🔒 It’s Ramaphoria vs Leninist ANC – Dr Martyn Davies waves some sceptical flags

This is the Rational Perspective. I’m Alec Hogg. Well, whenever the opportunity arises I try to get together with Dr Martyn Davies. He’s a man who possesses one of the finest minds I’ve ever been exposed to and it’s become a lot more difficult to see him nowadays. We live in different cities and since joining Deloitte, after he sold his Frontier Advisory, Martyn spends a lot of his time travelling. Last year he did over 5-dozen presentations to Deloitte clients around the world but he was in London last week to host a lunch on Africa and speak at Oxford University and we grabbed a little bit of time together. It was a fruitful hour on Friday at BizNews, as we are based in London and here are the highlights of this very rational perspective from this extremely rational man, starting with Martyn’s rather sceptical view of Ramaphoria.

Just in the macro context, Africa has had a tough 3 to 4 years. It really has been difficult to promote, do the Africa saltire and I think we see green-shoots, as you allude to, politically – some political renewal, and I think broader, beyond SA, arguably Zimbabwe, arguably Angola, and certainly SA. Amongst the other places, and as we well know, politics is always the perennial problem in our region. If we fix that, we’re going to be okay but how fixed is SA – partially? But it’s incredible how in every single meeting one would go to socially or professionally, leading up to December last year, the first point of conversation was always political and always focussed on JZ. There’s this significant sense of relief almost, in recent two months or so.

It’s only been two months, incredible.

It’s only been two months but politics is no longer front of mind in every small talk conversation you have, and that’s a good thing.

It’s not front of mine, even though there’s a new Cabinet?

Yes, look, I think South Africans are, and I always say this, is living on a rollercoaster. You have the positive news, the political shift, if you will, in December. Then there was hope. Then you had the incredible uncertainty and turbulence of the removal by the party, of Jacob Zuma as State President. Then we have a new President and we’re hopeful again. Then the following week we’re even more hopeful because we have two, key Ministers who are incredibly competent, honest, and ethical and always do the right thing into the Ministry of Public Enterprises and Finance.

And brought back, after they had been fired by the previous lot.

Correct, and that proved a point, and Cyril Ramaphosa clearly has done the right thing here. It’s good to see ethics being rewarded. It’s taken a long time since that happened. But then the following week we’re back in the usual state of political mess around the land issue in SA. So, I’ve never come across a country, maybe there’s a few around, but where this rollercoaster of sentiment, confidence, and politics is constant. All of us, as SA citizens are riding a rollercoaster.

Martyn, how are you seeing it now, given that it’s a rollercoaster, but you are sitting in London, where you can be more reflective. You’re on your Ferris wheel at Deloitte rather than the hamster wheel when you were working on your own. How you, if you take this 3 to 5-year helicopter view of SA, how’s it all panning out for you?

Martyn Davies, Deloitte

Look, SA is a sizeable economy and it ain’t going away, and I think the challenge really is, is how do we start to get into gear? But we’re mustering through, currently. I think the political risk remains. We’ve just kicked the can down the road a bit.



How so?

His name is Julius Malema. He’s very ambitious and he’s very young, and both of those things are dangerous. So, I think there’s a somewhat, I don’t want to be sort of ‘don’t shoot the messenger,’ but I think people think this euphoria, as mentioned in recent weeks and in the past couple of months I think we need to retain, and I always retain a sense of realism. The ruling party is ultimately very Leninist in its approach and we know how these things end up.

