DUBLIN — After years of waiting, South Africa is finally seeing real action on the corruption clean-up front, starting with big news out of the NPA. Two top dogs at the National Prosecuting Authority have been given their walking papers after they were found unfit for office. Cleaning up the NPA is the first step in turning around SA’s fight against corruption, because the NPA is the organisation tasked with putting away the bad guys. As more and more incriminating information emerges from the country’s various commissions, having a strong and willing NPA will make it much more likely that South Africans will be seeing justice – and it’s better late than never. In this week’s episode, Alec Hogg and I discuss the events unfolding at the NPA and the Mpati Commission and what they mean for South Africa. We also look at global markets, unpacking the recent all-time highs achieved by US stocks. – Felicity Duncan
Hello, and welcome to this week’s episode of The Editor’s Desk right here on BizNews Radio. I’m Felicity Duncan. With me on the line, editor in chief – Alec Hogg.
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Alec, we had a really spectacular week in international markets, and we saw US markets closing at all-time highs. In fact, both the S&P 500 and the NASDAQ were hitting all-time highs, and after the meltdown at the end of last year that’s quite a turnaround and quite an interesting situation to find ourselves in.
It really is, Felicity, and we keep a close eye on this because of the BizNews Global Portfolio, which has now been going for nearly five years. Then the Exponential Portfolio – that is effectively the way I see markets and what I invest in and then if people on EasyEquities want to replicate they can do it there as well.
So, it focuses the mind when you actually have your own money on the table. Or, as this wonderful book I’m reading by Nassim Taleb puts it, ‘Skin in the Game,’ it’s called. It really is exceptional. If you’ve got skin in the game you do look at things differently and if you recall, after the September meltdown last year, in particular tech stocks took an awful hiding. You had Amazon coming down from, I think it got to over $2,000 a share at one point, and coming all the way down to about $1,300 and there was a lot of panic selling.
At that time, I remember getting emails from people saying surely, this is the end of it and the longest bull market in history has to end at some point. But it didn’t appear to us then that, (a) it was a good time to sell into a panic situation. That certainly isn’t the time to sell. It’s when you should be buying. But (b) that the exponential companies hadn’t really run out of runway by any means yet. So, as a consequence of that, we did do a few shifts later on – Google was worrying me with all the fines that they’re getting now and the pressures that are going on with the privacy stuff, and we then bought into some very cheap shares in the banking sector. But we actually stuck with it.
Well, you take a deep breath, go through the turbulence and now stocks in the US are back to all time highs so, it just shows the value of long-term thinking when you’re investing and the value of not following the crowd. But just staying with your convictions, understanding why it is that you’ve made an investment and what the reason is behind it and if the circumstances haven’t changed in that investment then there’s no reason to let the fashions influence you and I think there was just another very good, bit of learning there for us over the past six-months.
Certainly so, and it’s interesting. I’ve just recently read the great piece up on the site of Warren Buffett saying how much fun he’s having at the ripe age of 88 – and he was saying he’s had, for the last few years, this problem bagging an elephant, which in Buffett speak means, he’s just really struggled to find a very large acquisition that’s going to move the needle on the Berkshire portfolio.
That really comes out of the fact that there are very healthy valuations right now. The market has been performing well and Buffett, himself, has avoided these exponential stocks and hobbled himself, to an extent. I know he has Apple in the portfolio, but he stayed away, in general, from the tech sector.
So, it just shows the kind of market we have right now where there’s these giant companies and thy’re thriving and performing really well, and that’s keeping valuations high.
Indeed, and many of them from Silicon Valley, Apple is a good example. That was a stock that we bought into the portfolio at $120. It went all the way down to $90, and since then it’s turned around very nicely. Buffett has been buying those shares from, I think, $130 to $140 and when they got to $200 in September, at that point in time they then collapsed all the way down to about $140. At that point, some people were saying that Apple was going to the dogs. It wasn’t selling as many iPhones as it had in the past. But once again, why did Buffett buy into it? Why did we buy into it? Because of the ecosystem, the big ecosystem – the big services opportunity that hasn’t even been touched yet. Whereas, Wall Street is focussing entirely on the short-term iPhone sales being the most important.
