Johan van Zyl heads the mighty Sanlam group. A massive corporation is not where you'd expect to see entrepreneurial talent in action. Life assurers are perhaps best known as lumbering beasts, hard to turn and far from nimble. But Van Zyl has a reputation in some circles for innovative thinking, for good reason. In this CNBC Africa Power Lunch interview with Alec Hogg and Gugulethu Mfuphi, Johan speaks about Sanlam's plans to nurture growth among small and medium-size enterprises that act as suppliers to the company. It will incubate and help develop smaller businesses with growth potential. The Sanlam Enterprise Development Programme aims to complement the company's black economic empowerment (BEE) efforts, which include the recent completion of the R15bn Ubuntu-Botho BEE deal. – JCWatch the video .GUGULETHU MFUPHI: Well, financial services group Sanlam recently announced that they are partnering with Asisa to speed up enterprise development in South Africa. CNBC Africa's Alec Hogg spoke to Johan van Zyl, the Chief Executive of Sanlam, earlier today. He told us about the importance of this announcement in the context of the country..JOHAN VAN ZYL: We're trying to bring the old education part together with where we are. If we're really going to make this country work, I think we have to go beyond just the bottom line. Everybody says being sustainable is a business, but I think we can also play a wider role in the community. With us, it really started with looking at who our suppliers were. The black economic empowerment forced us to count them, list them, and look at who they were, and we found 2000 small suppliers into our supply chain. We suddenly saw that many of these guys are pretty good, the come relatively efficiently, and cheaply – much better than the bigger organisations – but they get very little. We therefore swung around R1bn of our increment spend towards smaller suppliers. A few of them need training, so we're partnering with others. We're not good at doing the training ourselves. That's not our key job. With ASISA and, hopefully, in time together with other financial services, we'll create this development fund and fund it properly, which can train and support these supply chains..ALEC HOGG: Is it just you with ASISA? Are there others?.JOHAN VAN ZYL: Yes, we are the first mover in a sense, but the idea is to get all the major players in the savings space – the insurers – to eventually do something in this area, as well..ALEC HOGG: It's quite impressive. I was looking at your numbers on procurement, the way you, as you say, swing R1bn. How do you practically do that? Do you have a room full of people who are going through the size of the companies to make sure they aren't, for example, fronting?.JOHAN VAN ZYL: Yes, they're not all black. I must be honest. For us, it's a big business and we operate in many parts of the country. It's simply a matter of looking carefully at what you do, where you can do a bit more, where you can create jobs and selectively, simply doing what we think is the right thing is also going to help the country get growth..ALEC HOGG: You mentioned jobs..JOHAN VAN ZYL: Yes, jobs..ALEC HOGG: Small businesses create jobs..JOHAN VAN ZYL: They create jobs, and very quickly. They don't take a long time. I hope that in three years from now we can put somebody on and write some type of paper on how many jobs we've created indirectly, but hopefully many..ALEC HOGG: The whole decision to partner with ASISA, what drove that?.JOHAN VAN ZYL: Well, I've been part of ASISA (one of the founding members). We've been driving it, but it's better to do it from an industry perspective. There are many things which we can't do ourselves and if we only do it by ourselves it will stay a Sanlam Initiative. I think some things are simply bigger and we have to make a real impact to making the environment, the country, and the industry sustainable, so that's our contribution..ALEC HOGG: Government talks a lot about enterprise development and I had the privilege last month of meeting James Caan – he's one of the Dragons from the Dragon's Den – who was charged by the British government to grow small businesses there. They gave him ₤1bn and he created fifteen thousand businesses, which I guess, shows that if there is this relationship between the private sector and the public sector, things can happen. Do you think we should be trying to do things like that?.JOHAN VAN ZYL: Yes, I think there are many things. We'll never be able to do enough there. One thing we can't do is expect government to do this on our behalf. Government can be a player. They can certainly be a referee and make things a little bit easier for example, the machinery and providing funding for things like that. However, I do think it's up to the industry and business to really get things going..ALEC HOGG: You're an unlikely entrepreneur. I say that because you come from an academic background, but you've been incredibly entrepreneurial at Sanlam in growing it over the past 16 years. What is it about entrepreneurs? What is it about you and about what you've done there, that maybe sees your organisation grow by doing different things and perhaps, others not so?.JOHAN VAN ZYL: In our own case, the first step is removing a lot of the bureaucracy, getting the incentives right, and playing a type of governance role, but making people accountable – in both ways. If people don't perform, you take some of the money back. If they do perform, you give them more. Over a period – I've been fortunate enough to have a long tenure…Over a decent period, the money and initiatives shift to those guys who are simply better, who do more, and who are quicker out of the box. That attracts others who see what is happening, and then it's about making the right people, and we've had some wonderful stories. If I look at our own business, half of the income now and the profit we make, comes from areas that we weren't in 10 years ago..ALEC HOGG: If you look into the next 10 years, maybe it will be the same again with your initiatives for example, in India..JOHAN VAN ZYL: Yes, it is exciting…this is what we're trying to create: a big South African base, with a conglomerate, with many moving parts, and key areas where we can put money if things go well (or if doesn't go as well). We expect cycles and headwinds. Nothing goes up forever. We can therefore move the money and the opportunities around and support where we think – in the next five years or so – the bigger returns will come from..ALEC HOGG: How did you go through that process? Many big corporates would like to do what you've done. Somehow, you had a pool of money – I don't know if it was a Slush Fund (the Johan van Zyl Slush Fund) – that you were able to make bets sometimes, in smaller businesses that have grown big..JOHAN VAN ZYL: Well, you'll recall that initially we had nothing. We had to make the big decision around our relationship with Absa. We had a 25 percent stake in Absa. We got very little business from them. We saw that as a core part of the financial services building block, moving forward and eventually, we came to the conclusion that either you control something, or you're not a strategic investor. You're essentially a portfolio holder. Once we got to grips with that, we decided to sell our stake off to Barclays – initially, it was at a relatively low price – the deal took forever and the price nearly doubled during that period. We got a sizeable R10bn chunk of cash. After that, it was really about how we apply that. Now, most people would have rushed out and done many things etcetera..ALEC HOGG: Or give it back to shareholders through special dividends..JOHAN VAN ZYL: Yes, we decided to give some of it – a substantial part of it – back, but through buybacks. The biggest opportunity…We'd been fixing the business for four or five years. The market didn't give us full recognition for what's been achieved. It does take a bit of time for news to filter through in the market. We saw that coming. We were trading at a discount, so we invested about R10bn of that and additional funding that we didn't pay out into shares. We invested around R10bn into new opportunities, and have quite a sizeable war chest left..ALEC HOGG: R125bn market cap. Who would have thought, after five or six years of listing that the Sanlam share price was just bumping along? Getting back to the core of our conversation on enterprise development: isn't there more that big companies can do to help smaller businesses develop?.JOHAN VAN ZYL: I think there's a lot that we can do. They key part, essentially, is that it's not our business. We're a financial services business. It's not our business to develop small companies. Firstly, in our case, we simply looked at the supplier base, shifted some money towards them, found others. We have to spend social/corporate investment money. We also, in terms of the Financial Services Charter, have to spend money in economic development and increasingly, a substantial part – in our case, R10m. Instead of trying to do a few little things ourselves, we partnered with an organisation where there can be a multiplayer effect, get in some key players and the best technology, so that you can be at the forefront, and rather get them to do it. This is where this concept of partnership really works. It's us – our supply chain – partnering with a whole range of new players such as NGOs coming on-board. We have some wonderful people there, simply doing things that we would never have been able to do.
