determination to keep interest rates at historically low levels and there’s a clear message from Davos:

THE GLOBAL ECONOMY IS RECOVERING WELL AND IS SET FOR ITS BEST GROWTH IN AT LEAST SIX YEARS.

This is good news for SA. Because more than half the country’s economy activity relies on global trade, when the world is healthy, we flourish.

The country is also a beneficiary of continental catch-up. Africa being so far behind is an economic benefit in an age when globalisation means innovation spreads fast.

THERE ARE SO MANY AREAS WHERE STRONG PRODUCTIVITY AND HENCE ECONOMIC GROWTH IS GENERATED SIMPLY BY APPLYING STUFF INVENTED AND PROVED ELSEWHERE. THERE IS PLENTY OF THIS LOW HANGING FRUIT. 2014 WILL ALSO BE A GOOD YEAR FOR AFRICA.

But despite this bonhomie, I left Davos with a sense of foreboding. In the short-term, all is well. But great challenges are emerging.

There is still no answer to where QE ends. The debt still being created has to be dealt with one day. Either repaid. Or wiped away through massive reflation. Both options carry huge risks. And nobody is talking about it right now.

The other elephant in the room is how economies are growing, but jobs are not.

I spent a fair amount of time in Davos listening to the great thinker, Tom Friedman, author of best-selling The World is Flat and other forward-looking books. The world’s most influential newspaper columnist believes we’re entering a period of massive disruption.

Globalisation is meeting technological innovation. That is pushing us from connectivity to hyper-connectivity. With enormous consequences.

Friedman is pointing his readers towards The Second Machine Age, a breakthrough book that was the talk of Davos this year. Its thesis is that during the First Machine Age – the Industrial Revolution – the world of work changed dramatically. Horses were replaced by cars. Factory workers by machines.

The Second Machine Age, they say, will have an equally dramatic impact. Robots and machines are wiping out millions of factory worker jobs. China estimates that 25m of its manufacturing jobs evaporated as machines have moved in.

One estimate I was given at Davos was that a plant that employed 100 people in the 1980s, will today have jobs for no more than 10.

The future of work, one of my interviewees quipped, is a man and a dog. The man to feed the dog; the dog to guard the machine.

The duo use many examples to prove their point. Like Intuit’s $39 tax software which has virtually wiped out the US’s tax advice industry. And free, on-demand legal documents that have sliced massive chunks from lawyers’ fee earnings.

The obvious conclusion of what’s termed the battle between Man and Computers is that the bar is being raised. To thrive, people will need to contribute more. What you might know is no longer relevant because Google knows more. It’s how you apply that knowledge.

Lifelong learning is no longer optional. The good news is that never before has there been as much access to information for those seeking to better themselves. The challenge lies with the mid-level, midambitious that reject the idea of lifelong learning. Like slow horses of yore, they will be the first the system discards.

The most sensible suggestion in Davos of how to address the issue was offered by the petite President of Korea, Geun-hye Park. In an inspiring Plenary she urged fellow national leaders to find practical ways of encouraging entrepreneurship.

Not just by cutting red tape, but purposefully pushing people to take business risks. And supporting the inevitable by, for instance, re-establishing credit records of bankrupt entrepreneurs so they can try again.

President Park says Koreans understand how innovation is transforming the world of work. Their strategy, she says, is to transform Korea into a Creative Economy. One with millions of new jobs flowing from unleashing its human potential which, happens by establishing hundreds of thousands of small entrepreneurs.

By comparison South Africa’s strategy is based on reestablishing an Industrial Base. It looks archaic. I managed to get a copy of the Brynjolfsson/McAfee book into the hands of the architect of this strategy, SA’s Trade and Industry Minister Rob Davies. Two days later his office sent a mail to say he’d read it. Hopefully it’s being passed around the Cabinet.

*Alec Hogg is the founder and publisher of Biznews. com. He presents Power Lunch daily on CNBC Africa.

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

The Mad, Scary World of Big Money

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In the lingering aftershock of the banking crisis, the world of high finances has become a sticky web that is getting stickier.

What’s it all going to mean to your wallet, as the New Year dawns? Hard to say, but one thing’s for sure. Now would be a good time to repay your debts!

Those who feed the pipes of our interconnected world instantly inform me when Kim Kardashian is arrested for speeding. Another downside is less obvious.

We’re so networked that our own leaders can no longer determine our economic lives. That happens, like sorry Kardashian’s dramas, 13 000 km away.

The World’s economic driver is something called quantitative easing.

Two big words, QE was born in the aftermath of the global financial crisis that hit six years ago. A crisis was rooted in greed.

Too much debt. Too much leveraging of that debt by already rich bankers desperate to make even more money. Bankers who gambled far more than their companies could afford to settle.

