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Current South Africa

Better for who?

Unions intentions and motivations are not always clear, because of a perception flaw. What to do about it?

As the unionized workers at the South African Airways (SAA) go on strike, thousands of passengers will need to change their travel plans at the very last minute. Many will forego their holiday in South Africa, affecting many related industries.

On the face of it, the unions reasoning seems sound. They argue that it was not the workers who caused the R26bl in accumulated losses generated thus far, so they should not bear the consequences. The governments wage offer was rebuffed. Instead they are demanding that no jobs may be on the line over the next 3 years. The management of SAA however proposed that just more than 800 jobs will go as part of their turn-around plan.  

This is a familiar sequence of events. Unions drum up support by defending the plight of the workers. They demand above inflation increases in addition to other benefits such as housing and transport. This effectively makes labor in South Africa pricier relative to its peers, and less productive (because the higher wages are not coupled with productivity increases). Although in boom times this makes sense, it is fatal in bad times. Businesses like SAA, that are effectively bankrupt can only survive if they are restructure. This always means sacrifice by all stakeholders. The alternative can be seen in the textile and mining industries. Mines tried to gain efficiencies by mechanizing, and those who failed had to shut down. The textile industry is a shadow of its former self, despite Governments effort to help by levying a 40% import duty on garments from abroad. The job losses contributed to South Africa’s record-breaking high unemployment rate.

So why are Unions still so demanding, even at the risk of pushing the business into ruin?

The short answer is that Unions are businesses themselves. Like a sport club, they prosper if they get more members, and fail if members leave.  It can be a very lucrative business as such. There are about 3 million unionized workers in South Africa. Assuming that they pay about R120/month for their memberships, it means that the “union industry” is worth about R4.3bl, a sum worth fighting for. All you have to do is to fight harder than the next union, to attract more members. And then you fight for your members to not be dismissed.

Long gone are the days of the 1980’s where Unions down tools to fight against an abusive regime, where they fought for the equal recognition of workers and where they fought for basic human rights.

The stranglehold of Unions doesn’t only businesses but also government. The South African government was not even able to implement a pay policy in the education sector where the pay of teachers would reflect their ability to teach. As a consequence, poorly performing teachers get paid the same as those who put in extra effort to make sure that their scholars get the best education possible. This negativity is amplified by the fact that the governing ANC is in a tri-party alliance with Cosatu, a union collective, as well as the South African Communist Party. That means that government policy is influenced by a body that is motivated to do not what is best for South Africa, but what is best for their Unions members. A very precarious position.

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Current International South Africa

Strange times: when non-racialism is racist

Why is somebody classified as a racist when they don’t believe on using the color of the skin to base policies on?

The official opposition in the South African parliament, the Democratic Alliance (DA) is going through turbulent times. It all started with the election of a new chairperson, which the previous leader, Hellen Zille won. Three senior leaders resigning in quick succession. They accused the DA of showing their “real color”, i.e. that of a white racist party. It is a strange claim for a party that prides itself on being non-racist. What to make of it?

When Mmusi Maimane came to power to lead the official opposition, he had a vision of making the party more inclusive. They needed appeal for more support from black voters, who have shied away from voting for them. As one of the main pillars for policy direction, Maimane said there needs to be a recognition of the injustices of the apartheid regime. By default, they will have to support policies like Black Economic Empowerment (BEE) and affirmative action. These policies are the main policies of the ruling ANC to readdress the injustices of the past. Maimane’s policies were mocked as being an ANC-lite version.

The election of Helen Zille apparently was the trigger for the resignations. It obviously doesn’t help that she is a devoted fan of Twitter and as such has tweeted messages that by themselves can be ambiguous.  One such Tweet read “For those claiming legacy of colonialism was ONLY negative, think of our independent judiciary, transport infrastructure, piped water etc.” followed by “Would we have had a transition into specialized health care and medication without colonial influence?”. Both observations are probably right, based on the facts and statistics, but it is not appreciated in a world were most attention spans are no more than a few minutes. She insisted that she was right, but it would be like saying “For those claiming legacy of Nazis and Hitler was ONLY negative, think of the German Autobahns, Rail Infrastructure and the development of the Rocket”. That would also be true, but you would be labeled as a Nazi sympathizer these days. What gets lost in the hype of headline news however is that Helen Zille has for years been a devoted anti-apartheid activist. Her time as a journalist in the 1980’s was spent at exposing police brutality of the apartheid regime during the day, and at night she provided her home as a safe house for political activist hiding from prosecution of the state.

As a fierce liberal she has never compromised on her believes. The only way to develop a better South Africa for all is by developing policies not based on race, but on merit. Those that have been neglected by the racial policies of need more help from the state to be able to succeed. Those areas that were deprived of schools and hospitals are first in line to get a new one built, those areas with a poor infrastructure will get a better one and those areas with a lack of transport will get more buses. As a major of Cape Town and later as a premier of the Western Cape, she has always lived up to that commitment.

