Stepping out from under BEE banner
Black majority-owned investment outfit Kagiso Tiso is not asking for special treatment as it spreads wings
ONE of South Africa’s largest black majority-owned investment companies, Kagiso Tiso Holdings, which has its roots in one of the earliest examples of black economic empowerment, says it has outgrown the BEE label.
This is after it paid R1-billion in cash from its own pocket for a 51% controlling stake in UK-based facilities management firm Servest. It needed none of the usual financing mechanisms associated with BEE deals — and, far from seeking a BEE discount, it paid a whopping premium.
“We see ourselves as a company which has graduated from the BEE label,” says CEO Vuyisa Nkonyeni, a 46-year-old chartered accountant who studied at Rhodes University and the University of Cape Town. He was with Tiso Group when it merged with Kagiso Trust Investments to form KTH in 2011.
“We see ourselves, frankly, as no different to other investment houses out there. They may be bigger, but in terms of the model we see ourselves as no different to companies like Remgro and Brait.”
The Servest acquisition is part of a KTH strategy to grow its sources of revenue outside South Africa.
“We’re very aggressive about externalising our net asset value, getting more internationally based revenue,” says Nkonyeni.
KTH wants between 15% and 20% of revenue coming from outside South Africa within the next four or five years, he says. A year ago, it was zero. The acquisition of Servest has catapulted it to 5%.
He sees most of this growth coming from markets in sub-Saharan Africa.
This optimism is based on the belief of a growing middle class in Africa. But there are pundits who believe projections of a growing African middle class have been wildly exaggerated.
They point to the decision of food producer Nestlé to cut back its investments in the continent and discontinue product lines because the middle-class market it was targeting has simply not materialised.
Nkonyeni says in spite of the company’s intended markets in countries such as Ghana and Nigeria being hard hit by falling oil prices, the growth statistics they continue to register are “quite compelling for us”.
“The markets may not be as rosy as was the case a couple of years ago but you’re still seeing Ghana, Nigeria, all these markets we’re focusing on, growing in excess of 6%,7%, 8%.”
Does this necessarily translate into the growth of a middle class with growing disposable income?
“Yes, we’re definitely seeing that.”
He points to Fidelity Bank Ghana, one of that-West African country’s top four banks, which KTH acquired last year for about $40-million (R500-million at today’s rates).
“A large contribution to its growth is from the middle-class market, which is not showing any signs of massive decline,” he says.
So is the move offshore driven by the Africa rising narrative, or the South Africa collapsing narrative?
“By a narrative which says South Africa, as we believe, will
There are markets outside South Africa which offer higher growth opportunities In the short term there are big challenges But . . . I think the markets will come back
in the long term continue to offer growth for companies like KTH.
“That’s why we’re not shifting our portfolio out of the country. We’re investing in South African assets like Kagiso Media [parent company of Jacaranda FM and East Coast Radio, which it bought for R1.8-billion].”
In a recent deal, KTH partnered with Blackstar to form Tiso Blackstar Group, which bought Times Media Group, the owners of this newspaper.
“We desire that in the long term the South African component of our net asset value will be the majority contributor. However, part of the narrative is that there are markets outside South Africa which offer higher growth opportunities.
“But we’re not deserting South Africa. We believe that, in the long term, market conditions and economic growth will recover. It’s a matter of diversifying our net asset value so that we can deliver growth to shareholders.”
How confident is he about the future of business in South Africa? Because, according to the latest statistics, business confidence levels are desperately low and falling.
“Certainly in the short term there are big challenges that we face. But if we look beyond that I think the markets will come back. We’ve seen it time and again in the past. Cycles come and go.”
So all we have to do is sit back and wait? What about the role of political leadership?
“Political leadership is important of course. We like to throw stones but I do believe there are pockets within the political environment where things are going quite well. We’re facing challenges but I don’t think we’re reaching a point of no return. Some excellent work is being done.”
Does he see any sign of this in the employment figures?
The private sector needs to come to the party, he says.
“It’s not just a political solution that is required.”
He agrees, however, that the government has to create an enabling environment for the private sector.
“I believe at some point in time we will be in a position where policy decisions will be conducive to an environment which talks to the growth that we need.”
While Nkonyeni talks confi- dently about KTH using its influence and financial muscle to drive transformation, he has less to say about using it to drive, or influence, governance transformation on the continent.
KTH boasts about being a “values-driven organisation”, but is this mere rhetoric it is hoping will appeal to future clients, or does it mean, for instance, that it won’t invest in a country with a poor human rights record?
“We take human rights very seriously,” he says. Yet it is targeting countries such as Ethiopia and Uganda where human rights are routinely abused? “We would look at these things when an investment opportunity arises. There are obviously concerns.”
Would they be enough to pre- vent KTH investing? He prevaricates but the short answer is no.
So, commercial considerations would trump human rights considerations?
“I wouldn’t say ‘trump’. It shouldn’t be a foregone conclusion that we would sacrifice human rights by virtue of the fact that from a commercial point of view the asset is likely to show solid returns.
“But you can argue that all countries have human rights issues. It would depend on the seriousness of the human rights issues.”
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