Inspiring. Driven. Smart. You could devise many more superlatives for the man who, in January, took the reins at cement manufacturer PPC. But whatever they are, ordinary won’t be among them. Like most of us, he regards income disparity as a major threat to South Africa’s future. But instead of lip service, has done something about it. As you’ll read in the transcript that follows, the PPC CEO cut his own salary and lifted those at the bottom end. So the difference between top and bottom earners in PPC is now 48:1 rather than the 120:1 when he arrived. Gordhan, like his uncle the highly respected Finance Minister Pravin, is a credit to his country. With a decade in private equity at FirstRand and a lifetime as a political activist, he also has the ideal credentials to now serve shareholders. After getting to know a little about its inspiring leader, PPC has hit my radar as a potential investment. It should also be on your screen. – AH Â
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GUGULETHU MFUPHI: PPC posted a 10 percent rise in full-year earnings following strong sales in its key South African and Zimbabwe markets. Ketso Gordhan, Chief Executive of PPC joins us now. Ketso, you’re very bullish on exploring on the continent. That’s a bit of a surprise, given the fact that we do know there are other manufacturers there who might want to compete in similar areas to you, like Dangote Cement.
KETSO GORDHAN:  Yes, there are many competitors, but what we have discovered is that about 40 million tons of new capacity needs building to meet the needs in Sub-Saharan Africa just over the next five years. If you look at a big country like the DRC – 80 million people – it has one significant cement plant producing half a million tons of cement. Its current demands are probably around three million and growing at about seven or eight percent per annum. While you find many competitors, there’s still huge pent-up demand that is not being met. In South Africa, we consume about 220 kilograms per capita of cement. In the DRC today, it’s 24. It tells you that they have a long way to go, quite a bit of infrastructure to build, and there’s no local production, so the opportunities are clearly there. That’s an example of a place where none of the big players…Lafarge is not there, and Dangote is not there. It’s a scary place for some people but we’ve spent enough time on the ground and we understand the environment. We’ve built solid relationships and we’ve even invited the IFC to partner us as an equity partner.
GUGULETHU MFUPHI:Â Â Who is the IFC?
KETSO GORDHAN: The International Finance Corporation – the private sector arm of the World Bank, are going to be an equity partner in our investment in the DRC. That’s one of the more attractive opportunities in Africa. There are many like it.
GUGULETHU MFUPHI:  We know that when many South African companies venture into the continent, they tend to burn their fingers. How do you intend to avoid a situation like that?
KETSO GORDHAN: I think we’re learning all the lessons. 1. Don’t go in there and try to play the Big Brother. These are independent nations. They’ve very proud of their culture, their heritage, and their way of doing things. You need to respect that. 2. Don’t try to build a plant or do a deal while a political transition is underway. Having four years of Kabila as president while we build our plant provides you with a lot of stability, and that’s an important lesson.
ALEC HOGG: You have to be one of the most perfect people to drive an Africa strategy: ten years in private equity, so you know how to do deals for the long term. Then you worked for the SA Presidency. You’ve been with PPC for a year. Is it what you expected?
KETSO GORDHAN: It’s a lot better than I expected. I think PPC is an incredible South African corporate that has done very well over the years, but has not adequately leveraged either its balance sheet or its skills, and that’s what we’re doing. We have a great team at PPC. It has the ability and the humility to go into these places and build successful business.
ALEC HOGG: That’s fascinating. Rwanda: you touched on that for a moment. Rwanda is the jewel of the African continent. It is the country that is growing… It doesn’t have the oil revenues to grow as fast as Angola, but it certainly is growing from a secure base. Are you seeing that perhaps others are also identifying the opportunities that you’ve obviously seen with the investments you’re making?
KETSO GORDHAN:  I think Rwanda is a good example of a modernising economy – strong political leadership. You might disagree with some of what they do, but they’re strong, they have a clear direction, they’re very focused on what they’re trying to achieve, and very easy to do business in, which makes it an attractive opportunity for us. I think many South African corporates are beginning to see the opportunities and I think as one leads the way – MTN has done it in many countries, Shoprite has done it – so there are other people who are laying the groundwork and we’re very happy to be adding to the mix in the infrastructure space for other South African corporates to follow.
ALEC HOGG:  We can all buy that, but when you have a look on the other side of your coin and you have Zimbabwe where you’re also putting more money into and some will be shaking their heads.
KETSO GORDHAN:  I think its people who haven’t spent enough time on the ground. I think you have to spend time with people and make a distinction between government and people, as we would do in South Africa. The people of Zimbabwe don’t want to go back to the dark old days of 2004 and 2005. They are very focused on building their asset base. They understood what happened to money in that period, which is why 90 percent of cement is being bought at a retail level in Zimbabwe. People are building what they know is an asset that will keep its value.
GUGULETHU MFUPHI:  Alec and I were speaking a moment ago before you came into the studio and he mentioned that you had called for a Construction CODESA. What happened with that?