Under her leadership, the DA was the only true liberal party in parliament. They believe in freedom of expression, freedom in believe and tolerance for one another. As a multicultural state it is important to recognize that others have a different culture than yourself, which should not make them better or worse. Neither should the color of their skin determine if they get a job or not. Sadly, that is precisely what affirmative action encourages. Indirectly, companies are given targets of what percentage of their workforce must be Blacks. This leads to cronyism and poor leadership, as employees are given jobs based on their skin color not on merit. In the end, it is the poor who suffer once again, because companies like Eskom are so badly run, that after a 500% increase in electricity price, they produce less electricity than 10 years before, and don’t generate enough revenue to cover their debt obligations which have increased almost 5 fold. The state has to continuously bale them out, and billions of Rands are diverted from ministries such as police, education and health to pay for Eskom’s mismanagement. A far greater cost, but harder to define is that of lost private sector investments because of the unreliability of power generation.

BEE also leads to such disparities. As Chris Hani said: “What I fear is that the liberators emerge as elitists, who drive around in Mercedes Benzes and use the resources of this country … to live in palaces and to gather riches.” There is a handful black elitist that got extremely wealthy by “buying” discounted blocks of shares in companies.  Even broad-based BEE deals are not correcting the injustices of the past. It is far more likely that urban employed workers subscribed to the broad-based BEE deals, because they have the knowledge of them and the means to subscribe. A resident of the Eastern Cape hinterland or neglected small village in the Freestate doesn’t benefit from them. Most of the country has not benefited from these corrective policies and probably never will. It is impossible to try and re-write the history, but it is possible to create a better future. And that is what the government should be focusing on.

That is exactly what the DA wants to focus on, a better future for all. Those who can’t afford to send their kids to school, will get help. Those without medical facilities will get medical facilities. And those who are the most vulnerable in our society will get more help. As such, they will form a more productive workforce that attracts outside capital to grow, thus creating more jobs, decent living conditions and a more just and equal society.

So how is that racist? Who knows……

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Current South Africa

Opposition dilemma

The official opposition in South Africa, the Democratic Alliance (DA) elected a new executive chairperson at the weekend. The results were not quite what anybody expected just a few weeks ago. Helen Zille, the former party leader and a fierce liberal fundamentalist, returned out of political retirement to manage the party that had previously tried to sideline her. How did this come about?

During the last few years the oppositions prominence was mainly enforced by the entrenched fight against the corruption, cronyism and mismanagement of the Zuma government. The then president was regularly dragged to court by the opposition parties, who stumbled over themselves to join court cases against the president. Through Zuma’s many shortcomings, he was an easy target and the opposition parties used it to gain voters favor. Now, that the ruling ANC has a new president in Ramaphosa, who seems to be the polar opposite of Zuma, the opposition parties are left in limbo trying to display their relevance. Their true political foundations seem hypocritical; the far-left EFF who purport themselves as the fighters for the poor drowse their thirst with expensive champagne and use money looted from the poor to fund the leaders lavish lifestyles. The leader of the Democratic Alliance (DA), which essentially has been the only constant liberal opposition to the apartheid regime, represent for years by the lone but powerful voice of Helen Suzman, said that anyone who wants to form a “true liberal political party” is welcome to leave the DA. It is confusing, but the DA wants to endorse liberal values but supports race-based policies.

As the opposition parties scramble to find their political compass, lets reflect in broad terms global developments over the last 200 years. Humans have never before experienced such an upliftment in their standard of living. They have never had such freedom to practice any religion they want to, and they have never been able to express their opinions as freely as they can today. Babies have never had a greater chance of reaching adulthood, girls and boys have never had such good prospects of working in the profession they dreamed of. Never before have so many people been allowed to vote so regularly for their political leaders, and never before have so few people had to starve or die of preventable diseases. More people than ever own their own homes. They can afford luxuries like travel and cars or spend their savings on fashion and lifestyle.

All of this was only possible because of the emergence of liberalism as the major political force. The American and French revolutions were based on this philosophy. Liberals believe that everybody is equal and as such should have freedom of speech, freedom of religion and freedom of movement. There should be no racial division or gender discrimination. The government has a central but limited role to make sure that the economy is free and fair, and that the best companies and the most hard-working entrepreneurs and employees get rewarded for it. Policies are based on facts rather than fiction and populations come together to archive a common goal – a more prosperous future for everyone.

No other political philosophy has done more to bring about the good in human societies.

Whereas 80% of world population lived in absolute poverty 200 years ago, less than 10% do these days. In the 1950’s Belgium had a GDP per capita similar to that of Lesotho today.  Ever since the Chinese government adopted more liberal ideas 30 years ago, the world poverty rate halved, the Chinese economy and the world economy has thrived. Whereas communism proved to be a destructor of wealth and well-being, liberalism was the contributor.

