JOHANNESBURG — Amid the legendary Stephen Koseff stepping down officially from Investec on 1 October 2018, there’s a group of executives about to move up the ranks at the financial institution. One of those executives is John Green who, come 1 October, will along with Mimi Ferrini be stepping up to be joint-CEO of Investec Asset Management. In turn, Hendrik du Toit, the current Investec Asset Management CEO, will take over from Stephen Koseff as joint CEO. The other joint CEO with du Toit will be Fani Titi. So, it was a great opportunity then to interview John Green this week on a new China-Africa agreement that Investec Asset Management has interestingly struck, as well as his views on the current state of the SA economy. – Gareth van Zyl
I have John Green, who is the deputy CEO at Investec Asset Management on the line with me from Cape Town. John, welcome to the podcast. Now, we’re going to chat about the strategic partnership that Investec has signed with the China-Africa Development Fund a little later, but you were in China last week where you attended the Forum on China-Africa Cooperation (FOCAC). You also attended a business breakfast hosted by President Cyril Ramaphosa. What key take-aways did you have, upon returning to SA from your trip?
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Thanks, Gareth, nice to join you. I think key take-aways for me, during that trip, were two things. The first is a very significant and very strong intent on behalf of China’s leadership to engage more actively in the investment and growth opportunity presented by Africa. There is no doubt that that intent has stepped up a few levels and it’s good to see. I think it’s a very significant opportunity for all African countries to engage with. I think the second take-away for me was a fairly substantial change in tone and approach around how China wants to participate in the African growth opportunity. The change in tone is really centred around the fact that they now want to be very focused on participating in commercial opportunities and in affordable, sustainable opportunities. I think the President, himself, in his speech mentioned very clearly – they do not intend to get involved in vanity projects. That is, I think, a very important guide, historically, because some of the investment (but certainly not all of it from China into Africa) can be seen to have taken a slightly different route. So, I think the combination of a substantially increased intent, together with a very focused desire to be active in a commercially sustainable green fashion, which is a very important take-away.
Obviously, some people look at Africa’s relationship with China, in a skeptical way, some might say. In fact, today President Cyril Ramaphosa will be in Parliament answering some heated questions about loan agreements signed with China. The criticism there is that there’s a lack of transparency in our government’s dealings with China. I wanted to get your thoughts on that?
Transparency is always a good thing and the less transparent one is about a particular arrangement, the more that cultivates concerns from the public. So, I think answering those questions is an important thing for him to do. My sense, certainly, is that certainly in the dealings that we are having – which I would say is at a fairly significantly different level – we absolutely stay away from what we call ‘mega-projects’. We operate much more in the tier-two space and we operate much more in a space where we have potential Chinese enterprises investing into Africa. Our experience there is very positive and it’s positive in the sense that all agreements are approached in a very commercial fashion. I would expect, given the change in tone from the Chinese leadership, that their intent is not to enter into loan agreements, which are unaffordable or unsustainable. That was very clear on a number of fronts. So, I think that the scepticism, given the history, is probably warranted. But with this change in tone, we will see future agreements being much more commercial and sustainable.
John, you along with our Finance Minister basically signed a strategic partnership with the China-Africa Development Fund while you were there as well. Can you tell us more about this partnership?
Sure, so the China-Africa development fund was initially set up back in 2015, post the Forum on Africa-China Cooperation being held in Johannesburg. The purpose of the fund is to operate, principally, as an equity investor in supporting Chinese enterprises’ activity into Africa. As a very active investor across the continent in private markets (both in equity and debt), we are also focused on African enterprises that have growth ambitions and that are looking to develop their businesses. We see a very good nexus between the intent of the China-Africa Development Fund – which is bringing in Chinese skills, Chinese capital, and Chinese investment into Africa – with our intent, which is to support commercial growth. So, that’s the fundamental principle behind our partnership. We will be engaging actively to share ideas. We will be engaging actively around how specific investment opportunities in Africa that we’re engaged in could be potentially attractive to China’s enterprises. And we’ll be engaged actively in putting those potential deals together. So, this creates actually, a very interesting new dynamic, and a much more focused on-the-ground-effort to bring private enterprises together to match skill sets, and, in a bottom-up way, to activate growth. This is different to a top-down approach with mega-projects, which often take years and can suffer significant execution risks.
So, will this fund then look to benefit both African and Chinese enterprises then?
With the China-Africa Development Fund, its objective is to connect Chinese enterprises with investment opportunities in Africa, and to support that connection with equity addressment on their part. So, we’re already in discussion with the fund around a number of specific opportunities, where they have found enterprises in China who are interested in pursuing investment opportunities – either together with us or in an acquisition process from us. We see this as a fantastic source of capital and a source of expertise that is going to facilitate further growth. Â
Obviously, this fund is active across Africa but how active has it been in SA to date?
The China-Africa Development Fund, in fact, has an office in Johannesburg. They are fairly active in SA. They’ve made a couple of significant investments. We similarly, are active here in SA, as you know, but this is not a country driven approach. We’re looking across the continent. We’re looking for good investment opportunities. We’re looking for opportunities to connect China with Africa and when those arise we’ll make them work. I think the big take-out for me of this process, as I’ve mentioned earlier, is that with this intent I think the opportunity for both the private and the public sector is there to be more specific about how China can play a role in their plans. It wasn’t obvious to me that the delegations from across the continent have really, actively thought through that, with this intent. That is, how do we really take advantage of it? How do we tap into expertise? How do we tap into capital, and how do we use that to help us in a positive way? I think if the public sector across, and if you talk about SA for a moment, across both the national and regional level – if they really, think about this carefully, and actively engage, then there can be huge benefits from this process and this intent.
John, just as a last question. I want to get your thoughts on the current state of the SA economy right now. Obviously, we dipped into a technical recession last week. What are your views on where things are headed with the SA economy?
I think it’s obviously a pretty tough situation we’re finding ourselves in, and I think the change that is underway as prompted by President Cyril Ramaphosa is a very important change. I think we’ve been in a long period of expanded difficulties. We’ve had significant challenges in really important institutions that play a critical role in our economy. Those challenges cannot be fixed overnight and whilst the directionality is right, and we’re seeing lots of activity in terms of State-Owned Enterprises (I think we’re also seeing some activity in term of Revenue Services, etc), that will take time to correct. And only once that has been corrected, can we genuinely benefit from the significant change that’s being implemented.
I think on top of that, what is exacerbating the situation is a little bit of an emerging market crisis. SA always suffers for various reasons. Liquidity as well as access has been a reason that SA has suffered when emerging markets have suffered. I think it’s for us to stay very focused in the commercial, the corporate sector and the private sector about what we need to do, and to recognise that change does take time. I think the intent from those that are making the decisions seems to be there. One might want always, in the private sector, action to take place a bit more quickly but if the positive momentum continues – we will turn this around.
John Green, it’s been an absolute pleasure talking to you today. Thank you so much for chatting to us on BizNews.
Gareth, thanks very much.
