NEWS & ANALYSIS

Time up for business wimps (part 1)

Transcript of Johann Rupert's spade-calling lecture urging business leaders to start taking a stand

Ambassadors, High Commissioners and representatives of the Diplomatic Corps, Vice Chancellor and principal of the University of Pretoria, Professor Callie Pretorius, The Registrar, Professor Nick Grove.

All protocol observed.

Thank you for the opportunity of honouring my late parents tonight. They met here as members of the University of Pretoria Students Representative Council. My father was the Chairman and my mother was elected to that council in her first year: Quite a formidable couple! I miss them very dearly - especially tonight.

My wife Gaynor is also a very proud ex-Tukkie and is our family's resident Blue Bull supporter. For educating her about quite a lot, except the finer details of rugby, also a big thank you.

Congratulations Professor to you and all and your colleagues, and to the University on the celebrations of the centenary. When we look back at all the achievements both of the University and of your alumni, we have total confidence in your next 100 years.

Uit respek vir die Ambassadeurs is ek versoek om in Engels te praat. Ek doen dit graag. [Freely translated "I was asked to do this speech in English out of respect for the Ambassadors I am happy to do so].

Fortunately, or unfortunately, I'm still what some of my compatriots call a "hairy back" or a "Dutchman", plus I prefer to write my own speeches. So please forgive me for grammatical errors and my pronunciation. And to the press, both the press and the television, please do not paraphrase. I have learnt long ago not to fight with people who buy ink by the barrel, and Doc Craven never said there will never be a black player playing for South Africa.

He said: "For as long as this Government is in charge, there will never be a black player playing for South Africa". You'll agree that there's a nuance. Or my favourite one: "You can say I like to shower twice a day, but once a week I have to have a bath." So if you cut the first few words out, you can say he baths once a week.

Please also speak to the editors who do the headlines. It's impossible to speak openly in our society if people try to stir fights. We need more debate. Tonight I'll attempt to highlight the plight of the future generation and look at some reasons why they're so much worse off than their counterparts in the rest of the world.

Where did we go wrong, and what can we do about it?

Africa's children truly deserve better. Too many die far too young. The lucky ones who survive childbirth and malnutrition lack potable water, with no roofs over their heads, stand to lose their brothers and sisters and parents far too young. The majority of the lucky survivors also face inadequate educational opportunities and therefore stand little chance of gainful employment. We have already suffered a number of lost generations.

Can we really stand by and lose another generation? Let's try and analyse the problem, the causes and the possible solutions to prevent this tragedy from getting worse.

How bad is the situation? Let's have a look at some key indicators.

Let's look at life expectancy at birth. I think you'll all agree this is a rather fair indicator.

Of the 193 countries reported, we rank in the bottom 5 when looking at the improvement of life expectancy at birth. The life expectancy at birth has decreased by 12 years from 1990 to 2006. By the way, all the other countries that performed worse than us are SADEC members. So today, it's gone from 62 to just over 50 which is a decrease of 12 years and those are the WHO figures. The CIA fact book estimates 42 years.

The global trend is that of an increase in life expectancies of 4 years, from 63 to 67. The Japanese are at 83 years. Africa, as a WHO region, has remained stable at 51 years for the last 16 years. This implied that most of Africa has improved and South Africa has worsened. This brutal regime of Zimbabwe has caused the life expectancy of its women to drop from over 60 to 34 in 18 years. The men are expected to live up to the ripe old age of 37.

Infant mortality rates: The infant mortality rate in South Africa has deteriorated from 45 to 56 infant deaths per 1000 live births over 16 years and ranks at 188. It's important to know that the deterioration has accelerated from 5 in the first 10 years to 6 in the next 6 years. Once again it should be noted that Lesotho and Swaziland are included in the 7 bottom ranked countries.

Let's look at the prevalence of TB per 100 000 people. South Africa ranks l77 in terms of, so called, "improvement". We have not improved. In 1990 there were 774 cases per 100 000, in 2006, 998. Again note that Lesotho and Swaziland are in the bottom ranking.

Let's look at the prevalence of HIV adults amongst adults aged 15 to 49. In 2007, South Africa had the fourth highest HIV prevalence in the world. Between 2001 and 2007, the prevalence increased from 16.9 to 18.1. At a time during which most other countries stabilised, Swaziland is the worst, Botswana second, Lesotho, then South Africa and I dare say, I do not trust Zimbabwe's figures at all because they are below us and they have miraculously improved from 26% to 15%. I do not believe that.

We Africans are really the ultimate consumers. We consume our infrastructure, we consume our forests and we consume our wildlife. We actually consume our children's future. Now in South Africa, are we a lot better off, or are we not showing signs of this African malaise?