What can be so wrong in being a liberal party in South Africa today, especially if you have the credentials dating back at least 60 years? I would have thought that it is easy for Mmusi Maimane to build on that, and clearly differentiate the DA from the ANC and the rest of the political spectrum. For a country still scarred by the racial segregated policies of the apartheid regime, it would be appreciated to have one party that preached the non-racial gospel, one that preached inclusivity and one that talks about South Africans rather than referring to the subgroups based on their skin color.

The ANC-lite policies of Maimane probably caused so many voters to turn to Helen Zille for leadership. It is time for the DA to get back to its roots and make decisions on merits rather than skin color and promote policies based on helping the poor and vulnerable rather than on racial averages. It is time to build a better future for all South Africans, because after all, we are all just that, South Africans.

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Current International

Big Impact

When fighting climate change, the focus often is on the small changes instead of supporting industries that would make a big impact. In this article I suggest three industries which I believe could make a decisive impact on climate change and which need to be supported.

Making rational decisions is one of the most complex tasks humans face. We tend to base decisions on emotions, which comes more naturally. Emotions evoke compassion, and it is this compassion that has driven the success of the human species. We get others to co-operate and help, because we have arguments that arise similar emotions in others, who sympathize and would give time and effort for same causes.

This led everybody to demonstrate, sometimes violently, against nuclear power in the 1980’s, especially in the wake of the Chernobyl disaster. It was right to voice anger at the neglect and incompetence of the Russian nuclear operators and politicians; it was wrong to advocate shutting down all Nuclear reactors. It slowed down the development of safer, more advanced Nuclear power stations and lead to the exponential increase in coal power stations, suffocating the rest of the world. Now countries, that did not benefit from the abundance of cheap dirty coal-generated electricity have to bear the effects of global warming caused by the steep rise in CO2 those powerplants spew out.

The same emotional decision making caused an uproar against the use of fracking to extract gas from bedrocks. Horror stories of contaminated groundwater and earthquakes circulated on social media, and therefore many politicians were slow to support any fracking. Yet, the USA has probably peaked in CO2 emissions in 2006, even with Donald Trump, and his love for coal, at the helm. The drop was due not because of the electric car, nor the solar power stations, but fracking. The widespread use of gas, which often can be used instead of coal to fire power stations, was the main driver in the reduction of emissions in America.

The list goes on and on. Plastic straws are a swearword these days, and plastic shopping bag are frowned upon. Yet McDonalds in the UK instructed its outlets to discard the paper straws with the general waste because they are so hard to recycle. Multi-use shopping bags need to be used 140 times to negate the negative environmental impact of producing them. Even though I do think that it is right to look at alternatives to plastic, especially single use plastic, I do think we are forgetting about industries that can make a real change.

So what are the three industries I am backing? Wood especially CLT, Hydrogen propulsion and urban farming. I think each of them would could cause a substantial change to our environment and to our way of life. Here are some of the reasons why I chose those three industries, starting with wood.

Humans have used wood for millennia to build everything from ships, to carriages and houses. It has great properties. It was easy to work with, it floats, it was strong and had great insulation properties. But it had a big downside. It burns. Many great cities were partially wiped out because the fire spread easily. Think of London in 1666, San Francisco in 1851 or more recently how the Notre-Dame de Paris burned relentlessly. But in the 1990’s a technology called Cross Laminated Timber (CLT) was developed, which enhanced the properties of wood dramatically. The fire resistance of the wood is now far superior to concrete and steel structures in catastrophic fire events. CLT panels are also extremely strong, with a very favorable weight to strength ratio. Researchers have also established that it has excellent seismic resilience, with no residual deformation. CLT wood is now being used to build an 84-meter-tall building in Vienna, called the HoHo. Construction is much quicker than conventional concrete and steel construction, and alterations will be a lot simpler.  The foundations didn’t need to be as massive as normal because the weight of the building is a fraction of what a similar concrete and steel structure would have been.

But the biggest benefit of using wood in construction is the CO2 footprint. While trees grow, they absorb a lot of Carbon Dioxide and emit Oxygen. When a tree is fully grown the absorption of CO2 is dramatically less. Given the shedding of leaves or Pinecones, a mature tree is more or less carbon neutral. Therefore, sustainable forest planting and harvesting is a certain way to absorb some of the Carbon in the Atmosphere.

The second industry is the automobile propulsion industry. Elon Musk made one genius decision – to make eclectic cars less extravagant and more normal. They look like conventional elegant well-designed cars and their performance matches the looks. Before then, electric cars looked very much like something from the future, full of compromises. The electric car has a few critical flaws though, where a solution seems to be years if not decades away. The first problem is that cars take a long time to charge. Part of the problem is that lithium-ion batteries tend to get hot when they are charged too quickly. Since lithium is one of the more volatile elements, the batteries tend to catch fire if they are getting to hot. That’s why Samsung had to re-design their phones after a few caught alight.

