Monday, January 6, 2014

Don’t Diversify, Intensify

This article first appeared in Finweek, 12 December 2013
 
Very often I meet entrepreneurs who, after achieving some success in their businesses, start to pursue opportunities outside of their core area of expertise. They proudly tell me they are “diversifying”. Unless you are in the business of managing stock portfolios, entrepreneurs ought to be very careful about ‘diversification’, particularly those in the early stages of their business journeys.
 
When you start managing multiple business interests in multiple industries you lose a key ingredient critical to success: FOCUS. You are suddenly expected to become knowledgeable about various industries with their own unique revenue and cost drivers, competitors, dependencies and peculiar risks. You are the most valuable asset in your business; you need to protect your utilisation.
 
Diversification can easily lead to taking your eye off the ball as you try to be a Jack of all trades and master of none, as they say. Others often get so excited by their new ventures and bored of their core business that they start falling in love with being called ‘serial entrepreneurs’.
 
Be careful that this excitement isn’t infatuation – otherwise known as umlilo wamaphepha in my home language. There was a time when conglomerates were fashionable, but even the largest conglomerates soon realised there was more value in perfecting one’s core business than holding equity interests in different sectors.
 
In January 1999, South African Breweries announced: “As part of SAB’s strategy to refocus on its core beverage businesses and hotel and gaming interests, the company has already disposed of a number of its diversified investments, namely Amalgamated Retail Limited, Associated Furniture Companies Limited, Conshu Holdings Limited, Da Gama Textile Company Limited, The Lion Match Company Limited, OK Bazaars (1929) Limited, and SAB’s clothing and footwear division. In order for SAB to further its strategy of focusing on its core operations, and for SAB shareholders to benefit directly from Edgars completing its own repositioning programme, the board of directors of SAB believe it to be in the best interest of SAB shareholders to undertake the unbundling.”
 
This was an announcement to dispose of SAB’s share in Edgars, after a series of other exits from ‘non-core’ businesses. The SABMiller that we know today is the world’s second-largest brewer, with operations spanning six continents including brewers in the US and China. This is after a number of hefty acquisitions in the past 15 years or so – all of which were in its core business of brewing and distributing beer. Other than a 40% share in Tsogo Sun, SABMiller has very little outside its core.
 
That’s partly why it is the best in the business. Bill Gates, Steve Jobs, Oprah Winfrey, Larry Page, Mark Zuckerberg, Aliko Dangote and Elon Musk are all internationally renowned for very specific products and services, in very specific markets and industries.
 
Even when they expand their operations, it is often within a very similar market segment, consumer market or product range. They don’t diversify, they intensify. Take Elon Musk, CEO of Tesla Motors, for instance. He has started PayPal (later sold to eBay), Tesla, SpaceX, and Hyperloop. His current businesses have a common thread: revolutionary transport solutions. Tesla Motors makes the coolest electric cars in the world, SpaceX flies cargo to NASA’s International Space Station some 400km above earth and wants to eventually transport humans from Earth to other planets, while the Hyperloop, though still an idea, is a mode of high-speed transportation that Musk believes could revolutionise travel as we know it.
 
Like many other successful entrepreneurs before him, what Musk has done is intensify, not diversify. He has taken his passion, added his very special skill, and applied it to a very specific industry and opened a new world of transport and travel. Take a leaf from the best. Explore strategies that extend your core business into new innovations, new markets, new products, brand extensions and all that helps intensify your business; and be sure to take this advice from arguably the most successful investor of our time, Warren Buffett: “Stay in your circle of competence.”

Make Entrepreneurship Central to National Policy

This article first appeared in Finweek, 14 November 2013.
 
South Africans often criticise their Government for formulating great policies but failing to adequately implement them. While there have been pockets of brilliance in policy formulation that have served the country well, allowing us to navigate the stormy seas of the global economy, there are also a fair number of policies that have had the unintended consequence of restricting progress. Twenty years into democracy, it is time we wake up from denial and shrug off our protectionist outlook and change what doesn’t work while improve what works.

For starters, we must make entrepreneurship central to national economic policy formulation. I am talking about entrepreneurship, and not SMME development. I am talking about a deliberate national economic policy that seeks to back entrepreneurs and innovators on a serious scale, to create new products and services, access new markets, spawn new industries and, over time, create meaningful employment and grow the tax base.

