ALEC HOGG: It’s a privilege here in the Biznews studio to have John Mauldin who’s out from Texas, the Chairman of Mauldin Economics and well known for the newsletter that has how many subscribers now, John?
JOHN MAULDIN: It’s pushing one million, yes.
ALEC HOGG: In addition, Andy Andrews one of the pre-eminent academics in South Africa, former Head of Wits Business School and former Head of Henley. What are you up to now, Andy?
ANDY ANDREWS: Well, I’m teaching internationally now, Alec. I teach a little bit in the US I’ve been doing a bit at MIT. I also work in China and India. In fact, I’m a Professor at ESADE Business School in Barcelona, so I’ll go anywhere that pays. It’s a simple formula.
ALEC HOGG: I would like to then get the solutions to the South African issue. I doubt there’ll be two better-qualified people to give us those insights. Starting off John, from last night, Glacier by Sanlam had a presentation here at the Johannesburg Stock Exchange where you didn’t toe the line. You were telling the audience things which they perhaps didn’t want to hear.
JOHN MAULDIN: I thought it was the exact thing they needed to hear.
ALEC HOGG: That’s the difference, isn’t it? What they ‘needed’, rather than they ‘wanted’.
JOHN MAULDIN: If you want to tell them what they want to hear, then I’d be a politician and there’s a reason nobody would vote for me, because I don’t necessarily tell people what they want to hear. Sometimes it’s what they need to hear and sometimes, when you’re telling them something, which is the truth, this is the way things are, and they would like things to be different. There’s this really big nasty thing called ‘the reality’ that we have to deal with.
ALEC HOGG: The reality of South Africa is that it’s not as competitive a destination for international capital as it was in the past, and you made that point very clearly, that South Africa needs to look after itself and get its act together.
JOHN MAULDIN: When you look at the international perception of South Africa, it’s really coloured a great deal by our perception of the South African diaspora. Everywhere you go in the world, you find South Africans, and they are always moving up the ladder. They are always starting businesses. They are very entrepreneurial, and when I come to South Africa, that’s what my Texas eyes notice, is this ‘we want to do things. We want to start things. We want to grow things’. There’s a great deal in the DNA and I think that comes from just where the roots are of all the countries. Of all the different groups of people, there was a spirit of doing and growing.
What South Africa has not done is unleashed that. They have so many rules and boundaries that makes it too difficult to set up businesses to grow.
In all candour, all you have to do in one sense is just simply get out of the way. Stop setting up so many of the rules. Stop trying to protect people from change. Stop trying to somehow legislate fairness, which means do nothing, allow people the room to experiment and to fail. I was using the analogy that so many people in the United States, but especially in Texas, start business and then they fail. Eighty percent of all new businesses fail in Texas or in the United States. It’s just been this type of historic average, so the odds are that when you start a business, it’s going to fail.
The odds are that if you invest in a new business, it’s going to fail. But when it works, it’s a thing of beauty.
Every now and then, you get a Google. You get something that employs tens of thousands of people and you don’t know when they start. They were two guys out of a dorm room, who said ‘gee, we think we can build a software program where people can go and search for stuff’. Well, what the heck did that mean when they launched it? Well, it means a lot 20/30 years later, now. I talked to a guy the night before last here in South Africa who has become quite well off building something we all use – bathtubs and sinks. He exports them all over the world. Who knew? When he began explaining to me, what he was doing and where he was doing it, I’d just gone through my own redesign program in my house in the States, so I became rather familiar with it. Who knew that he would be competing with the best people in the world and beating them at their game? That’s what entrepreneurs do.
Often, here in South Africa, you think about ‘our competition is Africa’ only. No, your competition is the world. It’s Uruguay, Bangladesh, and Thailand.
The world is truly global, but that means your markets are global. You start local, but you have think global, and that takes you right to where Andy is with his Blue Ocean strategy.
ALEC HOGG: Yes, it’s quite an introduction there, John.
JOHN MAULDIN: I’d teed the ball up really high. There’s nothing on the fairway in front of you, Andy.
ANDY ANDREWS: Yes.
ALEC HOGG: Why didn’t those two guys who sat in the dorm room – Sergey (Brin) and Larry (Page) – why weren’t they from South Africa? Alternatively, if they had been from South Africa, would they have gone and found another place to launch Google, as Elon Musk did with Tesla?
ANDY ANDREWS: Well, perhaps the environment there in Silicon Valley at Stanford University…they nurture that type of thinking. It’s part of the culture in those countries and those areas. We don’t do that in this country. We are really denominator managers – that’s what Gary Hamel described it as – where we’re looking to cut costs. We’re not thinking about the top-line to get returns and profits up and come up with new ideas. I think he’s absolutely right, that we have this mentality and I think it may stem from the old Apartheid days if you hark back to that, where we were with sanctions etcetera. Everything was internal and we have not yet gotten out of that, or thrown off those shackles, and said ‘wait a minute. We don’t have to market to ourselves, here. We can now go global.’
