May 16, 2019 Sandton City
“School” started again (loved that four day weekend), and we had a full day of business speakers. The overall theme reminded me of a comment a speaker in India contributed to my repertoire, “Whatever you say about India, the opposite is also true.” The same may be said about the African continent, as our four speakers assessed business options from the optimistic to the (at least my conclusion) pessimistic, “Who’d want to do business here.”
The optimists tend to point to the future. There’s the simple demographic of a young population, growing exponentially, now reaching about the size of China/India. There is no doubt that there is wealth, some of it potential.
Johannesburg is a case in point for both extremes. Located on the site of the discovery of a gold mine in the 1880s, the city remains the commercial capital of South Africa, and perhaps the single most important business center on the continent (Kenyans and Nigerians might take exception). The area where we are located, Sandton City, has the most expensive real estate on the continent. On the other hand, though the mines once supplied over 2/3 of the world’s gold, AshantiAmerican (we’ve visiting tomorrow), whose pedigree traces back to Cecil John Rhodes, announced it is selling its last mine in South Africa. That mine is 4 kilometers underground, requiring half of an eight hour shift just to get to the vein. Plus, doing business in South Africa can be costly. Once using coerced labor under apartheid, the mines are now unionized, and the unions are one of the three legs of the ruling African National Congress (the others are the Communist Party and the revolutionary descendants). Strikes are allowable in the constitution, and it’s difficult to fire workers. It costs the company more to mine the gold than the current price on the world market.
There you have both the alpha and the omega of doing business here. Potential, some reality, and many problems. As another example of the wealth, we’re located across from the Nelson Mandela Mall, which makes Oakbrook look like K-Mart. If there’s an upscale store anywhere, it’s here. And the mall is multistoried and several blocks long.
As for Johannesburg itself, it’s unusual to have a major commercial city that’s not on the coast or a waterway. Its population is about 4.5 million. The central business district, when apartheid ended, suffered from violent riots. We’re driving around it tomorrow, but I remember the area had very high vacancy rate, with the tall buildings having perhaps shops on the ground level, and broken windows above. The major businesses then moved to suburbs like Sandton City. It’s rather like Chicago with all the corporate headquarters moving to River Forest, to take a Chicago comparison.
One of the businesses that presented today I remembered well from three years ago. It’s Discover Vitality, in South Africa, an insurance and financial services firm with a distinctive spin. When you become a member, you get an Apple Watch that you can get for free—if you practice healthier living. For example, you get points for working out, for eating healthy, for stopping smoking. Your rates go down, and you qualify for prizes, such as plane trips. Discover rolls out new products every year to keep the buzz, and has added auto insurance (your watch monitors your driving) and a bank (get extra rewards for saving more for retirement). Discover has also bought companies overseas (UK), and partnered with or franchised its software to the US (John Hancock) and China (Ping An Insurance company). It reinforced what one of our speakers (he runs a company that consults with various state governments, and American and foreign businesses on how to do business in Africa) suggested was a potential for the future: African solutions to global problems. The global problem is the BIG FAT problem, which Discover has addressed by changing behavior. It’s not surprising that one of the company’s consultants was Dan Ariely, one of the leading behavioral economists. His book, Predictably Irrational, is a primer in the field.
While Johannesburg still has some mining—platinum, for example—South Africa’s biggest challenge is the need for social initiatives (to decrease poverty and reduce really high unemployment) and economic initiatives (encourage foreign investment to aid, for example, in the renovation of obsolete power facilities). The system of Black Enterprise Empowerment puts some restrictions on foreign businesses in the South African market. There are requirements for black ownership (26%), black management, use of black owned suppliers, skill training, etc., that the GE speaker described as requiring him to plead with corporate headquarters for additional funding and support. We were also told that American businesses, though providing only 2% foreign direct investment, have been responsible for 20% of the “transformation” of the economy (“I meet a lot with our compliance people,” the GE executive said), demonstrating the challenge of balancing social and economic initiatives.
And as he pointed out, “Africa is a great place to do business… if you can navigate the drama.” Right now, the drama is probably higher in South Africa than in many other places on the continent. South Africa, once touted as one of the BRIICS (Brazil, Russia, India, Indonesia, China and South Africa) for the future of business, has had slow economic growth and a slew of problems. The business community is no doubt looking to see what happens as a result of last week’s election. That’s part of the drama here.