I am not referring to a drive to support small businesses that remain small and only employ the founder and a handful of unskilled labour. I am talking about the state having a mechanism to identify, develop and fund entrepreneurs and innovators who show great potential for the ultimate benefit of South Africa. I am talking about a mechanism that could have identified an Elon Musk. I am talking about a mechanism that should be developing, supporting and funding a Siyabulela Xuza – the former praise singer turned science and technology entrepreneur.

The good news is that we’ve done this before. It wasn’t as structured as I propose, but it yielded unprecedented results – the benefits of which we still enjoy today. I have told the story of this gentleman before. It is very relevant in the context of how a different outlook can lead to great benefits for the state.

Meet Hendrik van der Bijl. Born in 1887, he graduated from what is today known as Stellenbosch University with distinctions in mathematics and chemistry. After university young Van der Bijl decided to further his studies in Germany. After completing his studies, he met Robert Millikan, the eminent American physicist. Millikan was impressed with the young man and recommended the young scientist to executives from the Western Electric Company. Van der Bijl accepted their job offer and moved to New York.

The first successful transmission of speech by radio was made in 1915. Later that year speech was transmitted by radio over a distance of more than 8 000km. Van der Bijl was the young scientist who managed to get the amplifiers to work to the precise tolerances required over this very long distance. By 1917, Van der Bijl had made significant contributions to the development of the photoelectric cell and by these means, also made a significant contribution to the development of the television.

Back in SA, General Jan Smuts had assumed the reins of power in Government. Smuts believed that a scientific adviser would be an asset to his Cabinet. Van der Bijl was persuaded to return to SA and in 1920 he left the US. He soon started making plans for a public utility to provide the South African industry with cheap electricity. The capital would be provided by the State and the company would be run on commercial lines.

In 1923, the Electricity Supply Commission (Escom, now Eskom) was founded. Van der Bijl borrowed R16m from the State and began putting his plans into action. From the outset the undertaking was a success and within 10 years van der Bijl was able to pay the State loan back.

What we know as Vanderbijlpark today is named after this great South African.

We have an opportunity to learn from our history. We have an opportunity to redefine the ideology and bigger purpose of entrepreneurship in re-positioning our nation as the game-changing economic leader of our continent. Let’s make entrepreneurship central to our economic policy.

Thursday, October 3, 2013

The Omidyar African Entrepreneurship Summit: What a Day!

A few weeks ago, I was honoured to be invited by the MD of the Omidyar Network (Africa), Malik Fal, to participate in their 2nd Summit on Entrepreneurship in Africa. This summit, which took place yesterday, 02 October 2013 in Mauritius, follows on the heels of research on the state of entrepreneurship in 6 Sub-Sahara African countries done by Omidyar and The Monitor Group in 2012.

We have just completed the Summit, and WHAT A SUMMIT IT WAS!

It opened with some remarks from Malik and Tebogo Skwambane (who led the project during her time at The Monitor Group) about the key findings of the research, which argued for an ecosystem made up of four quadrants i.e. Entrepreneurial Assets (Financing, Skills & Talent, and Infrastructure); Business Support (Business Advisory Services, Government Programmes and Incubators); Policy Accelerators (Legislation, Administrative Burdens); and Motivations & Mindset.

Malik shared whilst Ghana, Zambia and Uganda rate highly in the measure of entrepreneurial activity in a country (TEA), the per capita income of these entrepreneurs is very, very low. This is largely attributed to African entrepreneurial activity being largely survivalist and not driven by opportunity and scale. The challenge posed is: "How do we change this?"

Tebogo shared a rarely know truth about how even late-stage entrepreneurs struggle to raise capital as many capital markets in Africa are under-developed. She got me really excited when she specifically highlighted that we have an opportunity and need to create an African angel investor network to fund early stage entrepreneurial activity as traditional banks are not geared to support this market leaving a huge chunk of entrepreneurial potential dormant.

That summarized the core of my own perspective of the greatest challenge facing entrepreneurs in Africa today.

My panel, expertly hosted by African Leadership Network (ALN) co-founder Acha Leke, tackled the issue of Entrepreneurial Assets, with specific reference to Financing and Skills, but also inadvertently roped in the role of governments.

I was joined by three awesome gentlemen: Hitesh Patel, an angel investor born in Kenya, built his business and wealth in Europe and now resident in Mauritius, Harkesh Mittal from the Government of India's Department of Science & Technology where he heads up the National Science & Technology Entrepreneurship Development Board and Thomas Andersson, a Professor of Economics and Senior Advisor: Science, Technology and Innovation to the Sultanate of Oman.