ALEC HOGG: We still haven’t, 20 years later?
ANDY ANDREWS: No, I don’t think so.
ALEC HOGG: And this idea of government just getting out of the way and unleashing human potential…?
ANDY ANDREWS: Well, I think that’s definitely part of it, but I think part of our attitude is that we just don’t think big enough. We have a bit of an inferiority complex about these things. Thirty/forty years ago, Ghana and South Korea were the same size. Now, just look at South Korea. In South Africa, in the last 30/40 years, we haven’t developed a single global brand. In fact, I don’t think we have any, really, apart from people such as SA Breweries, who’ve done it by acquisition. If you look at Korea with Ikea and Samsung etcetera, they think differently about things, and I do think we’re rather shackled, as John mentioned.
ALEC HOGG: John, I’d like to throw something at you. Nigeria – have you been there?
JOHN MAULDIN: Only changing planes.
ALEC HOGG: Okay. Nigeria, in 1994, had an economy one-fifth the size of South Africa. Nigeria in 2014 has an economy one-third bigger than South Africa. You have to ask yourself, what the devil went wrong? You’ve been visiting this country and you love it, so what do you see?
JOHN MAULDIN: Firstly, I’ve actually found it somewhat quaint, coming from the United States, maybe humorous that you guys even care. Really, if somebody’s bigger than you are… Oh, my God, there are many people bigger than you are. Who cares?
ALEC HOGG: Texas (economically) is six times bigger than we are, by the way.
JOHN MAULDIN: Just as a side note, I think I read the other day that half the jobs which were created in the US since the recession, have been in Texas. Why is that? That’s because they’re coming from the States where there’s a lot of regulation and the government set up roadblocks. Come to Texas. We’ll set you up. We’re free. Boom, you’re done. There are people who want to work, so that’s where the jobs are showing up. It’s not that we’re particularly creative. We have the advantage that they found a little more oil out in West Texas, but that’s West Texas. Out in West Texas and you can find a job any day. The rest of us have to do it the old-fashioned way…just create regular businesses. That being said, South Africa has the potential. You have the knowledge base. You have the Rule of Law. Look at Singapore. Sixty years ago, Singapore was a swamp with a few million people. It was disease-infected, muddy, and had a couple of roads. It had a few really great old English colonial hotels, and that was about it.
ANDY ANDREWS: It had Raffles, and that was it.
JOHN MAULDIN: I was just at the Oyster Box in Durban. It reminded me of Raffles. You guys therefore have your own Raffles. You don’t need to duplicate. It is all about the human spirit. It’s not about who has more resources. How many resources did Singapore or Hong Kong…?
ANDY ANDREWS: Or Japan…?
JOHN MAULDIN: Or Japan, or Korea… Cyprus. When I met with President Zuma the first time, before he became President, and the two times after, he would say ‘what would you do?’. He hasn’t talked to me in the last five years. It’s okay. I said the same thing all three times. I said I would put an envoy…send a few guys to every country in Africa to say ‘we want to do free trade. I want a one-page Free Trade agreement. Your stuff comes in. Our stuff goes back. We can move money back and forth. Whatever you want to do, let’s do business’. And make it simple. Not every country would do that, but enough would, and you would start. That’s what Cyprus did – a little bitty country with half a million people – a bunch of rocks… I’ve been to Cyprus. God bless them. They fight with each other. They shoot. They’re not happy. Its not the easiest country to be in, but it’s extremely prosperous. It’s the second most prosperous nation in the European Union. Why? Back in the 70’s… Do you remember the Non Aligned Movement? The President of Cyprus sent an envoy out to everybody in the Non Aligned Movement that said ‘we want to have free trade, free banking, and a free zone. Come here and do your business’, and that’s what happened. Cyprus became this powerful little banking business place to locate to, and they would be perfectly happy today if they had just not been overwhelmed by the Russians. That’s a separate issue.
It was the human spirit, and not some natural advantage they had over everybody else. I’m telling you, that when I come to South Africa, I see all the way up and down the line, everywhere I go, from the taxi drivers to the CEO’s, I see that human spirit.
What you have, as we have in the United States: you have a government that tries to protect people from change. They want to control things or herd things and that’s the last thing – if you’re interested in growth and jobs – that’s the last thing you want to do. By the way…Andy…he’s the really smart guy in the room. Let’s hear from him.
ANDY ANDREWS: Yes, we can learn from others. That’s how we tend to learn. You should be looking at others. We have the opportunity. I just don’t think we’re using the right tools to look at it. I agree with John, too. I think we are over-regulated. There’s a paternalistic type of attitude of ‘somebody else knows better’ and ‘we’ll tell you how to do it’. It doesn’t work.
ALEC HOGG: So what’s the whole Blue Ocean Strategy idea? I think we’ve all – well, John and I – have read the book and millions of others have, too. How are you applying that to your life and your business now?
