Portia Molefe: Overcoming the legacy – ‘A Country of 2 Economies’

Tim Modise speaks to the former director general of Public Enterprises and current director of UBU Portia Molefe on the need to integrate South Africa’s informal sector into the mainstream economy, in order to deliver faster growth. She says South Africa has to overcome the legacy of ‘a country of two economies’. Doing business in West Africa, Molefe also said the development of infrastructure and sharing of technologies will help improve trade between African countries.

Portia Molefe, Director of UBU, is with us here on our Transformation Section. It’s a pleasure to talk to you, Portia.

Hi Tim.

A veteran of trade in South Africa, as well as on the Continent, so we’re going to probe a couple of ideas on how Africa should be doing business with itself and the rest of the world, but before we do that. Let me look at the World Economic Forum. Your thoughts on it, I mean it’s always positioned as one, big do, where things happen, and Africa is taken forward. Do you think that it does generate value? It creates value for the Continent?

I don’t know, to be frank. I mean it is a talk show, but on the other hand, there’s so many things happening in the world, maybe there is a necessary forum, for leaders in the world to sit down and talk. I’m not sure if they actually solve problems, but I think I’ve only attended one, so it’s not an area that I’m particularly interested in participating in.

But you’ve been a senior Policy Maker in Government itself, being with the Department of Trade and Industry. One would have thought that whatever is discussed at the World Economic Forum is something that you will pay particular attention too, or will have something to say about it.

You know, what you’d worry about is how South Africa is being positioned. That would have been in my previous life or how the Continent is being positioned, in as far as are the discussions, at the World Economic Forum, material for investing or doing business in South Africa or on the Continent. So it would really be more marketing, promotional kind of an event. I’m not sure that you’d necessarily go and talk serious business there, in those broad forums.

How is South Africa perceived, at least on the Continent?

It’s half-and-half. I mean some places you go to, very well regarded, and we’ve been trying… I mean, I’ve only been back to visit Nigeria since the xenophobic attacks once. And I have to say I was very grateful for the fact that the reception was very cordial that we received but, what we always used to find, and I’m saying ‘used to’ because I’m not sure what the world looks like after the xenophobic attacks that we’ve had here in South Africa.

It was always a good number of people who were very supportive of South Africa. Then there are some who felt that South Africa, sometimes behaves, pretty much, like the Americans – we are the bullyboys of the Continent – we know and we’re bigger and we’re stronger than everyone else. I’ve never quite come across one view of South Africa. Generally, always found more positive than negative. However, I must say that South Africans could behave better.

But you know we have a view of ourselves in South Africa as being a special kind of nation – a miracle nation, as it were. As much as we are fairly young, in terms of being part of the Continent, only 21 years in existence as a democratic South Africa, so that specialness, we think that the rest of the Continent and the world regards us as a ‘special nation’ anyway, from at least a business point of view.

Well, look, let’s take, in terms of economic development. There’s no doubt, in terms of our level of development relative to the Continent. We are ahead. However, I think the fact that you’ve got this, what Mbeki used to call ‘the two economies’ in South Africa. Sometimes, I think blinds us to the fact that there’s actually a huge part of South Africa, which ain’t no different to anywhere else on the Continent.

Where, in fact, I think we’re taking a much longer time to deal with what our problems that the Continent is dealing with. Like for example, I mean beyond BEE and even this new buzzword, about Black Industrialists, because over and above this hundred’s havebeen targeted, there’s the rest of the thousands, hundreds of thousands of people who were supposed to be working in their own businesses, who have to be able to run their operations. Who are informal going to formal – who are from nothing going to the informal, supporting that. We are not great at it, in South Africa but the Continent has to deal with the informal enterprises every single day, so I’m not… Yeah, sure, maybe South Africans do walk around and think that they’re developed and they’re better than other people. I’m not convinced that that’s necessarily the case.

If I understand you, you are talking about the informal sector not being properly integrated into the economy or recognised as such, as a meaningful activity.

Yes, because on the rest of the Continent it is the economy. It’s not a fringe. In South Africa it’s a fringe, and I think part of the problem that we have in South Africa, is that the informal sector is treated too much as a fringe, and not treated as actually that’s where innovation and energy is located.

Now, your company, UBU, does a lot of business in West Africa, in particular, as much as one would regard you as a South African company. Which areas are you focusing on, infrastructure, energy, and what else?

Well and also just general economic advisory that’s what we tend to look at. In the case of infrastructure, the question, my business partner is Alec Erwin, and when he left Government, and I then, subsequently left. The one thing that we always sort of said, we were interested in two things. One, in South Africa, we found that there were actually a lot of mid-size, very advanced manufacturing companies that were really innovative. I mean, South Africans I think, are probably amongst the best in the world when it comes to integrating technology, and that’s something that we wanted to leverage, and we wanted to see how we would be able to work with those companies and get them onto the Continent.