When those bets went south, sparked by the collapse of 164-year old Lehman Brothers, non-bankers were left holding the baby. And a gigantic dilemma.

Punish the perpetrators by allowing the financial system to collapse and unleash pain worldwide. Or a lesser but disgusting evil of bailing out those who’d caused the problem.

Morally, there was no choice. Economically there was. Last time society punished greedy bankers was in the 1930s. That led to something Americans still refer to as the Great Depression. Unemployment rose above 20%. Soup kitchens and squatter camps sprung up everywhere. Businesses stopped growing.

American politicians could never allow a repeat. Not on their watch anyway. In South Africa, we’ve become immune to a similar reality. We live with it. Which, I guess, is the difference between active and aware voters and those who put loyalty and deference above logic.

But back to our story. To avoid becoming SA circa 2013, America created the financial drug called QE. The Germans tried something similar after the First World War. Or the “Great War” as it was called, until easy money gave birth to Adolf Hitler and an even greater military conflict.

Closer to home, QE Zimbabwe-style transformed that sad nation’s banknotes into toilet paper. And gave us the ultimate irony of a West-hating President whose country only functions because its official currency became Uncle Sam’s Greenbacks.

But Zimbabwean economic policy, like South African labour legislation, are festering sores to be pricked another day. So what’s going to happen to our wallets in 2014?

Unfortunately, I have no idea. The only ones who do, live in Washington DC.

What we can work out, though, is what will happen when the world’s financial overlords actually do something about their QE addiction. And how tough the consequences might be for the rest of us.

Consider the tangible benefits of QE. With more money sloshing around, the cost of borrowing the stuff has fallen to almost nothing. Interest rates were last this low when Julius Caesar discovered Brutus wasn’t actually his buddy.

Except for unfortunates in the clutches of Mashonisas, monthly debt repayments have dropped sharply. In many parts of the world interest rates are below inflation. So banks are actually paying borrowers to take their money. Eish.

The financial world is like a giant web. Tickle one part and the impact is felt elsewhere. Fiddle with the centre, in this case the price of money, and everything changes. As it shall once more. But we have no idea when.

Earlier this year the outgoing Governor of America’s Money Creating Machine (also called the US Federal Reserve) publicly suggested he might need to slow QE. Turn the drip down. Gently wean his nation – and the world – off the easy money drug.

What happened next provided a glimpse of our probable future. Stock markets tanked. Interest rates rose sharply. Both extremely rational reactions.

Investors in shares had worked out that with QE slowing, companies would struggle to maintain profits. Last year’s 21% surge in share price would reverse. Bond and money market traders calculated that with less money sloshing around, the price of cash would rise. Which means higher interest rates. So they pushed them up. That’s what markets do. Anticipate.

The reaction was hardly rocket science. But the Money Creators panicked. Their message switched to: We’ll have another look next year. Stopping the drug right now could kill the patient.  Everything seems to be going so well, why rock the boat? Let’s wait for the economic green shoots to strengthen.

That about-turn introduced another overused term: kicking the can down the road. Delaying the inevitable. Sure, we’ll bend down and pick it up. Just not right now. It’s well to remember there was no proposal to terminate QE. Nobody was suggesting cold turkey. Just easing off a bit. Reducing the amount of fresh money pushed into the system. That proposal was dubbed “tapering”. Suddenly it became the most feared word in the financial markets.

I’d love to believe that the world will return to normal in 2014. That South Africa’s sensible strategy of investing in the future and working at keeping Government spending under control will be rewarded as it deserves to be.

But the financial world is not sane at the moment. Manic-depressive Mr Market hasn’t been had sensible medication since 2008. He loves the drug. Unfortunately, all debt must one day be repaid. QE is the biggest debt creating invention ever dreamed up. Seeing QE for what it really is the only way to avoid getting sucked in.

A wise man thinks about what could happen and prepares for it. A fool carries on regardless and suffers the consequences. Easy money won’t be with us forever. Best to use the breathing space America’s QE is providing to prepare for its ending. That means repaying as much debt as you can. Soonest.

* Alec Hogg is the editor and publisher of Biznews.com

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

Back to Work

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What will it take to get South Africa working? Let’s begin by taking a long, hard look at our labour laws, as we seek to unlock this nation’s potential for greatness.

I wish it were not so, but evil does exist. It’s pretty much everywhere. And personified in human beings.

What may surprise you, though, is evil people are not born that way. Nor are they necessarily possessed by demons. For the most part, the evil among us are ill. Sick with the mental disease of narcissism. An affliction which makes their deranged minds believe they actually “know” the answers.

Think of the most evil people in recent history. Those who used powerful personalities and their ability to manipulate to impose Grand Plans. Adolf Hitler. Hendrik Verwoerd. Stalin. Mao Tse  Tung.