ANDY ANDREWS: Well, now that I’m out of the so-called full-time university business, I just feel that in South Africa, we have all these unemployed people and all the way up Africa, there are huge opportunities. If you talk to CEO’s and you say ‘what are the things that worry you’, one of the first things they’ll say is ‘we have to develop new products and we have to innovate’. Well, the trick is that nobody really knows how to do it. If you ask them ‘what are you going to do about it’, they don’t know. They say ‘we’ll just spend some more money, perhaps, on R&D etcetera’, but they actually don’t know. I think that what is interesting about this – because I was working with companies such as Nestlé and Henkel etcetera in Europe – and they continually look for new products. I then went back to this Blue Ocean. I looked at it initially and though ‘this is fairly trivial’, but once I got into it, and I started using and applying it, I realised ‘well, hang on. This system will work’ and we have examples in South Africa. Look at Capitec. Look at Sally Williams Nougat.
That’s being exported to China now and if you have a great wedding in China and you want to be a big shot, you have Sally Williams Nougat at the wedding.
Michael Jordaan was talking about it yesterday. I still think he wasn’t really Blue Ocean. I think he was taking customers away from the existing market. The thing about Blue Ocean is finding markets that don’t yet exist…customers who are non-customers. There are 800-million people up the rest of Africa somewhere, and they’re not using these products because they’re designed for a first world distribution system and manufacturing process. In India for example, Unilever find that India has about 17 percent of the world’s population, but 29 percent of the hair, because people have long hair. They therefore go and put their shampoo on the market in the 12oz bottle, which sells for about 50 Rupees or something. That’s a month’s salary. No one can afford to buy it. The mass market can’t afford to buy it. They therefore go and look at it and they say they’re going to cut out the conditioner and all the stuff people don’t really need. They put it into sachets and they appoint women in all the villages, and the woman becomes a type of Tupperware Lady and sells the shampoo at a fraction of the cost. They clean up the market. Gillette go in and they say they estimate at least 400-million men and some women probably, shave every day – that 400-million minimum. They go and launch – I think it was Mach 3 or something – it sold, I think, for $10.95, so no one bought it. Only a few people did. What they do is, they go and look at how a guy in India uses the product or shaves. Many of these people have to get up early in the morning – 4am – and sometimes when they get up, they have no electricity and no hot water, so they sit in this hut or their little shack. They have a bowl of cold water. They have a candle. They have a broken mirror. He squats on the floor and he tries to shave with an old blunt blade. They said ‘no, wait a minute’ and they cut the costs, they say, by 95 percent. They cut out all the frills and left just two little blades. They say they got 50 percent market share in six months. That’s what we have to do.
ALEC HOGG: It’s the same type of thing you’ve been talking about, John. Just get out of the way, Government. Get out of the way, Regulation, let people investigate what’s available, and they’ll come up with the solutions.
JOHN MAULDIN: Andy and I could probably sit – and I’m sure you could too, Alec – sit here all day talking about the amazing way entrepreneurs figure out how to deliver products. One of the things that is the driver is that we’re doing more and more things for less and less. Michael Jordaan and I were talking about this last night. After we did the interview, we realised we were both talking about the same background philosophy, and so we got off to the side and started comparing notes. He was like my brother philosophically. The driver is more and more, free. We now get our phones…we get so much stuff free on it. I get my Google. I get my information. I get my maps. I get all of this stuff, and it’s becoming cheaper and cheaper.
That’s going to be the driver, because anything that can be transformed into bits and bytes, anything that can be shaved, softened, or restructured in order to make it more affordable…that’s where the world is going.
It’s interesting. GDP doesn’t grow by one bit every time I use Google Maps or Google Search and yet, that was a valuable service. It comes back to….I don’t think our economics, the way we’re structure, or the way we measure things is really designed for the Age of Transformation, which is what I call what we’re going into. We should be measuring the amount of information flowing, and not just the amount of product going. If we measure the world in terms of information, we’re having a marvellous boom. When we put six/seven billion people with a cellphone, which is a Smartphone, in their hands…in 15 years from now your cellphone will be the size of the button on your shirt, but it will be one thousand times more powerful. You’ll have the processing power of a human brain. You’ll have two or three of those, they’ll be cheap, and you’ll be able to task that cellphone. ‘I would like to know how to do this and this’ and ‘can we put this together’, you’ll wake up in morning, you’ll have your answer here. We’re going to find ourselves limited only by our imagination.
ALEC HOGG: That’s exactly the story of Africa, isn’t it – limited by imagination – and in this case, with people getting in the way? Andy Andrews and John Mauldin, it has been a pleasure. Thank you for coming through to our Biznews studio today for some very insightful conversation.
JOHN MAULDIN: It was fun. I liked it. Let’s do it again.
ALEC HOGG: Thanks, Jo