The second problem is that some of the materials used to make the batteries are from some of the most volatile places on earth. Cobalt for example is mainly sourced in the Democratic Republic of Congo.  They are more known for their extremely violent never-ending armed conflicts. Those are not the best conditions to build a mine which is supposed to supply a steady stream of material. The commodities used in the batteries were in such demand recently, that the miners struggled to mine enough of the commodity. That it drove prices ever higher. With the global electric car production was not even 2% of total global car production it is hard to see where the supply of raw materials should come from if electric vehicles dominate global car production.

A solution that is just as environmentally friendly, but in my opinion more scalable are hydrogen powered cars using fuel cells. Hydrogen, probably the most widely available element is liquified and using a fuel cell technology is converted to electricity which then powers the electric motors of the cars. The only thing leaving the exhausts is essentially water vapor. Hydrogen is a very effective storage of power, but also faces some technical issues. There is a lot of energy loss in through the various stages of the supply chain. These challenges should be easier to resolve, than trying to build another 20 mines in a war-torn country with no infrastructure.

The technology has got very distinct advantages. To start of with, you can drive up to a filling station and fill up in the same time as you would using the conventional fossil fuels.  The power generated is also substantial. Toyota said that all their buses made for the next Tokyo Olympics will be powered by fuel cells. Other commercial vehicles like trucks and possibly planes could be powered by fuel cells because they will be able to generate enough power and the time re-fuel is not different from what they are used currently (which is important for industries where the assets constantly need to be productive). Hydrogen could also be produced almost everywhere. Filling stations could produce it themselves or be supplied through the same supply chain they currently use. It is probably easier to develop new more effective processes to liquify Hydrogen than it is to make Lithium less unstable.

The third new industry is urban farming, which incorporates everything from a basic DIY hydroculture set-up to vertical farming. (Sophisticated vertical farming start by breeding insects, which are fed to fish, who’s excrement is used as the enricher for the water for the plants.) It is all based on the principles of hydroculture, which essentially means that plants grow without the need of soil, but the water is enhanced with the minerals which the plants would normally extract from the ground. This also means that plants can be grown closer to where their produce is demanded; one could imagine a grocery shop producing their own veggies on site in the future. That would reduce the need for a sophisticated just-in-time transport system for fresh plant produce.

There are many more advantages for our environment. Hydroculture uses 80% less water than conventional farming. Since the plants are grown in a controlled environment, there is no need for pesticides, saving the ground from being drenched in poison and saving the insects from dying out. The freed-up farmland can then be used to restore nature, possibly by planting native trees.

There are obviously many more industries that impact positively on our environment, but these three, if embraced, will surely have a big impact on our environment. Best of all is that they already exist, mostly in their infancy, but with a bit more backing could get traction. They don’t life on futuristic hopes and dreams but on realistic technologies and practicalities.

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Current International

Go big and go home

Today, the 12th of September 2019 the governing council of the European Central Bank (ECB) will meet for the last time with Mario Draghi at the helm. It may just be his most important meeting ever.

Mario Draghi took over the leadership of the ECB at a very precarious time. Europe was in the grip of a financial crisis. Banks balance sheets were stuffed with government bonds which were priced for a European Union break-up. Populism across Europe was on a rise and hardly any politician was courageous enough to push through desperate needed reforms. The northern states didn’t want to share the debt burden racked up by the spendthrift southern cousins (even though they benefitted from the relatively weak Euro).  Instead, austerity was the default policy, and Germany was leading the pact. This obviously did little to revive the economy. Step in Mario Draghi.

From the start of his term he made it very clear that his priority was to defend the Euro, and by implication the Euro area. He famously said that “he would do whatever he can” to defend it. To the horror of the German government, Draghi did start a quantitative easing program, which essentially meant that the ECB would buy government bonds, up to 33% of the issuance. This pushed the long-term interest rates down, freeing up clogged banks balance sheets and spurred them to lend out again. The economies started to recover, and the normally muted German property market experienced a boom, fueled by cheap funding.  Now, at the end of his term, Mr Draghi is faced with another crucial challenge, and the outcome would probably shape his legacy.

European economies have mostly recovered from the Global Financial Crisis of 2008 and the European finical crisis thereafter. Eastern European countries have been doing particularly well. Unemployment figures are at all-time lows or getting there. But it seems that the upswing has turned now, not only in Europe but globally. The manufacturing sector in Germany is essentially in a recession and growth in industrial output across Europe is waning. Exports are affected by the trade wars between China and the US.  

As signs of a looming recession are becoming clearer, something needs to be done. Just what? Super Mario, as mr Draghi is affectingly known among the investment bankers, can either commit to pull out the big guns and kickstart the quantitative easing program again. Alternatively, he could do nothing, since many of the northern Bonds are trading at negative interest rates, and the Mediterranean equivalent are also trading at record lows.

