Dirigiste nightmare for business
Iwas overcome by pity when I read President Cyril Ramaphosa’s prepared speech to the black industrialists conference this past week.
He and his government continue to mischaracterise the root cause of SA’s failure to grow the economy in real terms and bemoan that we aren’t witnessing the rise of more Mike Tekes and Patrice Motsepes as some sort of funding conspiracy by the banks and a mysterious market failure that his competition bulldog will one day dig up in yet another taxpayer-funded market inquiry flight of fantasy.
Sadly, this is not just politicking to a key funding base before the general election. He truly believes it and is no doubt in thrall to trade, industry & competition minister Ebrahim Patel, who seemingly whispers into his ear at every opportunity just how nasty and greedy and selfinterested business in SA is.
He’s right, of course. To survive and grow a business in this economy — with all its mostly government-inflicted binding constraints, from power to water and human capital thanks to the dysfunctional public education system — one has to be ruthless. You need to be greedy to the point of protecting your market share with every ounce of strategic acumen and be totally focused on self-preservation (call that self-interest if you will).
To say that black business people struggle to access funding is to repeat one of the most well-worn challenges in entrepreneurship regardless of skin colour. Ask any entrepreneur how hard it is to access capital. And for good reason. Banks aren’t in the business of building industrialists; they are in the business of protecting depositors’ savings and wealth. If your business case is solid, with a reasonable prospect of producing what the market wants at a lower cost than competitors, sustainably, you won’t struggle to find capital.
But Patel has seized on the struggles his anointed industrialists have in cracking the entrepreneurship code to bend the president to his will. Applying the wrong medicine to the problem manifests all through a sick economy. Last week Remgro CEO Jannie Durand, while not naming the competition authorities, delivered a stinging rebuke in discussing how long it is taking for its 57%-owned subsidiary, CIVH, to get approval for a multibillion-rand fibre deal with Vodacom. “The uncertainty with regulatory approval creates uncertainty for foreign investors to invest in our country,” he said.
Afrimat has similar issues with its multibillion-rand Lafarge deal, with more than 800 jobs in limbo. And it’s worth considering the effect of Competition Commission intervention on the SAA transaction. Delays in the approval process, and the requirements imposed by competition authorities on the deal, were cited among the reasons for the parties to walk away.
The transaction was filed with the commission in June 2022 but the tribunal heard it only on July 24 2023, despite the deal being absolutely critical for the airline’s survival. Then the commission proposed approval subject to crippling conditions. First, it required that minority shareholders in the Takatso consortium, including Gidon Novick, sell their shares based on concern that there might be anticompetitive information sharing between SAA and Lyft. This is unusual: in cases where a shareholder also holds a minority shareholding in a rival the commission generally simply requires adequate information sharing barriers.
It seems the commission was concerned about preserving competition in SA on routes shared by SAA and Lyft. But it ignored the reality that without support from an experienced industry insider there was little prospect of the business running profitably. Ask anyone trying to fly around Africa what that means in practice: few flights, long delays and high prices. It seems we ignored the reality manifesting in Europe that scale is everything in the airline game. Perhaps only a combined SAALyft business could succeed against the continent’s other players and many European and US powerhouses in winning a share of the global business?
The commission also insisted on minority shareholders selling out of Takatso before the SAA deal closed, placing them in a position to hold their partners to ransom. No backup was built into the conditions for what would happen if minorities did not agree on a price for their shares or identify a suitable buyer. Finally, despite burning through R30bn in taxpayer funds and SAA’s financial statements reflecting losses of R23.5bn for 2018 to 2022, the commission required that SAA maintain a total aggregate minimum number of permanent employees of 1,647 for five years. Five years in the airline industry is an eternity.
The SAA business rescue practitioner, who took a long, hard look at this business before the Takatso deal, recommended as part of the airline’s rescue plan that the workforce be reduced from about 4,700 to only 1,000.
The debt at the heart of the business hasn’t vanished. Without the Takatso deal it’s unclear who will shoulder it. Despite the rosy predictions of SAA’s new board, without more hefty bailouts by the government (which it cannot afford) or a big cash injection from a suitable purchaser, SAA will eventually crash into the debt mountain. Then there will be no jobs at all.
Unfortunately, this is yet another instance of a toxic trend in which the commission is focused on job preservation and fostering “greater spread of ownership” rather than understanding market dynamics and driving efficiency.