You’ve got to look, if you’re buying into a company, at what’s going to move the needle, (as you put it) in the long term and that is the billion devices that are in peoples’ hands. They are integrated in an environment or ecosystem, which just gets stronger and stronger so, it’s that thing called the ‘network effect,’ where when you only have one fax machine it’s really hopeless. But if you have a million fax machines it really does become pretty productive.
Similarly, with emails. If you’re the first person with an email it doesn’t really help you but of course, when you’ve got billions of them, as we have right now, and this network effect goes throughout society. WhatsApp is another example. Telegram, which is the Russian equivalent, and a very useful equivalent to WhatsApp, another one that’s really catching fire now and the more you get in the more the network effect kicks in and the more the network effect kicks in the better your longer-term returns come in. Apple is really, you’re buying it for the network effect, within all of those devices. That’s what Buffett knows and it’s back above $200 a share.
Thank you for reminding me about fax machine. I haven’t thought about them for a long time.
That was really silly, sorry. I knew that as I said it out that half of our audience have never heard of fax machines, but anyway.
It was a great reminder. I remember how exciting it was to send a fax.
I bought one in 1987, Felicity, just before the ’87 crash and it was so new-fangled that you had to ask people for their fax numbers or did you have a fax machine? Of course, today, there’re pretty worthless, thanks to email.
Yes, which just shows you again, how quickly networks can be replaced because there was a fax machine in every office and then email came along and knocked the fax machines right out of the park and it happened very fast.
Indeed.
So, just a useful reminder that things can change.
Speaking of things changing, let’s talk a bit about what’s been going on in SA this week because there’s been a lot of big and important news on the corruption front, let’s call it. First of all, I know you’ve been paying a lot of attention this week to what’s been going on with the PIC, with the Commission and the information that’s emerging about Iqbal Survé. Do you want to tell us a bit about what you’ve been looking at?
Well, I think the big news came on Thursday night with the firing of, effectively, the number-two and the number-three in the National Prosecuting Authority (NPA). We need to go back a little bit. If you have got public prosecutors who are not doing their job then the whole system fails. The whole rule of law collapses. If people commit crimes they need to be arrested, first of all, which is fine, and I guess there’s enough police on the ground so, that will happen. But it doesn’t help if you cannot put them in jail through the prosecutions. Now, in SA the NPA was run by a guy called Shaun Abrahams, who was parachuted in from a very lowly position. This was a Jacob Zuma special. That was his template. He would take these underlings who were really highly ambitious but not very competent and then elevate them many rungs above their competence but with total loyalty towards him, and that’s what Abrahams was doing.
Then Abrahams had under him this really awful woman called Nomgcobo Jiba, who was the deputy, who was receiving, according to Agrizzi, R100k a month in cash from the whole Bosasa operation. Then further down, below her, was a guy called Lawrence Mrwebi, who was only getting R10k a month. I suppose now he’s a bit peeved off that he wasn’t getting more or at least a better proportion than his boss. But what has happened in the past was Shaun Abrahams went through a long process, a legal process, to eventually find that he was not fit and proper for the office so, he’s gone and replaced by a very competent, (one hopes), Shamila Batohi, who came from the International Criminal Court, where she’s been serving for almost a decade, and very highly respected there so, she’s now entrenched.
The problem, though, is that she’s still got people in the organisation, in the NPA, who aren’t really those that she would have selected and particularly these number two and three. On Thursday night, after a Commission of Enquiry, number two and three were fired and ejected from the system, which really opens up Batohi to the opportunity of giving SA’s ‘operation carwash’ that boost that it needs. Just for those who don’t know what I’m talking about there – this is what happened in Brazil where, in effect, if you take the American system the leader of the House of Representatives and the leader of the Senate in Brazilian terms, are both in jail today, and so is the former president, Lula da Silva.