Go big or do nothing – that is Mr Draghi’s dilemma.

He is not alone facing this challenge. The Chinese central bank has just loosened reserve requirements of banks, because their economy is slowing quicker than expected. Japan and South Korea have their ongoing spat, causing strain on their economies. Even the USA seems to show the first cracks. Even though retail sales and some service sectors are booming, the underlying sectors are struggling. Manufacturing is sluggish, impacted by higher costs and the China–US trade war. The Fed already started to cut rates, although it is debatable if it was due to the relentless political pressure of the Donald, or if it was because of economic growth concerns.

As I wrote in an article some time ago: “the time will become known as one where central bankers did too much, and politicians too little”. Central banks mandates differ from country to country; they are always broadly around two themes; 1) keeping price stability and 2) encouraging economic growth leading to lower unemployment rates.

The reality though is that they are only truly effective servicing the first need, less so addressing the second. There is only so much they can do to drive economic growth. Not so for governments. They have the power to lower taxes, educate their population, keep them safe, keep them healthy and uphold the rule of law. They have far greater powers to encourage new investments.

It is now time for politicians to be bold and courageous and implement reforms that will make their labor market more efficient. They must embrace progress in technological innovation which makes their economies more competitive. Politicians should look at cutting taxes and encourage more businesses to start up. They should stop fighting egocentric spats, stop blaming history and others and stop making unrealistic populist promises. Mr Draghi has done well, but there is only so much a Central bank can do to encourage economic growth. It is time for politicians to take their responsibility seriously.

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Current South Africa

Unhealthy assumptions

How the new National Health Insurance (NHI) proposal for South Africa is based on the wrong assumptions, with likely dreadful consequences.

The arguments for the NHI are wide and varied. The Gauteng MEC for health, Brandile Masuku said that the quality of private healthcare is a myth, ignoring the fact that whoever has the means, will spend a lot of money to opt for private healthcare instead of public healthcare.  He also said that the new NHI would also service migrants. That would surely lead to a massive influx of medical migrants from dysfunctional states, Zimbabwe and the DRC are coming to mind. Judging by the hostility of locals towards foreign spaza shop owners, and the regular looting and violence because of it, it is hard to imagine that they will be any friendlier towards thousands of patients who would que up to get health care in South Africa. Besides these non-sensical rhetoric, there are more fundamental problems.

Before we analyze those, we would need to see what South Africa currently has. As per the constitution, every citizen must be able to access healthcare, rightly so. The state runs about 400 health care facilities which include clinics and hospitals. Even though they are mostly free, they are poorly managed, understaffed and under-supplied. Specialists are far and few. They often opt to work in the private environment, where they can work in a better managed environment and charge much higher prices. This seems to be a particular thorn in governments view. They complain that in prevents poor patients to have access to them. Because the health care system is in such shambles, the private health care industry seems to be thriving. Wealthier citizens take out relative expensive private healthcare insurance to be able to cover the cost of any potential emergency.

One of the main arguments government sites is that 4.5% of GDP is spent on private healthcare servicing only 16% of the population, while only 4.2% of GDP is spent on public healthcare servicing 84% of the population. In in other words, R139bl is spent every year on private healthcare, while R130bl is spent on public healthcare. Simple math’s (also in short supply these days) dictate that to bring the public healthcare up to the private standard would cost R868bl annually, or 47% of the governments current budget, an increase of almost 400%.

This obviously assumes that the government performs as good as the private sector in implementing the roll out of better health services. Their track record of managing their SOE’s and institutions don’t suggest that. Looking at the cost overrun experienced at Eskom, and assuming that they have learned from their mistakes, one must still assume that the cost of the NHI would be north of R1 trillion per year.

So how would the government fund it? There is no clear answer yet. Those who came up with this idea probably assumed that private individuals, who currently have a private medical health insurance must contribute their premiums to the NHI fund. The NHI would in future be the sole “purchaser” of medical procedures. (Warning lights would go off now with anyone who has studied Porters 5 forces). This assumption is flawed and has some dangerous consequences.

Firstly, the NHI by itself would not make the medical services provided to the 84% of the population any better. They get a poor service because the government is not paying enough to attract professionals into the public healthcare industry.

This leads us to the second problem. If, as the sole purchaser of health care procedures, the NHI assumes that they can reduce the fees they pay to doctors, nurses and specialists, they would simply emigrate. The world is in an unprecedented development phase, where skilled professionals are in desperate short supply. Doctors who can’t earn a decent salary here would simply emigrate. There are enough opportunities elsewhere. So what? We have already a massive shortage of skills, and we are no where near at producing enough doctors to fill the gap.

