Steven Nathan – ‘SOEs and government should play a much smaller role in the economy’

Steven Nathan, founder of 10X Investments, joined the BizNews Power Hour as co-host for yet another fantastic discussion on what’s been in the headlines. Nathan, a resident of the Western Cape, provided insight into the Western Cape’s ability to survive on its own economically – a concern voiced by Roelf Meyer in the event that the Cape independence movement becomes a reality. While Nathan admits that the Western Cape is by no means perfect, he says that ‘certainly on a relative basis, it’s an enormous standout’ compared to the rest of the country. Nathan also commented on the explosion which occurred at Eskom’s Medupi power station on Sunday, saying that ‘it just shows you why state-owned entities and government should play a much smaller role in the economy – Steven Nathan – because their ability to deliver is just not at the level of a private sector.’ – Nadya Swart

Steven Nathan on Cape independence:

I think that if you look at the provinces in South Africa and if you look at their sort of economic performance, the performance at the local government level, service delivery – Western Cape stands out head and shoulders and as a city, as the metropolitan, Cape Town stands out head and shoulders. It’s by no means perfect, but certainly on a relative basis, it’s an enormous standout.

On Roelf Meyer’s perspective that the Western Cape cannot survive on its own economically:

You know, I don’t necessarily agree with that and I’ll tell you why. You know, if you look at a country like Namibia; Namibia only has a population of two and a half million people. Western Cape has got over seven million. So from a critical mass perspective, Western Cape would be about three times bigger than Namibia. And what’s also interesting about Namibia is [that] if you look at their GDP per capita; so GDP per capita, as you know, is a measure, a proxy for the wealth of a country and the wealth of the average citizen because it looks at the output per average citizen.

Now in South Africa; our GDP per capita is just over $5,000 per year. Namibia is over $9,000 [per year]. So here you’ve got a country that’s much smaller and on a per capita basis is much wealthier. And, you know, by all accounts, a lot of the information – and I think the news that a lot of us read through – [shows that] Namibia is, once again, a relatively well run country in many regards. I don’t think that that size aspect is, in and of itself, a valid argument. There are a lot of countries around the world [that] for various reasons are small and that are very successful; Singapore, Switzerland, Liechtenstein. I’m not saying one can exactly say it’s a one for one, but I don’t buy that argument.

I think there will be a lot of challenges; there’s challenges from a constitutional perspective and from a legal perspective. And then there’s challenges with – I heard Roelf Meyer talk about – the interconnectedness. You know, how do we get goods between – you know, if let’s assume that Cape Town or the Western Cape wants to break away – what taxes and what excise duties – and we can see that happening in Brexit. And it’s very difficult to make rules around people, movement, the movement of goods, the movement of people, taxes, corporate profits. So there’s a lot of work to be done. I think that would be a big challenge. But I think this argument about size – that I certainly don’t buy.

On the impact that the Delta variant hitting China could have on the global economy:

Yeah, well, it’s always interesting to know what we have worked into the numbers and what we haven’t. But, you know, I think the overarching issue here is that covid is a really unpredictable disease that we haven’t got on top of – and, you know, no one is immune and no one is safe. And as you say, China certainly got out of it; they went into it the fastest, they locked down the quickest, and they got out of it the fastest. So they’ve done an exceptional job. But it doesn’t mean that they are out of the woods and [that] they can declare victory against covid. And I don’t think any country can.

What I would say is that if you were looking at a country that could manage any subsequent waves and manage spreading of it, I think that China would be right at the top in terms of their ability to get on top of this and to control it – because just look at their track record. I think of all the large economies they’re the only large economy where their economic output, their GDP is basically higher than what it was pre-pandemic.

So, it just talks about their ability to react to these things. And often there is quite a strong hand of government, and, you know, human rights is not always first and foremost – but I think that their ability to contain it is right at the top of any country in the world and the markets kind of look to profit from any short term movements and to kind of – if you’re going to panic, panic first, if you’re going to trade, trade first. And what we’ve seen with the oil price, as you say – it’s come off a bit, it’s only off about 8% from its high. So that’s not an enormous decline. And you must also remember that it’s up 30% this year – the oil price, Brent crude was at about $54 at the beginning of the year, it’s now at $70. I think it peaked at about $77, $78. So, you know, we’ve got to see where it’s come from and in April of last year it was below $20. So it’s definitely not an all-fall-down scenario.

And even if you look at the economic forecasts, the economic forecasts for China for GDP this year have been about 8.5% to 9%. And now what we’re seeing is some of the economists are saying, ‘Well, because we see infections rising, that might have an impact on output’ and they’re kind of reducing those forecasts from, let’s say, the 8.8 to the 8.3. So that’s about 0.5% off GDP. But when your GDP is almost 9%, that’s not as bad as, let’s say, South Africa, where you’ve only got about 1% or 2% to play with. So I think it’s too early to get overly concerned about it, but it’s obviously something that markets are watching.

On Adapt IT founder Sbu Shabalala resigning following accusations of sending armed men to the home of his estranged wife:

Yeah, it’s very sad, because I also met Sbu a few years ago and I was impressed with the company he built. I think he was a founder of Adapt IT, and has grown that from a small business into a sizeable, by South African standards, and successful business. And it’s really sad to see someone like that – who has made such a great contribution on the business side – to fall along the way. And I don’t think we know exactly what has transpired. But I think it’s fair to say that the behaviour that was mentioned in court papers and in the popular press took a lot of people by surprise, even those people that had worked closely with him. So I don’t think we know the full story yet. Maybe it’ll come out at some stage, but it’s disappointing.

And on the other hand, maybe it’s commendable for the business community that they actually have dealt with this quite quickly, and from a business perspective – haven’t let it linger or taint their business. And maybe that is a positive that we can take out of it – that there was accountability and this was dealt with in a reasonably quick period. And the business can go on and the business must go on – because in cases like this, the business is more important than the personality, especially when there are reputational issues that might impact the business and impact all the employees and their customers as well.

Steven Nathan on the explosion at Eskom’s Medupi power station:

Yeah. You know, it’s kind of when is the pain going to end? And for me a couple of points; the one is [that] it just shows you why state-owned entities and government, for that matter, should play a much smaller role in the economy because their ability to deliver is just not at the level of a private sector. And when you have these enormous projects – and these are not immaterial projects, they’re projects that have a material impact, both from a financial perspective – as you say, the sheer cost overruns are outrageous, so that puts enormous pressure on the government, on national treasury, on our tax receipts, on our expenditure. And then also it’s a key function and service in the economy; electricity.

You can’t have a strong economy and a cost effective and competitive economy if you can’t keep electricity output and you can’t do that cost effectively on a competitive stage. So it’s really, really sad to see this. Not unexpected, but sad. And I guess the issue for the country would be, well, at what stage do we get these power stations right or how do we address it?

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