STRANGE ANIMUS FROM NIGERIA TO SA FIRMS

This article first appeared in the Business Times section of The Sunday Times on 31 January 2016 

IN his essay Detentions Without Trial during the Apartheid Era, Robert Vassen brilliantly contextualises the history of the 90-day act. He opens by asserting that throughout the English-speaking world, the writ of habeas corpus, which translates as “let us have the body”, was in the most part consistently adopted, respected and practised.

The legal principle requires any detaining authority to produce the detained person in court and show just cause for holding them in detention. If the authority believed it had just cause, a formal charge had to be laid and evidence brought to court to prove the case.

If the authority could not justify the detention, the person had to be set free. In South Africa, this writ was practised without exception until the end of the ’50s. In 1963, the infamous minister of justice, BJ Vorster, rushed the General Law Amendment Act through parliament to accommodate the capture and detention in solitary confinement of the most senior members of the ANC.

The Rivonia triallists were arrested, with no charges, in July 1963. They were charged in October 1963, 86 days later. It was this amendment that gave the security police the authority to arrest anyone they suspected of being engaged or involved in any act against the state and to hold them for 90 days at a time. Apparently, Vorster boasted at the time, probably with a smirk on his face, that this was repeatable “until this side of eternity”.

When I first read about the four Sun International employees — three South Africans and a Nigerian — who were detained for four days and four nights in Nigeria without charge, Vorster ’s sarcastic smirk was the first thing that came to mind.

Apparently, company officials had to request and were later granted limited access to the four employees to give them food, water and blankets while they were detained. This followed Nigeria’s Economic and Financial Crimes Commission launching a probe into the South African hotel and gaming group’s investment in the Tourist Company of Nigeria (TCN).

TCN is listed on the Nigerian Stock Exchange and Sun International acquired 49.3% of the company in 2006. According to Sun International’s Michael Farr, it has been on the receiving end of all sorts of allegations from the commission since 2012, which were sparked by a feud in the family that controls the balance of the shares in TCN.

“We ’ve been asked to provide the Economic and Financial Crimes Commission with the history of our investment into the Tourist Company of Nigeria. They would also like to see trading records of the company and we’re very happy to do that,” said Farr.

In addition, there are allegations of “aggressive and intimidatory action” from trade unions which spread “false claims and circulated unfounded allegations to Nigerian authorities” against the South African hotel group. It apparently took the intervention of a foreign minister and the South African high commissioner to secure the release of the employees.

Two weeks ago, Rwandan President Paul Kagame tweeted: “#Africa: It will be just fine! Hard work, value addition & a lot more trade & investment cooperation among African people.”

In the same tweet he shared a link to an article that went as far as saying we should “expect a few [African] countries to call on the International Monetary Fund for help this year”. Intra-African trade links remain pitifully weak.

According to research by Ecobank, the bulk of the region’s trade is with Europe and the US, with only 12% being with other African countries. By comparison, 60% of Europe’s trade is on that continent. The same is true in Asia. In North America the figure is 40%.

What we forget is that trade is not done by countries — not even by governments. Governments facilitate trade. Governments don’t make widgets. Governments don’t sell widgets. Companies do.

What, then, is behind the apparent friction between Nigerian authorities and South African companies operating there?

It started with MTN’s hefty fine. I don’t recall the South African mobile operator ever denying the charges against it. Yet there seems to be no consideration for this fact, in the Nigerian authorities’ absolute resolve to impose the record sanction, which remains at $3.9-billion (about R63-billion).

A few days ago, Standard Bank’s 53.25% subsidiary, Stanbic IBTC, secured injunctions preventing the Financial Reporting Council of Nigeria from taking action against it, including exacting a $5-million fine.

Now, it’s Sun International. I do not want to believe that there is a concerted effort to frustrate South African businesses out of Nigeria.

I cannot see how that will serve the long-term interests of Nigerians. Some commentators say it is the government of President Muhammadu Buhari looking for alternative income streams due to the plummeting oil price given that oil makes up the lion’s share of Nigeria’s revenues.

Others say Nigerians are waking up to the commercial opportunity that is their country and they resent South African companies for taking the gap sooner than their local business people.

I do not want to believe these theories.

However, the timing of this animosity cannot be a mere coincidence.  

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.

ECONOMY A PRODUCT OF OUR TIME AND PLACE, TOO

This article first appeared in the Business Times section of The Sunday Times on 17 January 2016 

THIS week I had the pleasure of listening to Abby Joseph Cohen, the American economist and senior investment strategist at Goldman Sachs, at a foreign trade conference in Tel Aviv.

Cohen is famous for predicting the bull market of the ’90s early in the decade. She has also been criticised for failing to call the dramatic stock declines of the early 2000s, with some referring to her as a “permabull”. I got the sense this reputation doesn’t bother her as she, with tremendous conviction, made a case for why the world will survive.