Hitesh shared some interesting experiences of models in the UK that have succeeded in encouraging angel investing. These are largely driven by tax regimens that offer up to 40% tax breaks for all investments made in startups. It was very satisfying to hear someone, as experienced and successful as Hitesh talk about something that our own South African government has also introduced. Check out this story that ran on www.mystartupsa.com a few months ago.

Hitesh also talked about how angel networks in the UK had become very formalized and how many people created clubs for funding and mentoring of startups. Government has also started matching angel funding in order to support these entrepreneurs at scale. He warned though that government support has to be end to end, and not sporadic and interventionist.

Thomas shared his experiences of how Finland initiated some innovative methods to support entrepreneurs in that market. He also spent time talking through the need for coordinated ecosystems and a focus on education.

Harkesh was easily the coolest government representative here! He opened by saying "If you super impose on the world map which countries have the richest allocation of resources, and then super impose which countries have the highest rates of poverty, you will find that most are in Africa and Asia" - this further highlighting the lack and need for in supporting entrepreneurship.

He shared some great examples of Indian entrepreneurs, one Sanjay Vijaykumar, now CEO of MobME, who led the establishment of a startup incubator in Kochi, when he raised 50% of the initial funding after Harkesh promised that he would match whatever he could raise. His company is now a multi-million dollar company headquartered in India.

Harkesh was full of stories and told of a story of the World's Youngest CEO, Suhas Gopinath who started his business at 13, and made a tempting offer by an established US corporate to sell his business in exchange for a life time job, paid up eduction at a leading school in the US, paid up accommodation etc etc. He was 14 years old. He turned it down, built his company. Globals Inc is now worth hundreds of millions of dollars. He's 27.

Harkesh could've spoken for hours more about India's "technology-led economic growth strategy". I got to spend more time with him later and we agreed we need to get African entrepreneurs exposed to the India start-up scene more. Watch this space!

In my submission I advocated for two main items.

Firstly, we need to realize that not all Africans are going to be entrepreneurs. Many will be in business, mostly at an informal level as a means of earning a living, and driven by a survivalist outlook. I think this is what they mean by SME's. Then there are entrepreneurs. They may start out as SME's but they aspire for more, they want more, they want to scale their businesses and ideas to global proportions. They are not large in number. They are a special few. Yes, I do think we need to always work on uplift ALL of our people, but we must also embrace the fact that to do this also requires us to support, at scale, the few exceptional individuals who can change the world, and back them unapologetically. In my experience, it's a few exceptional individuals who have the ability to change the world. We lose them when we insist on a communal approach.

Secondly, of all the challenges that face entrepreneurs, I think access to early stage finance is number one. Until we find a solution to this, we will forever struggle to see entrepreneurship flourish in our continent. Banks are not geared for such funding. It's equity, it's risky, it's early stage, it's unsecured - all this doesn't work for a bank. We have a unique opportunity to put together an angel investor scheme of sorts that will, in return for equity, support high-impact entrepreneurs with seed capital and mentorship.

During the coffee break, I was very humbled to meet so many entrepreneurs who felt duly represented in this outlook.

Our panel was followed by another which covered Policy Accelerators and Business Support, and after lunch we were treated to an interview of our guest speaker, Kenyan dollar billionnaire Manu Chandaria.


He simply blew me away! He spoke so clearly and effortlessly about the principles that drove he and his family in building the empire that is today COMCRAFT. He talked about the importance of an attitude to 'keep learning' and how being open-minded shaped him as a young man, who lived a very different lifestyle to that of the US, where he studied his engineering degree. He says "What we know is not good enough, there is so much more to know"

He talked about how being adaptive to changes that life throws at you contributed to his ability to be resilient. He says "Hardwork never stops paying back" and how he "never kept my mouth shut, and always asked questions" - reminded me of someone I know :-)

He also talked about the amount of times he and his cousins would think about quitting. He was an engineering graduate from the US and often fantasized about taking a cushy job, get a car, a driver and a nice home and get out of this hard family business. The only thing that would not let him do this, was the "fire in his belly".

His wisdom came through when he warned the Western schooled audience that the West teaches "I am me". In Africa, this does not work, he says because it's a divisive approach to life and business. We must always seek to do much more than what satisfies us alone.
He concluded with words that are not likely to leave me soon "Always meet your commitments, in time and preferably ahead of time. It will show all who come in contact with you that you are credible"

During the Q&A, the idea of the angel investor network then took another turn. An old acquintance, and now very successful entrepreneur based in London and Nairobi, Julian Kyula challenged the house to start this network right there and then! He proposed a commitment of $10,000 per person per year. He figured if we can get 100 people to commit to this we will have $1,000,000 to kick off.  Mr Chandaria committed his $10,000. Julian committed his $10,000 and invited others to follow suit. I'm soon to be a proud co-investor with an African billionnaire!!!

