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.

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.

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.

 

 

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.