Hence the third prediction. If there is a bigger shortage of doctors, those remaining will demand a higher pay. It would be outside of the NHI, maybe another industry will emerge or they will simply just accept cash. But this is then viewed as just another informal Tax for the ability to live in South Africa. Surely more of the population that can afford to emigrate, will do so. And those are the Taxpayers South Africa so desperately needs to pay the government bills.

Besides the skills implosion, there are other problems with the NHI, like mismanagement and corruption.

The main drawback though is that the NHI doesn’t tackle the problem it is set out to archive. It will not make a better healthcare system available to the 84% currently under-serviced. The reason is simple. The best preforming hospitals are mostly in the main metro-pole areas, like Cape Town, PE, Johannesburg and Durban. Farmers in the Eastern Cape for example don’t necessarily have the means and the ability to travel thousands of kilometers to one of the good hospitals. But they do have a nearby clinic, which is likely to be understaffed and under supplied. Surely it is better to improve the performance of the 400 state facilities than threatening to tear down private healthcare. Would it not be better for the farmer to be able to go to his nearby clinic and see a qualified doctor, and get his medicine right there?

Maybe the government should be looking at working with the private sector to improve their facilities. One could imagine a scenario where in order of getting a license to build/operate one private hospital, the company needs to manage one or two public hospitals as well. The performance of those public hospitals will determine if the license to run a private hospital gets renewed on a 5-year cycle.

The South African government need to learn to harness the efficiency and expertise of the private sector to contribute to the public sector. Don’t target successful private companies because of your own failures.

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Current South Africa

Steinhoff revisited

Now that a have a bit more clarity on what happened, I thought it might be a good time to revisit the blog posts I wrote more than a year ago, when we were working on myths and assumptions. Many of my predictions turned out to be right. The company as a whole was not deceitful, but fraud was committed by a few insiders. I also still think that it is ludicrous for most shareholders to sue for their losses, as I explained in the posts.

If I was the defense lawyer of Steinhoff, I would question the logic of investing into Steinhoff in the first place. Fund managers are being paid handsomely to do due diligence on potential investments and use their superior intellectual skills to flag any potential pitfalls in the investment case. They have failed miserably.  

There are a few points Steinhoff’s legal team should focus on.

  • Why was none “overweight” Steinhoff prior to Christo Wiese buying a stake in Steinhoff? Steinhoff was very acquisitive before then, and there could have been lots of reasons to buy it. It was however off the radar of the big fund managers, because the financial statements were always very messy and not transparent and better left alone. That sentiment changed rapidly when Christo Wiese took a stake.
  • What due diligence did the fund managers do? There were numerous indicators which failed to highlight Steinhoff as an attractive investment. Take return on capital. It was far below that of its competitors, even though the return on equity seemed in line, indicating that the return was generated by a highly leveraged balance sheet, another warning sign.
  • I assume that the leverage was created partly by loans against over-inflated property values. What due diligence did the debt investors do? They should be thorough with their investigations and normally have industry experts on hand to confirm any variables. Surely they should have picked up the abnormalities?
  • What synergies did the investors expect to come from diverse businesses such as Poundland, Conforama and Tekkie Town? They would not be able to share a marketing or buyers team or even a distribution network. Before Steinhoff started diversifying horizontally, they focused on vertical integration, which makes a bit more sense. But even then, it takes time to integrate any new acquisitions. What enhanced earnings growth did the fund managers expect from these acquisitions, which in hindsight don’t appear to be there at all.
  • Why was the purchase of Matrass Firm in the USA not a big warning flag? Steinhoff paid almost double the price the shares were trading at, for a company that was on the edge of bankruptcy. More importantly, how did the fund mangers expect Steinhoff do add so much more value to the purchase? Should they sell cheap cloths or shoes through the chain of bed stores? Any decent fund manager would at that time have sold their holdings, because clearly Steinhoff was taking advantage of their expensive shares to buy anything that moves, and anything that doesn’t, in case it moves.
  • Why did no fund manager exit their positions when it was announced that the German Tax authorities raided some of Steinhoff’s German offices 2 years before the eventual crash? And why did they compare reports in the reputable and serious “Der Manager” Magazine to reports in “Noseweek”, and lough them off as sensationalistic journalism?

I think that most invested in Steinhoff purely on the belief that Christo Wiese, the retail magnet with the Midas touch would have done his thorough research before investing. That was a mistake. It is unclear how much research he did, but as the biggest looser from the fallout he would have probably liked to have done more. He might have been sweet-talked into the deal. Once inside, he was not only handsomely rewarded as a highly paid chairman, but also with all sorts of deals on the sideline, from renting out his planes to Steinhoff to purchasing debtors books. No wonder his focus was not on the integrity of the business, but rather on the added benefits of being the biggest shareholder, chairman and direct access to the fraudster-in-charge. Does he deserve to get compensated for his losses? It is a bit trickier, but I would think not, purely because he was the chairman and as thus is the ultimate person in charge of protecting the shareholders investments.