As I prepare to leave this beautiful island, I am encouoraged by the quality of entrepreneurs I've met and interacted with over the past two days. Great friendships were rekindled and new ones were made. I foresee a watershed 2014!

It's time for Africa!


AK

Wednesday, September 11, 2013

I’M NOT CRAZY: "AFRIKAANS CAPITAL, AFRICAN CONSUMPTION" PART 2

On the plane three months ago, I enjoyed an article entitled "BEE firms need to take a leaf out of PSG’s book" by the talented Phakamisa Ndzamela (@phakie101) at the Business Day. Perhaps in mixed emotion of frustration and awe of the details behind the listing of another Afrikaner-led listed company, it reminded me so much of my "Afrikaans Capital, African Consumption" blog I wrote a while back,.

Phakamisa talks about his experience of the PSG Shareholders Meeting he attended at Stellenbosch, and concludes that Black business people can learn a thing or two from their Afrikaner counterparts. A view I have held for a long time. Here is an extract of his piece:

“CALL me a "native assistant", the favourite words of erstwhile commentator Ronald Suresh Roberts. Do you remember him? What an intellectual joker.

Anyway, I admire some of the ways that the Afrikaners do their business. Their successes easily shine out on the Johannesburg stock market.

I think the Afrikaner business model is one that black economic empowerment companies in South Africa need to look into.

It looks simple and is based on bread and butter issues with no obsession with mining, a laborious and capital-intensive exercise that does not guarantee healthy margins. How do I know this?

Last week, I took time to travel to the land of the "Stellenbosch mafia", if there is such a thing.

The idea was to get a glimpse of how business was done in that part of the world. On arrival at the PSG Group annual general meeting held at the Spier Wine Estate, I walked in with an indoctrinated mind thinking that the Afrikaans elite did not admire luxury goods.

Boy, was I wrong!

I expected to see a parkade full of 4X4 Toyota bakkies and maybe an odd tractor or two on the side.

Clearly, I had delusions of grandeur! The parking was an assembly of high-end German cars reminiscent of the African National Congress’s Mangaung conference.

We walked into the hall and the house was packed with Afrikaans-speaking investors who were anxious to know about the future of their investments at PSG.

The meeting resembled a Stellenbosch version of the annual meeting of Warren Buffett’s Berkshire Hathaway in Omaha in the US. No surprise that PSG founder Jannie Mouton is often described as the "Boere Buffett".

The difference here was that proceedings were mostly done in Afrikaans. This did not irk me much, remember that I am a "native assistant".

Besides hearing the bad news that Mouton’s daughter had been locked up by criminals in a basement while her house was ransacked, what also touched me was the poor representation of black investors in a company whose goods are highly consumed by black South Africans. PSG is the largest single shareholder of Capitec, which made a great deal of money from low-to middle-income earners, most of whom are black.

The group also owns agribusiness Zeder, which is behind consumer brands such as Weetbix, White Star maize meal and Liqui Fruit, to count a few.

But if you look at the shareholding structure, PSG’s major shareholders are its directors who own a 36.6% stake.

Steinhoff, the furniture manufacture led by Markus Jooste, owns 19.6% of PSG, other friends and family own 10.1% and Thembeka Capital owns 5.2%.

Thembeka is led by Zitulele KK Combi, the only "Black Stellenbosch mafioso" that I know of.

Excluding Mr Combi and his Thembeka Capital, there were less than a handful of black investors.

By the way, Thembeka Capital is 51% black-owned and the remainder is owned by PSG.

When one looks at PSG’s market performance over the past 17 years, its share price has been climbing like the Spider-Man.

If one had invested R100,000 in November 1995, today this would be worth about R130m if you had also invested your dividend.

PSG believes that "performance should be measured on the return that an investor receives over time; not on the size of the company," says PSG CEO Piet Mouton, and one of Jannie Mouton’s sons.

Although Piet Mouton understands that the next 17 years will be hard to match he is confident of the company’s prospects.

PSG has a limited war-chest for now to make acquisitions.

But it has many companies in the development phase which present growth opportunities.

Curro, the private education provider, is one of the investments that should boost PSG’s investment portfolio in the next few years.