So, when Operation Carwash started investigating all of the corruption that happened there first of all they needed the right people in the prosecuting authority and secondly, they needed time. Now, in SA, we’ve gone through the first step, which is the right people in the NPA or we’re much closer to that now with number two and three having being ejected. It will give the new head of the NPA the opportunity to appoint real, as I wrote in one of my newsletters this week, rottweilers into those jobs and not the lap-poodles that we had there before. So, hope springs as far as that is concerned.
As far as the PIC Commission is concerned now, this was an interesting one because it was the result of some very scurrilous allegations made by a politician, Bantu Holomisa, in June last year where he alleged that there were a group of businessmen who had been filching from the PIC. They had favour from the Public Investment Commissioners and as a consequence of that they’d been feathering their own nests. As a result, he wrote this long letter. He’s being sued for it. He’s doing very poorly for the defamation suit, but we’ll talk about that in a moment. But he sent this long letter to the president asking him to investigate but of course, before that, Holomisa being very media savvy, he gave that letter to people in the media who didn’t question it and republished all of his allegations.
The people that he pointed out came forward and in fact, I did an interview last July with the kingpin, if you like of it, or the alleged kingpin, Tshepo Mahloele, and the way he unpacked it there it was quite obvious that Holomisa was actually barking up the wrong tree. That however, Holomisa’s barking, did create a Commission of Enquiry into the PIC, and there’ve been some unexpected or unintended consequences of that in that the managerial style of the executives there have been put under question and of course, Iqbal Survé, it’s the worst think that could have happened for him because his whole transaction with an organisation called AYO has now come into the spotlight and it’s quite clear that there was a lot of skulduggery that went on. In fact, probably fraud, and those are issues that are now going to… That Iqbal Survé, and his Independent Newspaper empire, is really teetering as a consequence of it. So, it’s interestingly unintended consequences of all of this.
But the guys that Holomisa went for in the first place are coming out of the whole enquiry, I won’t say, ‘smelling of roses,’ because that’s probably a bit exaggerating. But they’re certainly not coming out with an extremely believable story and very factually supported.
So, it’s always interesting the way that these things play out. It’s not always the intention but sometimes the consequences are beyond what we would have hoped for and that seems to have happened here where a can of worms was opened up. Not the can that they sought, but a completely different one and the consequences again, for the new SA (if you like) or the new dawn in SA, are very positive.
Yes, and it’s certainly good to see the kind of, I don’t know if you recall but a while back, we talked about what we would want to see happen to know that there was something effective being done about corruption. One of the things that we spoke about was a clean-up at the NPA, the installation of the right people so that we were going to see an effective institution that would actually go out and do its job. So, it’s really encouraging to see that unfolding the way it is because it sort of says, well look what we needed to see being done is being done and that means that we’re on the right path to ultimately cleaning up everything so, very encouraging stuff.
It is, Felicity, and also a reminder that we live in a Constitutional democracy and I know a lot of people, certainly on social media being saying, ‘why is the president not moving faster?’ Well, the president isn’t moving faster, he’s moving as fast as he can according to the law, and when you live in a Constitutional democracy you follow the Constitution, you follow the law. Everybody, it doesn’t matter how complicit they are or how deep it appears that they’ve been in the corrupt processes. Everybody in those situations needs to be given the opportunity to be tried under a legal system. Otherwise, you get kangaroo courts and that ends up in chaos.
The Brazilians went through it. It took them three-years of investigations before the first guy went to jail but my goodness, have they been able to, as a consequence of that, clean out their system and a similar thing, I believe, is happening in SA. Really, when you look at this and you look at the consequences into the future of the process that’s been taken now, you’ve got to do it slowly. You’ve got to do it correctly. You’ve got to let the wheels of justice grind at their pace because they do grind finely but you just have to… There’s no purchase in subverting the process. Allow the process to go through the right way for the future and that is exactly the understanding that Cyril Ramaphosa has and that’s the process that he’s following. The dogs will bark but boy, in this case, the caravan is moving on.
