Capitec story holds lessons for pulling SA back from the brink
It’s common cause that SA is sliding inexorably towards failed statehood. Business needs to start thinking about life after the ANC.
Fortunately, imagining an SA freed from the clutches of those wedded to ideological necromancy summoning long dead Marxists is easy if you try — the hard part is predicting what formation of political coalitions will emerge, and what trade-offs they will require.
Putting that to one side for a moment, if I were advising an SA government-in-waiting on how to fix the mess left behind once the ANC vacates the Union Buildings, I would start with a case study on Capitec Bank. That’s if you believe, as I and most adults in the room do, that turning SA’s economic fortunes around, creating the conditions for growth and the hope and dignity of employment, are the most urgent priorities.
Capitec shares listed on the JSE in 2002 at R1.17. They are now worth roughly R1,709, which equates to a compound annual growth rate of about 44% over 20 years. It is a success story that offers simple lessons on how to pull SA back from the brink — and one that future policymakers can learn from.
Capitec showed that even in seemingly concentrated industries, macro trends such as technology or broadening financial inclusion or access will allow talented entrepreneurs to enter and grow by exploiting weaknesses in incumbents’ business models or strategic focus. This doesn’t require state intervention. The government can focus primarily on restoring the rule of law. Almost everything else can be done better by the private sector.
Looking back over the past 30-40 years, the same principle applied to Shoprite when Whitey Basson founded the retail giant in 1979, as well as at African Bank, Black Like Me, Investec, Coronation, Curro, Stadio ... the list goes on. I believe all of these examples demonstrate that even in environments where we believe there are high barriers to entry, competition is possible. Today, the likes of Bank Zero and TymeBank are using technology to make breakthroughs.
But when Capitec started the technological advantage wasn’t as large relative to the big banks, which were working on COBOL programs and other systems. Capitec succeeded simply by creating a product and service that were better, cheaper and simpler than what the incumbents were providing.
What stands out if you look back at all those businesses, especially Capitec, Shoprite and Curro, is the number of jobs they created. That is key in the debate in SA. We’ve got a government that firmly believes the state must create jobs, or that the state is best suited to create jobs. But here are examples of why the private sector is better at it.
The simple reason is the founders and investors had to put in their own capital. Failure and the fear of a permanent loss of capital — no bailouts, as is common in state-owned enterprises — imposes discipline, breeds innovation and keeps people constantly thinking: “How can I offer this service better than my competitors?”
The founders back themselves, and they’re forced to think creatively the whole time. How can I beat the competition? Managers of state-owned enterprises don’t have to think: “How do I create a product that’s better? How do I grow my market share? How do I stay alive?” Things just continue regardless. And if/when they fail, they get bailed out. The two models couldn’t be more different. The past 29 years are proof — with bankrupt state-owned enterprises Eskom, Transnet and SAA the champions of this failed experiment — that the private sector does it better.
The upshot, another lesson for the state, is that consumers became wealthier because they saved enormous amounts of money at the low end of the market. Products are cheaper, interest rates often lower, and Capitec improved efficiency. Capitec’s deceptively simple and smart strategy involved opening bank branches while the other banks were closed, so workers could stop in at the bank on their way home. So, you actually provide a huge service to citizens by improving their efficiency, their wellbeing, and their cost. And that’s really how the private sector competes: by being forced to be different from the competition to survive and thrive.
In this case the regulatory environment was supportive, and the SA Reserve Bank must be applauded for that. This is where the government can play a part. Specifically, the burdens it places on businesses in terms of all kinds of requirements, including black economic empowerment (BEE), a policy with benefits far exceeded by its costs. I’m not sure Riaan Stassen, Herman Mashaba, Whitey Basson, Ian Kantor of Investec, or Andries Greyling of Curro would have taken the risks they did if they had to share the returns with a partner they would have to give a 25% stake but that wouldn’t have to risk any of their own capital.
The politically incorrect but hard, and painfully obvious, truth is that SA needs to open up to the private sector, do away with BEE, focus on restoring the rule of law and get out of the way of entrepreneurs. Anything else will fail without these cornerstones in place.