One of the lessons here is for a black-led consortium to create their own PSG Group; a black-led consumer goods company whose proceedings are partly run in Nguni, Tswana, Venda or any other local South African language. South Africa’s population keeps on rising. The sub-Saharan African population is estimated at 900-million.

Black businessmen and women need to roll up their sleeves and look at the value of agriculture, instead of obsessing about the bling of mining. One of the ways to do this is to redress the injustices of the Native Land Act, 100 years ago.

The act killed the rise of a black farming business class, a situation which has also contributed to the squalor houses in Khayelitsha, which is only a few kilometres from Stellenbosch.”

Thanks Phakamisa. It's comforting to know I'm not the only crazy one!

Sunday, July 28, 2013

Cash Is King

I have recently been fascinated by the specific factors that contribute to the high failure rate of startups. We have seen many reasons for small business failing including poor planning to poor staffing, and ineffective marketing. 

However, if I was to name one main reason for business failures, it would have to be Cash Flow. 

Nothing recently highlighted this fact more than an article I read in The Financial Times of 30 May 2013 entitled"Consumer Giants Turn Screw on Ad Agencies" written by Andrew Edgecliffe-Johnson in New York and Neil Munshi in Chicago. 

The article broke the story of how Europe's biggest advertisers had unilaterally made the call to start paying their advertising agencies up to six months late. A move started by one company and followed by major advertisers in the developed world, caused serious problems for the ad agencies there. 

The article opened: 


"Some of the world’s largest consumer products groups are delaying payments to advertising agencies and commodity producers for up to six months, squeezing cash flows and causing alarm at critical points in their supply chains.

Mondelez International, the former Kraft snack food group, is extending payment terms to 120 days from July 1 – a decision one advertising executive described as “iniquitous”.

Procter & Gamble, the world’s largest advertiser, this month told suppliers it was pushing back payments from 45 days to 75 days, following similar extensions at Johnson & Johnson, the healthcare group, and Anheuser-Busch InBev, the brewer" 

Pause and think about this for a second. 

First of all this is happening in the developed markets of Europe, who are still reeling from a very expensive global economic crisis. 

Secondly, the move to pay these agencies late is driven by the largest advertisers in the market, who are probably serviced by the largest agency groups, meaning that this is likely to affect the entire marketing and advertising industry in Europe. 

Thirdly, a typical ad agency would have 70% of its costs as people, 15% as property and the balance of the15% being administrative overhead. Salaries are due at least every month (some Europeans pay wages every forthnight). 

Paying these business as late as 6 months after rendering services, creates a huge cash flow problem that forces them to borrow in order to finance their operations until the customers pay. 

The article continues: 


“Once a big company like Procter & Gamble goes public with this, it almost gives permission for other marketers to do it,” said Nancy Hill, chief executive of the American Association of Advertising Agencies. “I fear this is just the beginning.”

“Clients are asking us to take on risk like an insurance company and take on debt like a bank,” she added. “Neither of those are what we were set up to do. Our supply chain is largely people. We have to make payroll every two weeks.”


Bob Liodice, chief executive of the Association of National Advertisers, said he was “hearing screams” from agencies, but was aware of only a few that had turned down accounts because of the new terms. “The process began in the recession when cash management was a critical issue but, like anything, once you start it it’s unlikely you’re going to stop it.”

If large agency networks with operations all over the world are "screaming" at the impact of late payments from the world's largest advertisers, what about the small guy? Can you imagine the impact delayed payments have on SME's? 

The cash flow PINCH felt by the agencies quoted in the article above can be a KNOCK-OUT PUNCH for many entrepreneurs who often cannot borrow the funds required to cover their operations until the "big" clients pay. 

I have heard many stories of entrepreneurs who had designed a unique product, and after many years of knocking on doors, finally succeeded in getting it listed with the big retailers. Though you often find their product on the bottom shelf in the 'specials' aisle these entrepreneurs are not bothered by this and often grateful at the opportunity to have their products in store. However, a few months later the realities of selling to big retailers start to hit home. Payment terms from the big retailers can be horrible, and can put an entrepreneur out of business as he needs to cover manufacturing, staff and logistics costs even before he delivers his stock to the retailer. 

Ironically these large retailers are themselves not short of cash as they do not extend credit to their customers, and collect cash immediately when they sell the entrepreneur's product. Government is no different either. 

Entrepreneurs need to keep their enterprises running in order to create jobs. I plead with you big corporates and government: Pay your suppliers, especially the SME's ON TIME!!! 

For us, it is often a matter of life and death! 