Leninist, not even socialist. It makes Corbyn look perhaps…

Well, Corbyn’s ideological aspirations will be constrained by very rational institutions and common sense. I don’t think when a party comes out and talks about land expropriation and totally ignoring what’s just happened in the neighbouring country of Zimbabwe in recent 18-years, and that hasn’t even been discussed as a ‘how not to do it.’ When you talk about nationalisation and Reserve Bank again, and this is just emotional, ideologically fuelled stupidity and policy making by the party perspective. Again, the language of comrades, the language of deployment. This is a party that simply can’t move on, I’m afraid, and look at the leadership. These guys should have done good jobs, many of them have, many haven’t but effectively they should be in retirement. I would argue, slightly contentiously, that the ANC’s greatest failure in the last two decades or so has been the creation of and think China here. Think Singapore – think other parties, where’s the intellectual qualified new leadership emerging? The ANC’s talent pipeline defected. It’s now called the EFF.

Well, we could have spent a whole day talking about SA politics but I was also keen to tap into Martyn Davies’ brain on an economic challenge that I’ve been wracking my mind about.

Leaving politics aside for a whole, the economic picture in SA is pretty grim. I wrote in my newsletter this morning about Eskom, which is now R360bn in a debt trap. They don’t have the free cashflow to pay of their interest. As much as I scratch my head and have spoken to smart people, how do you get out of something like that?

Alec, debt is a bit like gravity. You just can’t escape it and look, I think again, this was a highly predicable train wreck but why do politicians take things to the brink and beyond? It’s so unnecessary. Again, it talks to this, and I’ll use that word again, a Leninist status party driven approach to managing anything, particularly some of our leading corporations, and I think going forward, I made a comment last year and I’ve been a consistently strong, very vocal opponent of this highly unfortunate, emotionally driven, and ideological phrase called ‘Radical Economic Transformation.’ Well, I’m afraid it’s time for radical and it’s called privatisation. I don’t really believe that the State should own anything in this day and age.

Given that there is an ideological base that you’ve described as Leninist, which is pretty concerning to anybody who knows how that all ended up wherever it’s been tried. But on the other hand, given that the SOEs are in real trouble. Is it possible that that kind of approach might even be considered now?

It has to be. I think the good thing is, and again, at varying speeds here, certain companies like Eskom now have got a great leadership at the very top end in place. SAA similarly so. It’s going to start to happen across many other of these SOEs, more to come there but it’s a great start when you’ve got great people and SA has lots of great people in the right positions. So, we’re getting there but, as you said, these financial challenges are significant but with the right people we’ll fix it. I think, and I go back to say, what could we do, short to medium term, to drive growth, and I’ll talk about that shortly? How do we get beyond these very sluggish figures of decimal points of 1% or 2%, which is really not going to move the needle in any way at all I think one of the things we could do is really start to liberalise, to break up, to privatise SOEs? Expose them to the competition they require. Force change and, ultimately, drive productivity and that’s what we need] to see happen. The way these incredibly dominant SOCs have squeezed out private capital in recent years. From Transnet and infrastructure, to Eskom and power, and many others has been incredibly damaging for the SA economy.

But there is still a developmental state ideal.

That means nothing. You can’t have a developmental state, we need to move away from these hollow phrases.

If it doesn’t develop.

Developmental state – what does that mean? It’s a euphemism for state control I’m afraid. If you go back to the origins developmental state, it came around leading up to Polokwane in December 2007. This was a developmental state was that it was effectively an ideological response to Mbeki’s more market oriented approach and partial privatisation. Think in the likes of Telkom, at the time. That could have happened to many of these other companies but it didn’t, and developmental state was conceptualised by the likes of the SACP, amongst other so-called self-promoting intellectuals, who use this developmental state concept. This was a period in December 2007, SA economy was growing at 5.4% in 2007. The developmental state, I’m afraid has taken us down to decimal points, or below.

Over the past decade or so, as SA and China have grown every closer. I’ve regularly tapped into Martyn’s knowledge to get a better understanding of what the overtures from the middle kingdom would mean for the beloved country, especially as the ANC has often praised China and held it up as a role model for its off-stated development state policies. Martyn says, ‘talk is cheap,’ and in this case, there simply isn’t any money to buy the whisky.