Lastly, the size of the claims is insane. Like I said in previous blog posts, it is absurd to claim losses for investments if you paid R60 per share that, even with the misstated figures of the financials could arguably be only worth R20. The only thing that the lawsuits do now is hinder the company to get back onto its feet, and by clouding the future prospects and therefore limiting their access to capital.

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Namibia

Lost direction

Are street names part of history?

Namibia’s countryside is as harsh as it is picturesque, lush but inhospitable and the wildlife is magnificent even though they are in a constant fight for survival, confronted with droughts and floods. As diverse as the natural beauty is, is Namibia’s history. Unlike West Africa, North Africa, East Africa and the very Southern Tip of Africa, for centuries it was largely ignored by European and Asian Powers. The only resident tribes were the San, Nama and Damara. In the 14th century they were joined by the Bantu speaking tribes, who came south from central Africa. There were a few European and South African traders that travelled through present day Namibia, but the lack of natural ports and the desserts to East, West and South made it a very risky destination.

But the world took notice when diamonds were discovered, and soon afterwards a reluctant Germany send in troop to colonialize the country (partly as a countermeasure against the expanding British empire). The rule lasted only 30 years, because the end of the first World War marked the beginning of the South African rule. But then, finally in 1989, Namibia gained independence. For the first time was ruled by Namibians themselves. The history reflects the culture of Namibians, which is rich in diversity, built on strengths of individual backgrounds.  There is no single cultural history, expect that the combination of all of them is the Namibian history.

Over the last few years, the government, in particular the Windhoek municipality has been going out of their way to attempt to re-write history. They seem to think that by removing statues and renaming existing streets, the reflection of history will change. It will not.

Statues, Monuments and Street names are there to remind us of where we came from. Some are reminders of how we overcame difficult periods, moved on and created a more inclusive future. Some are celebrations of achievements. Nations across Asia, Europe and America is full of such tributes, reminding everybody of the good times and the bad. But in Namibia we seem to want to erase the past and pretend another is the reality.

This leads us to the renaming of the Bismarck street. Otto von Bismarck was recently named as one of three most remarkable leaders of all times by the Economist Magazine. Even though he was not a king, he foresaw that the only way the Germanic European kingdoms could regain their powerful position as the Anker of Europe, was by combining all the kingdoms and forming one unified country, known now as Germany. As can be imagined, dealing with so many kings was no easy feat, especially since he was no king himself. His vision of a united Germany and a flourishing future was stronger than any of the individual battles. Bismarck then dedicated himself on keeping peace in Europe, which in prior centuries has been ravaged by endless and needless wars. It is this vision of a united, more prosperous and peaceful future, which Bismarck is applauded for.

To remove the memories of such a remarkable statesman clearly can’t be for ideological reasons. It seems more likely that the renaming is part of a wider removal of any association to the German history, even though Germany has been a close ally for years, and Namibians from German descent have been a major contributor to the economic development of Namibia. Even though their heritage originated in Germany, they are distinctly Namibians. Or are they? It seems like some in government are targeting minorities, especially the German speaking population, who’s history they would like to erase from the Namibian history. But it is the multi-culturism that makes everybody Namibian. There is no single tribe called the Namibian, but as a collective we are all Namibians. Therefore, all of our histories should be respected, because that is our identity. It is foolish to target one minority. Such actions have never ended well.

It is off course understandable that the current government would like to honor struggle heroes from their own ranks and modern-day leaders. To name a street after them, seems to be a good remembrance. But that is best done by naming streets or buildings that the current government has built. It would reflect the accomplishments of what is possible because of the dedication of those remembered. 

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Current South Africa

Cry, the beloved country

Like a pack of hyenas smelling blood, there is a crowd out there who will do anything to hunt down Cyril Ramaphosa and destroy him and what he stands for. They are aggressive, disingenuous and hypocritical. At worst of all, many of them are from within the ANC, spurring a vicious factional battle.

Cyril Ramaphosa, South Africa’s president, came to power promising to crack down on corruption and setting the country on a new path of growth, the so called “new dawn”. This after nine wasted years under the previous president Zuma, who’s only notable achievement was how long he could stay out of the courts while 700+ charges against him were tangled up in the court system. Besides that, the period was marked by the amount of money that flowed into fraudulent schemes. The beneficiaries were routine passengers of the gravy train, like the Guptas, and reputable international companies such as McKenzie, SAP, Bain, KPMG, Hitachi and China South Rail. Billions of Rands were stolen, which could have been spent on education, health, infrastructure, security and helping the poor.

Ramaphosa vowed to crack down hard on corruption and mismanagement, encourage investments into public-private partnerships and bring down the disastrous unemployment rate. The expectations were high, so were the leading indicators. But the reality of health of the economy paints a grim picture. The business confidence is sinking again, the economy is close to its second recession in two years and unemployment is edging even higher. Cape Town is now known for the extremely high murder rates (thanks to its gang wars) and the army is now patrolling the streets of the Cape Flats, something they haven’t had to do since the early 90’s.  Tourists are staying away which in turn is playing havoc in the housing market (due to the high amount of Airbnb’s staying empty).