AK

Tuesday, April 23, 2013

Dr. Hendrik van der Bijl: Role of State Epitomised

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Dr. Hendrik van der Bijl: Genius
Recently I was invited by Johan Fourie (@JohanFourieZA) to The University of Stellenbosch's ERSA Economics of Apartheid Workshop. In a panel with economists and an audience of Economics students, I made some rather (evidently) unpopular statements about the role of state and state-owned DFI's in accelerating the participation of Black people in the economy and attempting to reverse the economic disparities caused by the scourge that was Apartheid.

My fundamental point was that the state can support exceptional talent to effect real change and restore the key thing Apartheid robbed black people of: DIGNITY. 

Here is an extract from my address:

"Black people came out of a very expensive and bloody struggle into political power. We now have some level of control of the state. We have virtually no control of the economy. Thanks to the good work of the government, Black people (generally) live substantially better lives than they did under apartheid. Which means they are becoming better educated, and more affluent. Like the Afrikaners, they are getting to the big cities and realizing that they are in fact not in control. At least not of the stuff that really matters: THE ECONOMY. 

Black Economic Empowerment (BEE) is a very sound economic transformation strategy. However, it's success relies on the "haves" letting the “have-nots” share at the table peacefully by incentivising them to do the right thing (carrot), as opposed to punishing them for doing the wrong thing (stick). 

For as long as this is the case, Blacks will be at the mercy of the established to let them in. Their dignity will not be restored. The dangerous culture of entitlement will intensify. We ALL lose. 

BEE needs to be about creating an enabling environment for entrepreneurs to flourish, create employment and grow the economy. The only sustainable way to grow the economy is to innovate and create new products, new services, new markets, not re-arranging deck chairs on the Titanic with more BEE deals. 

This calls for harnessing our own talents as South Africans. There is nothing wrong with using state leverage to do that. Look at the United States. Look at South Korea. Look at China. What's wrong with us? Why is it so wrong for the state to use its competitive edge to support the development of its people and create world class black owned and managed businesses. I fear less the risk of doing this, I shudder at the thought of NOT doing it.

In short: I think that harnessing the potential of a Siyabulela Xuza will serve South Africa better in future, than every the BEE deal done to date.

We need to harness the talent we have and build industries around innovators and entrepreneurs. And the lesson from the past is that the role of state is key. 

The 'wave of wealth creation by lamenting established capital in order to open the higher echelons for a few to be wealthy' is gone. This is OUR government now. There is no-one to fight anymore, no Apartheid, no Botha, no Verwoerd. Just us.

WE simply have to make South Africa work. End of discussion.

I would like to end with a life story that was first shared with me by a dear friend Veli Mcobothi (@McobothiOne), a revolutionary intellectual in his own right. 

I think the role of state in this story is worth noting:


HENDRIK VAN DER BIJL, the second son of Pieter van der Bijl was born on 23rd November 1887 in Pretoria. His parents were typical burghers of the Zuid Afrikaansche (i.e. Boer) Republic of the Transvaal. His father, Pieter, was the 7th generation of the original Dutch van der Bijl family to be born in South Africa. Pieter (Hendrik’s dad) build up a successful business as a merchant and property investor. He became quite influential, counting among his many friends such well-known South African politicians and future Prime Ministers as Louis Botha, Jan Smuts, and Barry Hertzog.

Young Hendrik’s education was disrupted because of the Anglo-Boer War. He attended the Staatsch Model School in Pretoria, but the school was closed down and converted to a prisoner-of-war camp. After the fall of Pretoria in 1900, the family moved to Gordon's Bay and Hendrik was sent to Boys' High School at Franschhoek, from where he matriculated. The boy was interested in music and literature, and philosophy interested him deeply, but it was the exactness and logic of science that gave him great satisfaction, the application of which he held in even greater esteem. The boy did well at school and continued his studies at the Victoria College (today the University of Stellenbosch).

ACADEMIC YEARS
At Victoria College he excelled at physics, but in 1908, when he graduated it was with distinctions in mathematics and chemistry, for which he was the Top Student. In those days opportunities for a man of his talents were somewhat limited. He could either become a lecturer and later a professor of physics or join the Department of Agriculture. On the other hand, he could further his studies in Europe. He decided on Europe and as the German universities were considered leaders in the field of experimental physics, he went to Germany. 

Within two years, van der Bijl completed his thesis to prove an electron carried the same fundamental charge in ionised liquids as in gases. Impressed by his talent and dedication, his supervisor recommended him highly and he was offered the post of Assistant in Physics at the Royal School of Technology at Dresden. At the beginning of 1912, the 24 year-old van der Bijl took up his new duties, having left university with the degrees of Masters of Arts and Doctor of Philosophy.

