Wednesday, April 27, 2016


This article first appeared in the Business Times section of The Sunday Times on 24 January 2016 

IS there a perfect time to start a business? Many would probably say the most opportune time is when the global economy is overheating, capital is growing on trees and consumers are flush with disposable incomes. 

On the contrary, many of the world’s biggest companies were started and built during recessions and some in serious and protracted economic declines. 

One of my favourite examples is Microsoft, which was founded in 1975, at the tail end of a painful two-year recession. It launched the computer operating system MS-DOS, and had IBM as one of its biggest clients. 

FedEx also started operating in 1973 and wasn’t even a ground-breaking new idea. There were many courier companies in many towns, cities and states, but the brilliant insight was about launching a fast delivery service to all US cities. What started as an essay by Frederick Smith at Yale University became a business with a revenue of $40-billion (about R658-billion) a year. 

Then there are the crazy Revlon brothers, Charles and Joseph, who decided it would be great to start selling nail polish in 1932, deep in the Great Depression. That was the beginning of Revlon, and the rest is history. 

Reflecting on this got me thinking about our own situation in South Africa.

The government has started work on its initiative to create black industrialists so as to accelerate transformation and inclusive growth in our stubborn economy — stubborn both in actual growth and also stubborn in its leaders’ lack of commitment to meaningful transformation.

While I was reeling from the IMF’s revised forecast for GDP growth this year in South Africa, to 0.7% from 1.3%, I learned that a leading domestic retail bank has cut its own growth forecast for South Africa’s GDP in 2016 to 0.2%. Yes, 0.2%! 

If we accept this, it follows that growing by 1.4% in 2015 and forecasting a measly 0.2% in 2016 means we must expect at least a period of two consecutive quarters of negative growth, also called by the “R-word ”— recession.

I don’t believe the government’s programme should be about creating black industrialists: it ought to be about propelling them to success. In other words, we must accept that these black industrialists already exist, but operate at the “low barriers to entry, low margin” end of the value chain of many industries. 

They've never had the opportunity to own the means to be in the centre of the action. Unlike Microsoft, FedEx and Revlon, they don’t have to start a business from scratch.

With the right support, both financial and non-financial, they can put themselves at the “big boys’ table” by taking the opportunities a recession may present. The economic challenges we face may be a golden opportunity for black entrepreneurs and the government’s black industrialists programme.

Almost every industrial subsector is there for the taking due to depressed commodity prices and the global economic downturn, especially in China. The smart players know that in crisis lies opportunity. South Africa is said to be home to more than 80% of the world ’s platinum group metal reserves. Platinum was trading at $1 685 per ounce just two years ago.

Today, it is hovering at around $820 per ounce. Why have we not heard of black mining entrepreneurs, supported by patient capital, staging a takeover of the South African platinum operations and introducing innovation that will deliver cost efficiencies and extract value when the markets recover? Instead, it is Neal Froneman’s Sibanye that has seen the gap and made a move.

This week, the shareholders of Sibanye Gold voted overwhelmingly to acquire Anglo Platinum’s Rustenburg assets for R4.5-billion. So now, South Africa’s largest gold mining company owns the world’s largest platinum mining company. In the same week, it was Sibanye, once again, that closed the deal on its acquisition of Aquarius Platinum for $294-million.

Either Froneman, his executive team and the Sibanye shareholders have lost their minds, or the black industrialists programme has missed a rare opportunity to create a black-owned global leader in the platinum group metals sector. 

I’m afraid it’s the latter.

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