Her optimistic outlook of the global economy and the dynamics we need to navigate in the years to come left me with strong sense of perspective. It also ignited in me, perhaps naively so, a flicker of hope that we indeed can survive this.

However, more than the “warm and fuzzy” feeling Cohen gave me, she also skillfully illustrated that for small developing economies, much of their economic prospects in 2016 is essentially a function of how the big economies fare, especially given the lack of correlation between them and the vastly different dynamics they are navigating.

The US is past recovery and is firmly in expansion. It is still the largest economy in the world and is now more than double the size of the Chinese economy. It is estimated to grow by 2.4% in 2016.

China is decelerating and says it will grow by 6.5%. I am yet to meet an economist that accepts the numbers published by China, and, according to Cohen, it’s prudent to deduct two percentage points from any GDP growth number from China.

So let’s assume a GDP growth rate of 4.5% for China. The recovering eurozone, which is the second-largest economy — although not a single country but a block of 19 countries including the single fourth-largest economy in the world, Germany — is estimated to grow by 1.5%.

For the first time ever, I think I understand what politicians mean when they say “I was quoted out context”. Fellow South Africans, I think our uninspiring economic prospects have been quoted out context.

Oxford defines “context” as “circumstances that form the setting for an event… in terms of which it can be fully understood”. With the global economic context expertly provided by Cohen, suddenly Africa’s largest economy per capita starts looking like it’s in good company.

South Africa’s 1.4% forecast growth begins to sound normal when you accept a China that is likely to grow at a Cohen-adjusted 4.5%, a recovering Europe at 1.5% and the Land of Opportunity coming in at 2.4% growth even though 70% of its GDP is from consumer spending only.

In 2013, South Africa was the 36th- largest exporter in the world. Its top three customers were China, the US and the UK. Does it not follow, then, that if our customers were in recovery or slowing, we would suffer a similar fate? Add to the mix the reality of South Africa’s top historic exports being gold, diamonds, platinum, coal and iron ore, the price of which has plummeted to unprecedented levels in recent times.

So why do we constantly “quote” the South African economy out of context, ignoring the “circumstances that form the setting” of this slow economic growth? Perhaps we expect more of ourselves. Perhaps we know deep down that we can do more. Perhaps we are still reeling from Nenegate.

This is not a bad thing. Only good can come from honest, introspective and constructive criticism.

However, we also need to keep top of mind the context of the times we live in. We need to be aware of the context. The reality. So as not to be overwhelmed by it all and start doubting our own potential to be great again.

MINISTER NEEDS TO ARM HIMSELF WITH A NERDY TOOL

This article first appeared in the Business Times section of The Sunday Times on 10 January 2016

A fascination I developed in my early days as a trainee auditor was the opportunity to finally see, in real life, all that I had spent years studying in textbooks at university.

The nerd in me developed a liking for auditing concepts and was most intrigued by the responsibility of auditors to exercise professional scepticism in carrying out their duties.

According to the US’s Public Accounting Oversight Board, the concept of “professional scepticism” refers to an attitude that includes a questioning mind and a critical assessment of evidence.

This responsibility includes obtaining sufficient appropriate evidence to determine whether there are any material misstatements, rather than merely looking for evidence that supports management ’s assertions. Of course, this is also the reason many people viewed my colleagues and I as the company ’s police brigade. To an extent, they were right.

Nonetheless, this proved auditing was no “tick and bash” exercise but a profession where a tremendous amount of judgment is required in order to formulate that ultimate opinion. This is where independent evidence is critical.

In fact, according to the South African Institute of Chartered Accountants’ journal, Accountancy SA, “calls by oversight bodies for increased auditor scepticism followed in the wake of a number of high-profile corporate failures, including the role that accounting practices played in the 2008 financial crisis”.

Unlike many auditing concepts, professional scepticism is not a technical procedure. You cannot prepare a work paper documenting that you’ve carried out your professional scepticism. It’s a frame of mind, constantly exercising a critical questioning mind. It’s watchful diligence.

I was reminded of my rather nerdy auditing concept as I considered what trait our new (but old) Finance Minister Pravin Gordhan would need as he takes on the mammoth task of managing low economic growth, rising inflation, rising interest rates and a rising fiscal deficit.

Gordhan will need bucket loads of professional scepticism.

He will have to constantly obtain sufficient appropriate evidence to determine whether there are any material misstatements, rather than merely looking for evidence that supports other people’s assertions.

Late last year, rating agencies downgraded South Africa’s credit status to one notch above “junk”, with little hope that the country will pick itself up out of slow economic growth.

Fitch downgraded the rating by one notch to BBB-, the lowest investment grade, putting it in line with the ratings of Standard & Poor’s and Moody’s. S&P went further and dropped its outlook for the country to “negative ”.