Van der Bijl then met Robert Millikan, the eminent American physicist. Millikan was impressed with the young van der Bijl and recommended the young scientist to the Western Electric Company. Van der Bijl accepted their job offer and set out for New York.

His research at this company on the thermionic valve, which was developed by Dr Lee de Forest, led to his treatise entitled The Thermionic Vacuum Tube and Its Applications. It became the standard textbook on the subject for more than 20 years. This research led to the use of these tubes in radio communication. The first successful transmission of speech by radio was made in 1915. Later that year speech was transmitted by radio over a distance of more than 8 000 km. Van der Bijl managed to get the amplifiers to work to the precise tolerances required over this very long distance.

He married an American girl and during the First World War was approached by the American government to assist them with the defence system of the country. He was also associated with the Bell Telephone Laboratories and by 1917 had made significant contributions to the development of the photo-electric cell and by this means also made significant contribution to the development of the television.

RETURN TO SOUTH AFRICA
General Jan Smuts had assumed the reigns of government in South Africa. Smuts thought that a scientific adviser would be an asset to his Cabinet. 

Van der Bijl was persuaded to return to South Africa and in 1920 he left the United States. He was formally appointed as Scientific and Technical Adviser to the Department of Mines and Industries, but was directly responsible to the Prime Minister. At first his work was unrelated to electricity, but soon he started with plans for a public utility to provide the industries with cheap electricity.

Van der Bijl wanted to combine the advantage of a state-controlled undertaking with those of a public concern. The capital would be provided by the State and the company would be run on commercial lines. These ideas had already occurred to van der Bijl while in the United States.

ESCOM ESTABLISHED
In 1923 the Electricity Supply Commission (Escom) was founded. As Chairman, van der Bijl borrowed R16 million from the State and began putting his plans into action. From the outset the undertaking was success and within 10 years van der Bijl was able to pay back to the State loan.

Under his expert guidance Escom progressed form strength to strength and within a short period of time van der Bijl was able to fulfil his promise: South Africa was assured of sufficient inexpensive power for its fast-growing industries.

ISCOR ESTABLISHED
With Escom progressing so well, this far-sighted scientist was able to direct his attention to the steel industry. Before long Escom had an industrial twin, namely Iscor (the South African Iron and Steel Corporation). In this instance the promise was to provide inexpensive steel for South Africa. In 1934 the first steel was produced.

During the Second World War, van der Bijl became Director-General of War Supplies and later Director of Supplies, appointments that afforded him the status of a Minister.

It was also during this period that he became a Fellow of the Royal Society, an honour he considered to be the greatest afforded him.

By the end of the war in 1945, Dr Hendrik van der Bijl could look back on 25 years devoted to serving his country. During this period he had been responsible for the founding of dynamic undertakings such as Escom, Iscor, Amcor, Vecor and the development of what we today still call Vanderbijlpark. 

The sources of this material are: A Symphony of Power – The Eskom Story, and Eskom: Golden Jubilee 1923 - 1973. "The Remarkable Dr Hendrik van der Bijl" Dirk J Vermeulen, SAIEE Historical Interest Group, The Proceedings of the IEEE vol 86 no 12, December 1998

Sunday, March 24, 2013

FINANCING AFRICA'S POTENTIAL


Then: May 2000
Now: December 2011
This week Durban hosts the 5th BRICS Summit. We also anticipate talk of the establishment of the $50 billion BRICS Bank to gain momentum when the 5 heads of state and their delegations discuss strategies to strengthen and grow the world's most exciting developing economies. 

As I plan my week to attend the BRICS Summit, I am reminded of my remarks as a panelist at Columbia University's African Economic Forum held on 01 - 02 March 2013 in Columbia Campus, New York. 

Thought I'd share: 

"I am an Entrepreneur, a trained Accountant and former Banker. Like most African entrepreneurs I am a capitalist with a social conscience. You cannot be an African entrepreneur and not be as concerned about her socio-political future as you are about her economic potential. 

I am certain that many of us here today have seen many statistics and read many reports about the current and prospective future state of Africa. 

The basics of economics tell us that consumption, real savings and investment drives economic growth. The glue that ties all these together is Finance. The question is how do we attract the right finance, at the scale required.