I spent a lot of my formative years in Asia all over, from Singapore, in the South, to Korea, in the North, and a lot in the various cities and provinces in China. Being in Asia in all those years, the go-go years of the 90s, and early 2000s – even China today, you see what is possible with market driven functional, highly functional, highly technocratic states, with a very pragmatic approach to economic policy and that’s what possible. It’s called, literally, creating middle class driven societies from poverty in the space of a generation to the generation thereafter.

But there are many within the ANC who say, ‘look at China it’s a communist party, it’s a developmental state – that’s the model we need to follow.’ From what I’ve just heard from you now, and you’re sitting with your arms folded and it doesn’t seem to make sense in your mind.

Flag map of the People’s Republic of China

Alec, let me rewind so, some memory in July 2008, Jacob Zuma goes to China. His first trip as Party President, post Polokwane. He spends a week or so in Beijing and the agreement was with the president at the time, the Chinese President Hu Jintao, was to have every member of any of the NEC of the ANC – 80-odd, I guess, to go to China on so-called learning journeys. So, over the course of the next 2-years or so, they all travel over in groups to China on learning journeys to learn about the Chinese government. So this typically would be, and to understand, I did my PhD on China and I still don’t understand the place. Going for a week on a semi-vacation or a learning journey, you aren’t going to learn too much in a week. But they come back with a very status perspective of China and of course, it’s impressive.

When it comes to the gross of the capital information, infrastructure spend thing, super highways and high-speed trains, big airports, sort of an urbanisation story. The difference is in China is that… So, they’ll go to Beijing, spend less time in Xinjiang or Shanghai, or Wenzhou, or these highly entrepreneurial centres. China’s success has been underwritten by a highly functional state and, also one that was run for a decade by engineers, and what do engineers do? They build stuff and China was incredibly good at building stuff. So, what has been underpinning the growth for the last 30 years has been, as I’ve said, fixed asset investment spend – nudging 45% of GDP. Comparatively in SA where its 17%. We’re like the anti-China growth model.

We don’t build stuff. We’re like Brazil so, the politicians came back from China and went oh, China is successful (this was the conclusion) – China is successful because of state intervention and a strong state. Well, I’m saying, yes, partly because it’s been fantastic. The high growth rate is underpinned undoubtedly. The bulk of that growth is driven by gross fixed capital formation spend so, China’s SOEs – yes, they were corrupt but boy, did they deliver from an engineering perspective and built a lot of stuff. But the second story of China and arguably a far more important one has been the unbelievable flourishing emergence of a highly competitive private sector, which has totally nothing to do with the state whatsoever and that’s the part, I’m afraid, our guys didn’t really think about. If you’re going to have a status pursuit of growth make sure you do it right and you build stuff.


You execute, and the NDP (National Development Plan) talks about a 30% target, which Trevor Manuel was partly authoring – a 30% target of fixed asset investment to GDP. We’re at 17% so, the sweet spot is about 25% to 30% and that would give you baked in, arguably 3% to 3.5% before you even start doing anything else, and that’s the China-story. And this is what I don’t understand about SA – it’s hard to figure out. You’ve got this fantastic world class banking sector. We have very deep capital markets, we have highly, someone beaten down by the Competition Commission, but we have very highly technocratic infrastructure construction firms –  take the top-5’s, Murray & Roberts, Aveng, etc. We have a demand side of course and yet we just can’t get the infrastructure built. What’s the problem here? We have all this institutional financial market capability but it ain’t happening. Why? Because of a dysfunctional state and unnecessary intervention, regulatory burdening by the state on private capital, and squeezing out of private capital by the SOEs, renewables – Eskom is exhibit A. That’s prevented this private money, largely, moving, flowing into infrastructure in SA. I’ve just explained why and I’ve just taken 3% to 3.5% of our aspirational GDP growth target – just by explaining that.

Well, some sensible insights from a very rational mind. Dr Martyn Davies is Deloitte’s Managing Director of Emerging Markets in Africa. I’m Alec Hogg. Until the next time, cheerio.

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