ALEC HOGG:  The last time he was here…
KETSO GORDHAN:  The last time I was here – yes. What we’ve done is we’ve started that debate. There hasn’t been an overwhelming ‘yes, we’ll do it’ response from anybody. What has happened since then is that I think we are seeing multiple settings where government and business are beginning to meet each other to try to close the gap on the key thing that has prevented this country from moving forward, which is building trust. If your government is sitting there and saying ‘the private sector is bad, it’s on an investment strike, it doesn’t want to do the right things, it’s exploiting pricing or whatever’ and the private sector is sitting on the other side saying ‘that government is incompetent, doesn’t have clear direction, is corrupt etcetera’ – that gap is just too big. Unless we begin to close that gap, I don’t think we have a possibility of any type of CODESA.
What I’m observing, which I think is very positive for PPC and for South Africa is that there’s a much more mature discussion about how to work together, and look at new ways of delivering infrastructure. Government was very concerned about the collusion in the construction sector. My response – in a meeting with them – was to say ‘why don’t you lead the collusion?’ They were taken aback and I said ‘it’s very simple’. You need to build a couple of hundred schools. Let’s get the best design through a competitive and cooperative process. Let’s then put it out to tender, agree upon the price in an open tender discussion and then you say ‘here’s the agreed price. Who wants to build?’ You’ve changed the tender process, but you’ve also quickened the likelihood that those schools are built. I’m very optimistic that something is going to happen.
ALEC HOGG:  It’s much more complex than it has been painted in the media. The government aren’t idiots. They have their own QS’s to double check what they were being charged. All of this is just the simplistic approach, but I love what you’re talking about and I don’t think anybody could disagree with it. There is however, an underlying momentum that we’re already seeing coming through. We were just talking a moment ago with your former colleague – Ettienne le Roux – who was saying ‘the construction sector, particularly those who are positioned towards government are very optimistic. Your numbers today show that cement sales – in volume – are up seven percent.
KETSO GORDHAN:  In our presentations earlier this morning, we share your view, which is that we are optimistic about the medium term. We are seeing a continuing trend of retail sales, so people – at an individual level – continue to invest, so that is happening. The private sector, both in terms of property, corporate offices, shopping malls, and other things are continuing. We just won two big contracts: one is Steyn City – ten thousand houses. The second, is Mall of Africa, is going to be even bigger than Sandton City, coming up in the Waterfall Estate. So just those two tells you that the scale of private sector investment is significant. The Renewable Energy Effort, which has been very well funded and very well organised, is now at that point where it’s going to be implemented so we are already supplying to wind farms that are being developed in different parts of the country. We are seeing the beginnings of the infrastructure rollout and I think it will increase in momentum, so I feel quite optimistic about 2015 – even more optimistic about 2016.
ALEC HOGG:  So it’s kind of happening. But as you were saying, if you could get everybody into a room and say ‘let’s pull in the same direction’… Before we let you go, this decision of yours to measure the Gini Coefficient between top and bottom paid employees at PPC: maybe, like the CODESA, this could be breaking new ground. What’s your thinking?
KETSO GORDHAN:  I come from a background, which is very much ANC. I served in the ANC in ’94 around the election campaign. I worked in government, and I went to the private sector but I still believe that income inequality is one of our huge problems. When interacting with the lower level staff at PPC I just felt that it was a little bit short of what a living wage should be in this environment. I went back to the 60 senior managers and said ‘don’t take an increase. Let’s invest our money in the bottom’. At that point, my salary versus the lowest was 1:120, which incidentally, is a lot better than many corporates in South Africa, but it was bad. I therefore did the right thing, cut my salary and increased the salaries at the bottom with a sort of investment of about eight to nine hundred rand per month for one thousand people. We’ve closed the income gap in PPC to 1:48. My salary is now 48 times the lowest salary. When I started, it was 120 times the lowest salary.
ALEC HOGG:Â Â Where do you think the right number is?
KETSO GORDHAN:  I think if we can get to 1:40 in a South African environment, we’re doing incredibly well. The ratio in many companies is close to 1:1000 sometimes. This is a challenge to all of us. I’m not saying we want to become socialists, but we certainly can’t continue in a sustainable way, to have the levels of inequality, which we have in South Africa.
GUGULETHU MFUPHI:Â Â Before we let you go: you can sort out matters regarding the pay, but what about skills, in particular developing the lower level.
KETSO GORDHAN:  I think we are putting in a huge amount of effort. I don’t want to bore you with the details, but we are spending six percent of our payroll. The norm is one to two percent, but we are spending six percent of payroll on training. We have our own sort of internal FET College, because we need to focus on improving the skills, and we have many examples of people who’ve started at the bottom and have made it to the top.
ALEC HOGG:  Ketso, you have the same surname. Are you and (SA Finance  Minister) Pravin closely related?
KETSO GORDHAN:  No, not very closely – he’s my father’s brother.