Since the best finance follows the best investment opportunities, ours is to make the Africa investment case an attractive one. For this to happen, we need entrepreneurs such as James Mwangi, Adrian Gore, Stephen Saad, Patrice Motsepe, Aliko Dangote to continue having access to fairly-priced, well-structured financing to prove the case to foreign investors.

By its very nature, debt is premised on collateral. I do not think that secured lending is the model that will facilitate new entrepreneurs to spawn new businesses, create new industries and create sustainable jobs. I think more and more equity-type structured funding from Banks and Development Funding Institutions (DFI's), Venture Capital, is the type of funding that will achieve this.

Institutions such as The African Development Bank, The World Development Bank, The Industrial Development Corporation of South Africa, Development Bank of Southern Africa, The Land Bank, The National Empowerment Fund etc are our best immediate opportunity to support the development of the African entrepreneur today. 

Venture Capital is also a much needed model, as our entrepreneurs continue to struggle to secure seed capital to develop their ideas. This capital is often small in quantum yet not available from Banks who would, once again, prefer secured lending. 

DFI's have supported and continue to support feasibility studies, and market research work that entrepreneurs typically need to do prior to embarking on a new project. If we cannot find a sustainable way to fund early stage entrepreneurship then we will struggle to facilitate the creation of more Dangotes and Motsepes. 

Outside of retail banks, DFI's can have a "game changing" impact on the development of entrepreneurs and infrastructure in our continent, which in turn will not only grown economies but also facilitate foreign investment.

However there are many challenges that contribute to our currently, less than ideal investment pitch for Africa to foreign investors.

For starters, we are not The United States of Africa. We have 54 sovereign states in our continent. This means many fragmented rules, regulations, stakeholders, markets and thousands of languages and cultures. Yes, as a continent we have been said to represent 1 billion people, $2 trillion in total GDP, but this is not a homogenous market although efforts are under way to forge a Free Trade Agreement that attempts to address this in some way.

Furthermore, Intra-African trade, as a proportion of Africa’s overall trade, has reportedly remained flat over the past 10 years at around 12%. This is very low proportion when compared with intra-regional trade proportions in other parts of the world. Intra-Asian trade, for example, is over 50% of total Asian trade and for Latin America the proportion is close to 30%. This also does not help our investment case.

We have also often heard about the challenges around a lack of integration of systems that allow the movement of people, goods and services across borders. We know about our poor infrastructure which actually makes it easier and cheaper for neighbouring countries to import goods from across the oceans than from their neighbours.

These challenges have historically limited the banking industry's appetite for mother Africa as an investment destination. However things are changing. Very quickly.

Just recently, the shareholders of ABSA, South Africa's 2nd largest bank overwhelmingly voted in favour of ABSA acquiring Barclays' operations in the rest of the continent. ABSA paid approximately R2 billion for Barclays' African interests, based on expected growth from the continent. This has reportedly increased Barclays' stake in ABSA from 55,5% to 62,3%. Why would ABSA and Barclays do this? As one article put it "ABSA and Barclays are seeking to boost profit by combining products and customer bases across a continent with faster growth rates than developed nations". Simple as that!

Nedbank also announced that it expects to convert its $285 million loan to Ecobank to equity in the bank with the largest footprint in Africa, somewhere between November 2013 and November 2014. In comparison, Ecobank has branches in 32 African countries, while the South African Bank is active in Lesotho, Swaziland, Namibia, Malawi and Zimbabwe.

We also had Old Mutual, one of the largest insurers in Africa announce that it has deployed R5 billion towards investing in its Sub-Saharan business.

These are just a few examples of a financial services industry that is starting to see the continent as a compelling investment opportunity. I expect many other industries to follow suit.

The average African's role in maintaining this momentum is to continue to tell the positive African stories. Recent research by Ernst & Young showed a stark contrast in the investment potential of Africa between those already doing business in Africa and those who have not, with the latter still associating her with instability, conflict and corruption. 


This is despite the fact that in the World Bank's most recent Ease of Doing Business rankings, 14 African countries ranked ahead of Russia, 16 ahead of Brazil and 17 ahead of India. This is also despite the IMF listing 7 African countries in the 10 Fastest Growing Economies between 2010-2015.

We need to change these stereotypes and demistify Africa. 

Like the Ernst & Young's Sustainability Report puts it: "Africa is a compelling investment proposition as it has natural resources; rapid economic and population growth; maturing political systems; a rapidly improving environment to do business and investment returns second to none"

We must play our part in re-inventing Africa from an aid recipient to a trade and investment destination

AK

Source: Building bridges - Ernst & Young's 2012 Attractiveness Survey