One thing they had in common was an absolute certainty that they knew the answer. They alone understood what mankind required. And they would make sure we’d get it, no matter how many fresh graves needed to be dug.

On the other side, there is also overwhelming evidence that man is fundamentally good. For the most part, that weight of numbers overwhelms the evil which narcissists might do. We may move temporarily in the wrong direction, but eventually change course when unintended consequences trip us up.

Life is enormously complex and full of curve balls, ever changing, evolving, transforming. Nobody really “knows”, which is why an open mind is a key to successful living. Something which encourages adjustment to change – life’s only constant.

For the most part, that’s what happens. Except, it seems, with South Africa’s Labour Laws.

Life is enormously complex and full of curve balls, ever changing, evolving, transforming.

Back in the mid-1990s, well-intentioned politicians unwittingly visited the curse of idealistic First World labour legislation upon our nation. They looked to the old West Germany for guidance and pushed through laws the Germans have since abandoned as impractical.

For reasons impossible to fathom, our government keeps deluding itself that this broken model works. Ever since the new laws were introduced, unemployment has been steadily climbing as
companies replace workers with machines. Or outsource the job of making things to China? Or other fast-growing economies whose politicians possess smaller egos and greater intellect?

None of this is news. Nor is the fact that SA’s labour legislation is the most inflexible on earth. Once again in the 2013 edition, on labour laws we ranked stone last of 146 countries in the WEF’s Global Competitiveness report.

The evidence could hardly by more overwhelming. Yet our ruling political party continues to defend the indefensible.

I’ve even witnessed our totally underwhelming Labour Minister Mildred Oliphant claim, in Davos of all places, that SA has the most caring labour laws in the world.

What can possibly be “caring” about laws that kill hope? Laws that block the unleashing of human potential and force young matriculated women to find a sugar daddy or become a prostitute?

An executive at a major mining group told me that after a platinum miner recently fired a couple hundred illegal strikers, it received 40 000 applicants for those positions.

It all smacks of Mbeki disavowing Aids. What more evidence do our overfed politicians need?

Baffled, I’ve been questioning a lot of people about all this. Loane Sharp, senior labour economist at JSE-listed recruitment company Adcorp, came up with the best explanation.

He reckons after the ANC swept to power in 1994, it lacked suitable candidates for Parliament so drew heavily on the ranks of its tripartite alliance partner Cosatu. So, overnight, we made lawmakers from resentful trade unionists possessing an inherent suspicion of business and the market economy.

People who still believe Marx, Engels, Lenin et al “knew” the solution despite all evidence to the contrary.

On the other side of the fence, organised business voted with its feet by shovelling money abroad, and took the easier path of shutting up and abdicating any responsibility.

That handed the one-eyed legislators a free ride with the labour law book. setting off a destructive cycle that balloons of Parliamentary hot air that won’t reverse.

So where to from here?

Rolling back the crazy labour legislation is politically impossible. 

Even if President Jacob Zuma were secure in his power base, which he isn’t, JZ would never have the courage to permanently alienate his beloved trade union partners.

The inventive Mr Sharp, however, suggested an alternative that would let everyone save face and gets the job done: Establish a Commission of Inquiry into the Labour Market.

Once a Commission of Inquiry has started, says Sharp, it’s impossible for any meddling narcissist to continue debilitating the labour economy. And once its findings have been published, because we’re a Constitutional Democracy, they pretty much have to be implemented.

Commissions have the advantage of being chaired by Judges, not politicians. These worthy, educated souls are trained to sift through all the relevant information and not pick sides. Once they have done so, they reach the obvious conclusion that we made, or didn’t make, serious mistakes and fix them if necessary.

Some years ago, I had a fascinating interview with a Goldman Sachs director who had previously been the Finance Minister of Spain. By the late 1970s, he said, the Spanish knew their country needed radical economic restructuring, but doing so would be political suicide for anyone pulling the trigger. He explained that they addressed the dilemma by joining the European Union in 1986. The EU gave politicians the breathing space to implement muchneeded reforms – and to use Brussels as the scapegoat.

That way they saved face, their jobs and the country. A Commission of Inquiry for South African unions would be similar to the EU’s role in Spain.

Now all we need is for someone to open the minds of Jacob Zuma and his cohorts.

* Alec Hogg is a writer and broadcaster who founded Moneyweb. He now runs BizNews, at biznewz.com. The opinions expressed in this column are his own and don’t necessarily reflect the views of BrightRock.

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

Prepare to Meet Thy Boom!

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If you want to get a sense of South Africa’s new economic direction, look to the east. You’ll find trillions of reasons to believe the boom is coming.

