LET BLACK INDUSTRIALISTS FOLLOW WHATEVER PATH THEY CHOOSE

This article first appeared in the Business Times section of The Sunday Times on 7 February 2016 

THIS week I attended the government’s launch of the Black Industrialists Programme, hosted by the National Empowerment Fund and the Department of Trade and Industry.

I listened attentively as minister Rob Davies and deputy minister Mzwandile Masina provided details of the programme, how it would work, and what it would fund and not fund.

I am a big fan of what the government is trying to achieve with the Black Industrialists Programme. It is time we deliberately and unapologetically used state levers to create globally competitive black business champions in our economy.

The symbolism of being able to point to black entrepreneurs who control and operate major corporations in big industries is something we desperately need as a country still grappling with racial discrimination and inequality. This will have a profound impact on the psyche of future generations, who remain most affected by stubbornly high levels of unemployment.

The implementation of this programme must therefore be well thought through to ensure our efforts yield the best outcomes. In other words, we need to use our collective experience to give ourselves the best chance of success.

Unfortunately, at the end of the launch, I concluded that the government’s programme comes with two key flaws.

The first is that the government has single-handedly redefined the term “industrial ” to mean “manufacturing”. Not only is this simply incorrect, it is in stark contrast to local realities and global trends.

Just last month, world leaders at the World Economic Forum in Davos debated “the fourth industrial revolution”. That had nothing to do with manufacturing. It had everything to do with the knowledge economy, the fuel behind the growth of modern economies.

The second flaw is that the programme seems to have been crafted outside of the threats and opportunities before us today and in the foreseeable future.

In case you are not aware, the programme will focus on very specific sectors. These are the ocean economy; oil and gas; clean technology and energy; mineral beneficiation; aerospace; rail and automotive components; industrial infrastructure; information and communications technology; agro-processing; clothing; textiles, leather and footwear; pulp, paper and furniture; chemicals, pharmaceuticals and plastics; nuclear; and manufacturing-related logistics.

Why limit the programme to specific sectors? Black people hardly control any key sector of the economy.

The closest we have come is the taxi industry and football.

We ought to invite applications from any black entrepreneur in any sector, with a convincing plan, credible expertise and the will to succeed, with size, experience and expertise the only criteria. The programme shouldn’t be closed to sectors, only to small ideas with no major impact on inclusive economic growth and transformation.

The programme must be about catapulting or graduating existing black entrepreneurs in all industries to become leaders who control and operate the biggest companies in their sectors.

I have previously referred to a golden opportunity presented by depressed commodity prices. The list above does not include mining.

The policymakers have instead included “mineral beneficiation”. I am yet to be exposed to a big mineral beneficiation industry in South Africa. As far as I am aware, it doesn’t exist. Yes, I appreciate that we need to start beneficiating our minerals, but right now there is hardly any meaningful impact to be derived from having a black-controlled mineral beneficiation operator.

Even if the biggest mineral beneficiation company in South Africa was black-controlled, it would not move the needle in economic growth and transformation in the broader resources industry.

That ’s because the beneficiation industry is not yet adequately developed. It is a small part of the resources industry. So why are we wanting to create black industrialists in beneficiation when an even bigger opportunity beckons?

Imagine if a black steel operator acquired a Highveld Steel in business rescue or even an Arcelor-Mittal that recently announced that its loss is going to be 22 times higher than the previous year and more jobs cuts are on the way.

Imagine our pride if a black steel entrepreneur bought these businesses, drove down operating costs, the government stepped up to better protect the industry, and when global markets improved, we might have a steel industry actually controlled by black people.

I can say the same for platinum. Yes, Sibanye has acquired some of Anglo Platinum’s mines and Aquarius, but there is still Lonmin.

Imagine if Lonmin could be an asset we point to one day as a product of a clever move by a smart government, in a time of depressed platinum prices, that backed experienced black platinum group metals operators who persevered through the tough times and eventually controlled one of the largest platinum miners in the world?

Thanks to a question asked by the Black Business Council’s Gregory Mofokeng at the launch, I learnt that the construction industry has also been excluded from the so-called focus sectors. It has been replaced by “industrial infrastructure”. It’s not clear what this term means, but what is the logic of excluding the construction sector?

I am only aware of Dr Thandi Ndlovu ’s Motheo Group as a credible, sizeable, top-grade blackcontrolled construction group.

Not withstanding its impressive growth, Motheo is small fry compared to the big boys. Are we saying we don’t need a black-owned and operated Aveng, Group Five or Murray & Roberts? Surely not.

Let’s just be open to any big idea that will create a thriving economy that is controlled and operated by black people. Let us also move with the times. We live in a world where the best economies thrive because of innovation and knowledge, not by how much they manufacture.

Excluding service industries and making the Black Industrialists Programme exclusively about manufacturing is ill-advised. 

For example, ICT is on the list, yet the biggest ICT companies to come out of South Africa are mostly in the services space. Think of Dimension Data and EOH.

We need to learn from the past and craft policy that will give us the results we want. I’m afraid even the 100 industrialists in three years that Masina speaks of so passionately may very well be a pipe dream if the department guidelines are anything to go by.

A MISSED OPPORTUNITY FOR BLACK INDUSTRY

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.