The other was, you always hear that there’s money for infrastructure projects and yet, if you check as well, you’ll find that there are railway lines, roads, and power stations that have been muted for years, on the Continent, that haven’t been built, so we were asking the question, ‘what is the missing ingredient’?

What we tried to do is that we would work in the Government, in the case of big infrastructure and figure out what needs to be done in that country, for it to be able to secure the funding that’s necessary.

And have the Governments responded?

We work quite well. I mean, we’re working in two countries on a fairly intensive basis. We work in Togo, which most people don’t know, but if you studied economics 1, you would know the Lomé Convention. The Capital of Togo is Lomé, so we work with them, and now actually, there’s a power station, which is in the process of being constructed by the Dangote Group, which is something that we developed from concept, with the Togolese Government.

We’ve designed a railway line as well, with them, which comes from the Port of Lomé through to the border, with Burkina Faso. That is in the process of moving towards feasibility study.

Now Africa’s economies are mostly resourced based, and this has been seen as a curse by other commentators on these matters, because it’s extractive in nature, and it is foreign governments, Asian in recent times, Chinese, and in the past it would have been Europe and the United States. Do you see a lot of benefaction or added value industries growing around these resources companies?

You know, I’d say for me, the resource sector is the future driver of growth in the Continent. The real driver of growth on the Continent has just been a very vibrant, what we call an informal sector, but a vibrant, small/medium enterprise sector that’s been able to supply its own requirements in the economy. So one of the biggest weakness in the Continent is the fact that there’s an excessive dependence on, in particular former colonial masters, for imports of things like condensed milk or whatever you would call it, evaporated milk in a small tin, juice, meat and things like that, which is stuff that we could develop more.

Then you suddenly have, in a sense, a very fast diversification of the economy, based on just the population. I mean, I think something that people often forget. West Africa has 350 million people, and if you were making your own food, for starters, you would be getting along quite far.

The problem with the resource sectors, with the natural resources, is invariably you are talking iron ore. All of it or most of it is in places, which are far to locate, so not only do you need rail, infrastructure, road, ports upgrade, electricity as well, and then the own, the thing that most people often don’t think about is basic, is that geological mapping is not very extensive. It was done years ago, in the early 90’s, or 1900’s, more often than not.

Now, you need to get to a point where you have modern technologies flying the countries and things like that. Once we’ve done that, I think you’re going to start seeing actually, much more interesting activity on the Continent because I think there’s a lot more we don’t know that we have and that we need to discover.

But now has Africa developed its own big multi-nationals to compete with the rest of the world, because as much as the informal sector of the economy is vibrant in most of the countries that you’ve mentioned but you still need scale, I suppose, if you’re going to achieve a lot more for a national economy. So do you see such companies developing on the Continent?

I think the country, which probably has the greatest possibility is Nigeria, just by virtue of the fact that they’ve got so many, already, rich Nigerians who are in their own businesses or running their own businesses.

The idea though, of opening up the economies and letting in foreign players, in both from the Continent and also from overseas, I think is something that’s really important that must happen because it’s in that interchange, between the various enterprises that you get to, actually advancement in the countries as well.

Now, intra-Africa trade is one issue. Many political leaders, Heads of Government, speak about it at the African Union all the time, but it’s not happening, at least from where I’m sitting. I don’t see much of that happening, but we do see trade with other countries, Europe, again, North America, and China as well. Why is it difficult for African Nations to trade together?

I don’t know. I almost think that you’ve got to do product-by-product, right, because that’s the thing about the Continent. I can show you many plans for all kinds of infrastructure, all kinds of schemes. Visa rules, why do we have visas on the Continent because we were going towards a united Africa, even in terms of regional blocks, so there’s a lot more that’s said, and nothing happens.

But I do think that once you have the private sector actually driving the need for change, you’ll then start seeing the change, so we have a very interesting project that we’re looking at, which is to move goods between, from Lomé through Benin, into Nigeria. And one thing that we’ve got to deal with there, is how do you make sure that the rules of entry, into each of the countries entries and exits, (into each of the countries) are such that can be done efficiently?

Sure, you need to make sure that there’s some sharing for the middle country in that process but all of that, I mean, so in my head, until you start doing it and somebody is trying to run the route directly. Nothing much is going to happen. A lot of trade happens on the Continent via some seriously bad roads, so it’s not like it doesn’t happen.

Here’s the other thing, which is a weakness on the Continent – information. Just good, quality information about what goods move from one country to the other, so in my estimation, I think there’s a significant amount of under-reporting of the extent of inter-regional trade. Do we need more? Absolutely, we need to do a lot more, but to get to a point where it’s better. Roads and rail must improve, and ports must become efficient.