Our neighbourhood has lost its most successful beggar. For months a legless, crumpled figure known as Zondo occupied the focal point of a busy intersection.

Passing motorists happily tossed coins onto the cardboard that doubled as his seat. Despite his disability, he wore a ready smile. Only after some months did we discover why those pearly whites were so prominent.

The grinning beggar, you see, was not actually an amputee. A frustrated security guard proved it when his mobile phone recorded the beggar “growing legs” after a day’s work. His YouTube video
went viral. Soon after, Zondo disappeared. Presumably for another busy intersection at the opposite end of the metropolis.

Zondo’s tale provides us with a useful insight into the murky world of economics. Strip away the Greek letters, big words and endless graphs; replace them with an appreciation of the power of incentives and suddenly the world of money and finance becomes less opaque. Zondo sat for hours in a perilous place with a painfully contorted body because of the incentive of hand-outs. A
bit like the way so many in the corporate world lick their boss’s filthy boots because of the incentive of a paycheque. Yuck.

Understanding how incentives drives our behaviour also makes it easier to grasp the complexities of the national economy. South Africa is a developing country. Which, a Princeton Professor once
explained to me, means political imperatives supercede economic ones. Only once a democracy reaches maturity does its citizenry vote according to economic performance. Until then, free tee-shirts and slapup parties overcome empty political promises.

Any economist will admit that from their perspective, a dominant ruling party is a blessing. Without having to dispense vote-catching largesse, dominant political leaders are able to surpass the
incentive of merely retaining power. And focus on an even more important motivator for the self-absorbed…legacy. Not just to their home village. But for the nation as a whole.

And that, dear readers, is exactly what President Jacob Gedleyihlekisa Zuma is thinking about while you read this. As shrewd a politician as Zuma might be, deep economic theory is not his strongest point. He sees the world in a rather binary manner. Something which, as it happens, isn’t entirely bad – from an economic standpoint. For Zuma sees a clear economic route map. He can learn little from the West with its Quantitative Easing and consequences of excessive capitalist zeal. But his NBF (New Best Friend) China, by contrast, has the answers. So Zuma, incentivised by his future legacy, has looked East for economic inspiration. Sending members of his cabinet to the Middle Kingdom to see how they do it. Building his country’s economic future by replicating the Chinese Way.

Beijing Style is deceptively simple. Ask a Chinese bureaucrat for their economic secret and they’ll likely answer: “First, we build a road.” In other words, it’s all about investing in infrastructure or,
to paraphrase that Kevin Costner baseball movie, “If we build it, they will come.” For as long as he discovered the Chinese Way, Zuma has been preaching a local version. Talking confidently about a R4-trillion infrastructure programme that, he promises, will transform South Africa’s fortunes. And before you ask, the money is available. National debt is comparatively modest at 43% of GDP. Comparing well to the USA, UK, and Germany over 80% and poor Japan which is over 200%.

So what’s delayed the infrastructure starting gun that Zuma and his followers believe will deliver the prosperity everyone craves?

If you’ve been anywhere near a television screen, newspaper or magazine these past couple months, it’s rather obvious. Since 2009, the people supposed to turn the country into a giant  construction site have been under deep suspicion. Whispers of a construction industry riddled with collusion, cartels and greedy executives sparked the interest of the Competition authorities.

And in a brilliant strategy called “Leniency”, companies were rewarded for telling on themselves (and others) by a first-to-talk-no-penalty promise.

The process uncovered some nastiness. Fines of over R1,4-bn were levied. An army of accountants, paid for the by the companies themselves, went through the detailed tender
documents of some 30 000 projects. They found 55 where the law was broken. That’s 55 too many. But taken in context, hardly an epidemic of rottenness.

So the investigation is finally over. The public has been assured that the construction companies have been severely punished. So much so that they’d never dare appropriate a cent more than they are due. And can be counted on to compete with renewed vigour for their slices of the R4- trillion infrastructure investment.

It’s easy to punch holes into Zuma’s somewhat simplistic strategy. Our labour policies for starters are a universe away from incentive-driven Chinese ones. Ditto the bureaucracy, education
and what we politely call work ethic. Also, China funded its infrastructure build from national savings. We’re having to borrow. It’s got to be worth a shot. When 53% of your young people are jobless, it doesn’t help to fiddle at the edges. Zuma might be caution personified on other fronts.

But he’s sold on infrastructure being the panacea for the country’s employment woes. Whatever the long term consequences, there can be little doubt of the impact a R4-trillion injection will
have on an economy of about the same size.

And it’s coming.

Soon.

* Alec Hogg, who created Moneyweb from a room above his garage, has served out his restraint period and is now using his study to build Biznewz.biz. He is also the co-anchor of Power Lunch on CNBC Africa.

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.