If we do slump into “junk” it means we can say goodbye to billions in foreign investment, as many asset managers of hedge funds, pension funds and the like would be unable to invest in South Africa and its companies.

These are the assertions.

What evidence is there that South Africa is likely to slump into non-investment grade? What factors determine the credit rating of a country? Are these factors so irretrievably in place that a downgrade to non-investment grade is a likelihood? What about the fiscal discipline South Africa has displayed over the years? Does that count for nothing?

Gordhan should not look for evidence that supports the assertions of these rating agencies. Instead, he should seek to demonstrate that there is empirical evidence that proves South Africa is a compelling investment destination and a solid investment destination in the long term, notwithstanding its recent slump. Nothing fundamental has shifted in South Africa’s fiscal discipline. There is no indication of any imminent shift.

Let’s take this mindset to the rating agencies.

UNIONS CALL THE TUNE ON INVESTING THEIR OWN MONEY

This article first appeared in the Business Times section of The Sunday Times on 13 December 2015.

This week Minister Mildred Oliphant set the cat amongst the pigeons when she confirmed her comments made at the COSATU National Congress to POWER98.7’s Tim Modise. 

She alleged that trade unions, in and outside of COSATU, have interests in labour broking firms and remain invested in companies benefiting from Gauteng Freeway Improvement Project.

Challenged to present evidence, Oliphant said she had the evidence in her possession and has also requested the unions to carry out their own investigations.

The Minister must have touched The National Union of Metalworkers of South Africa (NUMSA) on their studio, leading to a lengthy press statement in response to her ‘spurious accusations’. The union alleges that Minister was ‘sub-tweeting’ it in her comments. 

This exchange has re-opened the issue of the purported independence of trade union-owned investment companies and their shareholders.

Naturally, NUMSA denies they have any financial interest in any company involved in labour broking. But hold on.

If the NUMSA Investment Company claims to be independent of NUMSA the union, why not then invest in any company they wish, including labour broking firms? 

If CEO Khandani Msibi’s main concern, as head of an independent investment business, is deriving maximum return from the capital deployed, why would he not consider an investment in a business that supplies temporary staffing solutions?

Says Msibi “If you look at the listed environment, shareholders like pension funds and the like, would decide that they do not want to be associated with certain products like cigarettes or liquor for various reasons. Similarly, I think we need to be sensitive to the aspirations and sometimes, the dislikes of our shareholders." 

"However, there have been instances where unions instruct their investment companies not to invest in industries where the union is organising. And when we [management] came in and took over the NUMSA Investment Company, it was one of the resolutions we took up for review and we said to NUMSA, ‘if you are organizing in a company that we believe is of value from an investment point of view, we should not be precluded from investing in that particular company’. We were able to persuade NUMSA to revoke that resolution.”

This therefore means, an investment company, wholly-owned by the trade union can easily find itself on conflicting sides to the interests of its shareholder – which in itself contradicts the notion that union investment company interests must always be aligned, or at least sensitive, to the aspirations of its shareholder.

For example, imagine the NUMSA Investment Company was a shareholder in a motor manufacturer, which found itself in the middle of a dispute with NUMSA. In whose interest would the investment company act?

Let’s suppose the union is demanding a 15% wage increase and the board is offering 6%. What does the non-executive director serving on the investee company board, as a representative the union investment company do?

According to the Companies Act, that non-executive director’s fiduciary duty is to the investee company, not the union investment company, and certainly not the union. 

By law, the director is compelled to act in the best interest of the company. In this instance, the best commercial interest of the company could be settling on the lowest possible wage increase, while the union would seek to secure the highest possible increase for its members.

The irony of this independence debate is that Kopano ke Matla, COSATU’s investment company, invested in construction company, Raubex, prior to it being awarded work in the e-tolls project.

Of course that didn’t stop the DA and other opposition parties calling out the ‘hypocrisy’ in COSATU, who on the one hand wanted e-tolls abolished and on the other, benefitted from the project through its investment company. Then CEO of Kopano was forced to resign as Chairman of Raubex in an unsuccessful attempt to prevent a perceived conflict of interest.

Trade unions will do well to park the Marxist literature, and heed the Good Book’s advice. ‘Then you will know the truth, and the truth shall set you free’.

The truth here is that union-owned investment companies are not independent of their shareholders. 

Unions know this. Union-owned investment companies know this.

NUMSA’s response to Minister Oliphant’s utterances, essentially on behalf of its investment company, underscores the inextricable and umbilical chord-like connection between the union and its investment company. 

The rest is just smoke screen.

Andile Khumalo is the CIO of MSG Afrika and MD of POWER 98.7. He also presents POWER Business on POWER 98.7 at 5pm, Monday to Thursday. This article first appeared in the Business Times section of The Sunday Times on 13 December 2015.

Click here to listen to Khandani Msibi's interview on POWER Business with Andile Khumalo