But I want to take you back to the point you made earlier on, when you commented on xenophobia, for instance (in that we would have that when people in South Africa have not really been made to appreciate the relationship that the country has (economically speaking) with the rest of the Continent. An addition to that is the dynamics that drive the migration of people into South Africa. Let me cite an example. People from Swaziland, Lesotho, and Botswana – it’s taken for granted that they can come in and out of South Africa. To a large extent they are even regarded as South Africans, but those from the rest of the Continent, the West, or East Africa, South Africans do not welcome them. How do you deal with that situation? What do you think?

Disregard the previous one, cooks.  Here’s the right one.

Let me give you a personal example. One of my grandmothers was married to a Malawian from KZN. Quite a few of my cousins from Kwamaphumulo in Stanger in Kwa-Dukuza are married to/in relationships with Mozambicans. In fact, for all of my life, growing up, I’ve always known that there were Mozambicans/Malawians, so I don’t quite buy the argument that people have not been told about the relationship that South Africa has with the Continent, because I do think, frankly, a lot more people are more integrated than we suspect.

I do think that, actually we’ve got to be careful, the people who are in leadership who speak, because in a situation in South Africa, now where you’ve got high unemployment, very high unemployment. Poverty rates are really quite bad. It’s invariable that you end up having a scramble for resources. So if there isn’t a proper way to make sure that in the delivery of services people are getting the things that they require, or at least, which should be provided by Government, because I also worry about an over reliance on Government.

If one thing travelling on the Continent has taught me, is that people can get very far without Government support, actually, as most people on the Continent do. So I do think probably better integration and better, just at the level of the community, needs to be fostered, on a real, seriously active basis. I’m not sure that it’s helpful to suggest that a lot of foreigners in South Africa are here illegally, they’re the criminals and the [inaudible: 14:19]. Really, we’ve got our own criminals.

But now, at least in the Southern African region, people have been integrated. They are very familiar with each other and some of the cultures, you know, are related to South African cultures. Why has it taken us this long then, to integrate the economies, at least on the infrastructure front and on a whole number of fronts actually? One would have taken Lesotho, Botswana, Swaziland, and even Zimbabwe, for that matter, Mozambique. Why is it difficult to integrate these economies, if we have worked together, closely, at least culturally, have been close to one another?

It’s figuring out the benefits. I mean, at the end of the day, it’s about what you gain and what you lose. Let me take the sector that we’re working on in the auto sector, for example. For example, you say that you want to develop an auto sector in South Africa. You then have to figure out how you include, in the first instance, SAQU, and make sure that the benefits of the… because effectively, SAQU then has to have the same tariff regime as South Africa.

There’s obviously a cost and a benefit to the tariff that you put on a product, so when you… I think what we’re struggling to do. My sister will call it [vernacular: 15:40], that kind of thing. We’re not figuring out how we sit down and we say ‘this is the product that I make in my country and I think we’re quite good at it and you are a significant purchaser of that’. “Why don’t we create a single zone between the two of us in that area?” But then I have to make sure that some of the investments, which are manufacturing related, that would have been in my country, must migrate to your country, so that there’s mutual benefit.

So I think that’s the hard work that needs to be done, is to sit down and politicians, I don’t know that they’re necessarily the best at this, but it’s to create the environment. Where we start saying that a particular sector or a particular region is genuinely a region and let sectors develop in a broader area, and make sure that the sector is not only located in one country, but located in another country. So I think, in my head, until we can figure out how we all benefit, I think it is going to be difficult.

Now, what strengths do you think we should be playing to? We’ve got problems in South Africa and in the region, but we also have got some strength that can help us solve our problems. What do you think?

Well, you know for everything that we say about South Africa. Let’s just take it at the technology level, and having worked with some of the state companies, like [Denelle? 16:53], etcetera as well as other private sector defence companies. There’s a hell of a lot of openness from South African companies to, actually exchange IP and technology.

So if you’re looking to develop a sector, and I say this with all honesty, is that if you have a real need to develop a sector, a manufacturing activity, I think South Africa is quite a good partner because we tend to have less rules about black boxes. That ‘we can’t give you this technology because if we do give you this technology’. We are, quite often, I find that South African companies are quite often very willing to share how it’s done. How we put it together, and the rest and like, so I think that’s a competitive advantage that we generally have, but we’ve got to get onto the Continent, and with that sense of ‘we’re not better than the rest of the Continent’.

And remember the fact that we maybe 50 million people but we’re tiny in comparison to sort of like some of the regions, Nigeria – 160 to 170 million people. You better respect that volume and you need it, as well as South Africa, and I do think, so for me, the possibilities are just, in a lot of ways, limitless. If you will go in and behave, I always say, in the same way that you would in South Africa, where there are a lot of laws that govern how you have to behave. Like partnering, with the partner on the other side, who is not just a nameplate, or knows people, and the rest and like, but somebody who is going to be able to develop your business further, and who’s going to be able to run the operations in that country.

Thank you very much for talking to us.

Thank you very much.