The president’s biggest battle will surely be Eskom (the monopolistic electricity supplier). In its current state, it is a ticking timebomb for the fiscal stability of South Africa. Eskom charges almost three times as much for electricity as they did ten years ago and sell less. Currently they are not able to cover their operating costs and interest expenses. They are overstaffed by as much as 30% and their new power stations are being built behind schedule, over budget and are plagued with design flaws. It is a fiscal sinkhole, that could drag the whole of South Africa down. The government needs to take bold and decisive actions, which will set them up on a collision course with the powerful trade unions. This should be Ramaphosa’s Thatcher moment, where he takes a firm stand against the Unions who continuously demand higher than inflation wage increases, even if it means that more people will have to lose their jobs for the companies to stay competitive.

Ramaphosa needs a strong backing to drag South Africa out of this mess, but some of his own comrades have got nothing better to do than being treacherous and backstabbing. Ace Magashule , the ANC general secretary reads out press statements that differ from those agreed to by the leadership, and he takes every opportunity to incentivize disruption among their own ranks. This suits Malema, who is the commander in chief of the fascist EFF, the third largest political party. The Public Protector, who was found by the Constitutional Court to have lied under oath and acted in bad faith, wastes no time to find any possible reason to file a charge against anybody involved with fighting state capture. Gordhan was charged with a bogus offence that has been twice dismissed by the courts, Ramaphosa is charged with lying about a donation (even though he immediately corrected the mistake) and money laundering, which is outside her jurisdiction. No wonder Gordhan said at a conference I attended last year that the fightback against the state capture will be one of the hardest battles he has ever fought.

We are at a crossroad now. Either South Africans stand behind Ramaphosa, support his strategy to clean up the government, prosecute those involved in state capture and focus on getting the economy more competitive again. In that case, South Africa will have a bright future, with many opportunities. Or the hyenas win, in which case there will be a lot more carnage, think of Venezuela and Zimbabwe. The costs will be too high to contemplate, the hardship too sorrow to handle.

Many South Africans have decided not to wait until the battle is decided. Emigrations are at all-time highs, and it would be negligent not to at least think about a Plan B. Ramaphosa currently is the best option South Africa has, and should enjoy a strong backing by everybody, no matter which party you voted for. If he and his team don’t win the battle, we are going to lose our country.

Is Alan Paton right when he said: “Cry, the beloved country, for the unborn child that is the inheritor of our fear. Let him not love the earth too deeply. Let him not laugh too gladly when the water runs through his fingers, nor stand too silent when the setting sun makes red the veld with fire. Let him not be too moved when the birds of his land are singing, nor give too much of his heart to a mountain or a valley. For fear will rob him of all if he gives too much.”

Categories
Current International

When the joker takes control

I am not talking about the psychopathic supervillain, who was disregarded by society as he terrorised Gotham City, but about Boris Johnson, the newly elected Prime Minister of the UK. He has not been to Gotham City, but was the Major of London. In fact Boris has (hopefully) very little in common with the supervillain except for the fact that both are goofy pranksters, and both do like to dramatise everything. Boris Johnson though has been the joker of the Conservative party, somebody who is widely adaptable to mould himself into the solution for any given problem.

He is seen as the savior against the sudden rise of Nigel Farage’s Brexit party popularity. He is seen as anti-establishment, even though it was the deepest establishment that voted for him. He seems to model himself on Churchill. Johnson is charismatic and proudly English, able to connect with a wider audience and not shy to stretch the truth to make his point. All those are qualities the previous Prime Minister, Theresa May didn’t have. His performances of his previous two official posts though were in stark contrast with another.

Boris Johnson did remarkably well as Major of London. He was not only well liked but also seemed approachable and normal, often cycling to work with an ill-fitting helmet. But his chaotic nature superseded any other trait when he was the Foreign Secretary. He failed to gain any respect among his European colleagues and proved to be largely ineffective. That surely only hardened his stance as pro-Brexit. These days he seems so determined to leave the European Union at any cost, that a no-deal Brexit seems to be his base case.

Because of this, he, more than anybody else, would be able to get the Europeans to agree on more concessions. Let’s see if the Boris show is all about the art of negotiations or just showmanship. If he doesn’t get a better deal, the government could collapse, and he would go down as the shortest serving Prime Minister of the UK.

Should he succeed in finding a palatable compromise and thereby saving the UK from economic self-mutilation, he could go on to be a memorable Prime Minister – provided that he surrounds himself with the most talented and hardworking executive to make up for his short coming.

It will be interesting to see, if the second Prime Minister chosen in the last 3 years, not by the people, but rather by a few old men is able to turn this democracy around.