Colossal force bestrides our local factions
If there is one thing the advocates of RET (that’s “radical economic transformation” to the uninitiated) should be watching like a hawk, it is something I suspect they probably think has absolutely nothing to do with them or us or SA in general. It’s the bid by Kraft Heinz for Unilever.
Lots of things divide what we might describe as the Treasury faction and the Zuma faction in the government. But one thing unites them; the desire for a transformative government and developmental state that leads the economy. These are grand aims. But I have this horrible feeling that both factions have absolutely no clue about what they are up against. And what they are up against is neatly summarised in a distant battle between two already giant consumer goods companies.
Deputy Finance Minister Mcebisi Jonas put the case for the thoughtful side of both factions eloquently in this week’s City Press.
Jonas argues that the 1994 national consensus has reached its limit. That consensus paved the way for democracy but safeguarded the white elite and created a new black elite. It had the sense to create a system of democratic accountability, create a regulated labour market and establish a comprehensive system of fiscal redistribution.
The problem is that this grand agreement has locked SA into a capital-intensive, energy-intensive and highly financialised historic growth path, he writes. The result has been self-serving, old white foreign owners and new black rentier classes. The system is too dependent on financial inflows and commodity booms; it has created very little new wealth; and it “excludes large numbers of South Africans from participating either as owners of capital or as employees”.
I should put my cards on the table and say I disagree with this analysis. First, I really don’t understand what a “financialised historic growth path” means. But more fundamentally, I think Jonas is blaming SA’s predicament too much on the 1994 agreement and too little on what government itself actually does (or does not do) now.
The dependence on capital inflows is the direct result of the government voluntarily deciding not to balance its books. The South African government has borrowed about R2-trillion since 2008, for the very simple reason that it spends more than it takes in.
I disagree, too, with the rebuke of the new black middle class — and for that matter the old white one. The expansion and deracialisation of the middle class in SA is one of the many dramatic triumphs of the 1994 agreement. Categorising all 4-million black newcomers to moderate prosperity in SA as “rentiers” is an insult.
But it’s also an economic miscategorisation. The middle class is where business development, economic creativity and ultimately social wellbeing for all in society is largely rooted.
Anyway, onwards. Where I agree with Jonas is his desire for a “new economic consensus” based on a national obsession with inclusive growth, a stronger and less corrupt state and improving the quality of public education. These are all desirable and laudable goals. But are they realistic?
I think improving public education can be achieved, but not if the education system is held by the throat by the teachers’ unions, which continue to reject even the most modest oversight. We have seen very little evidence that the government has any intention of grasping that particular nettle. As for the less corrupt state, well, just read the newspapers.
But the really difficult one is “inclusive growth”. I support the idea of inclusive growth. As Jonas points out “without growth, transformation will make us poorer; without transformation, growth will exacerbate inequality, which will make the growth itself unsustainable”. Brilliant. But here is the problem. If there is any company in the world that is the poster child for inclusive growth, it is Unilever. The company’s founder, William Lever, was a lifelong supporter of liberalism and particularly of William Gladstone. He built a model village called Port Sunlight to house factory workers and firmly believed in building society.
Current Unilever CEO Paul Polman told me he had spent the night in Lever’s bed at Port Sunlight, which was outside his modest house because Lever believed the only way to remain healthy was to sleep in the wind and rain.
Polman himself is firmly in the tradition of the company and has rejected quarterly earnings announcements and set impressive targets linked to the UN’s millennium development goals. Unilever this week turned down a $143bn bid from Kraft Heinz backed by roughly the same Brazilian slash-and-burn artists who were behind the SABMiller takeover, who have combined forces with global investor Warren Buffett.
Although the bid was turned down, and formaly withdrawn last night, I have no doubt Kraft Heinz will be back and it will ultimately succeed. It’s just unstoppable.
As the FT’s Lex column points out, the crucial figure is the comparative cost of sales as a percentage of revenue. Kraft Heinz’s cost of sales is roughly half that of Unilever. To finance the purchase, all Kraft Heinz would have to do is reduce the cost of sales by half the difference between it and Unilever.
The bid was set at an 18% premium, so there is lots of room to improve it.
Fund managers will look nervously at their own competitive positions in their own industry and ultimately vote in favour of the deal. Unilever staff will do the same thing SABMiller staff did: take the money and live in luxury for the rest of their lives.
The lesson here is that “inclusive growth” is absolutely dependent on winning the ground game. To do that, SA must focus on the future, not on the relentless and enduring struggle for a better past.
BUT I HAVE THIS HORRIBLE FEELING THAT BOTH FACTIONS HAVE ABSOLUTELY NO CLUE ABOUT WHAT THEY ARE UP AGAINST