Now I quote from a book, Africa in Chaos, by Professor Dr George Ayittey:

"Despite Africa's vast natural resources, its people remain in the deadly grip of poverty, squalor and destitution whilst buffeted by environmental degradation and brutal tyranny. Both external and internal factors can be blamed. Amongst the external factors are the legacies of colonialism, the lingering effects of the slave trade, Western imperialism and the pernicious international economic system. The internal factors include bad leadership, corruption, economic mismanagement, political tyranny, senseless civil wars, military vandalism, exploitation and the oppression of the peasant majority, denial of civil liberties and capital flight amongst others. Whilst both external and internal factors had played some role, the preponderance of the internal factors is evident. In fact, a new generation of angry Africans subscribe to the interna!ist school of thought. They lay greater emphasis on the internal causes and therefore advocate internal, that is African solutions."

Only Africa can reverse its decline. The criteria of success for economic policies must be the improved health and education of the population and increased employment and production. Therefore the agricultural sector which employs the vast majority of Africans is central to economic revival.

Now why did other countries in Asia, in the United States, Europe why did they succeed and why did we fail so miserably? Now this is very interesting, the last 150 years may prove in the history of time to be an aberration. That is prior to a century and a half ago, the standard of living was roughly the same all over the world. It didn't really matter whether you lived in New York, London, Paris, Mexico City, Johannesburg, Cairo, Nairobi, Beijing, Tokyo or Manila - the standard of living was roughly the same. I never knew this, but you can go and check. In the past century however, the standard of living in various countries has changed dramatically so that today we have developed nations and undeveloped nations.

During this period some societies clearly prospered, some trod water and others actually went backwards. Africa has gone backwards. It's got nothing to do with us being African or black, Forget this old racist line of ethnicity. If so, why did similarly educated people with the same ethnic background end up experiencing such different qualities of life? I was in East Germany just after the fall of the War. They were destitute. Why is the average South Korean nearly 6cm taller than his northern counterpart? The truth seems to be found in the choices made by societies as to the economic and social political system under which they choose to live.

In other words, we all choose the way in which we organise our society and how we are governed. It's got nothing to do with race.

Winning nations: academics, political, economic and social scientists point to three major reasons. They have sound economic policies which encourage open market systems, for example:

  • unlimited and free transferability of property;
  • protection of private property;
  • ownership incentives for capital formation;
  • strong and convertible currencies;
  • flexible labour markets and entrepreneurship;
  • Socio-political policies that seem to succeed include democracy, free speech, honesty and transparency in government actions and a strict adherence to, and respect for, rule of law.

In this regard it is important to note that free market economics is a precondition to democracy: that is, there are no democracies that do not have free market economies. On the other hand there are still free market systems that are not true democracies. Such an argument leads many to conclude that a free and open economy takes precedence over a free and open political system, which, in turn, leads to an environment in which technological advance can flourish. We know what happened in Chile and, at present, China is a perfect example.

My wife and I were privileged to meet President Gorbachev many years ago and I asked him why he had stopped when he did and he said "well they would have called me ‘Gorbi the terrible'." But, he said, the Chinese will not make the same mistake. We were again privileged to meet President Vladimir Putin this year and, quite frankly, I think they have resolved law and order, or are in the process of restoring law and order, in Russia.

The Chinese have totally open market policies but they do not have a democracy. They understand that democracy will follow and I suspect that they are following the Chilean model.

Then there's a third leg. We have discussed the economic policies and the social political policies. The third leg is technology. After the creation of the industrial economy, we have to have the creation of the information or knowledge economy. In exporting congealed brain power, we have to export bits, not atoms. If we don't, our terms of trade will continue to worsen. We have to protect intellectual property.

Now we have clearly made the wrong choices. (Interestingly, the Mainland Chinese were poverty stricken in comparison to the Chinese living in Hong Kong, Taiwan and Singapore. They had also made the wrong choices but they have changed their policies.) The results are staggering. In stark contrast to the rest of the world, it's clear that the majority of sub-Saharan nations have made the wrong choices. So have we, for many centuries and the results speak for themselves. What have we done?

The Nationalists observed very few of the abovementioned rules for success. We had a form of "nationalist socialism". We had control boards for everything. I bet you most of you don't know that we had a control board for eggs. That people who had restaurants and hotels had to have an "egg book"! I know, because there was a Swiss friend of mine who ran the Beacon Isle Hotel and one day an inspector came in and asked for his "egg book". Hans didn't know about an egg book, chased him out and this gentleman explained to him that he was going to be in serious trouble, "he has to have an egg book". All eggs consumed had to be put in this book and when Hans started laughing he said: "Don't laugh. I've got arresting powers"!

In any case, we no longer have those. We had so much protectionism. We had no real democracy, in fact, no democracy. We didn't have free speech; we didn't have honesty and transparency in government actions and certainly no respect for rule of law, for example, the removal of the coloureds off the voter's roll.

However, since the end of apartheid, we've had a miraculously peaceful transition to a democracy. We've further experienced successes such as the remarkable improvement at the Revenue Service - truly remarkable. The turnaround at Treasury. And the excellent management of the currency by the Governor of the Reserve Bank and his staff.

Our economic policies have generally been sound. We have not yet experienced unlimited and free transferability of property, yet our currency's been stable. It's not yet been convertible. I am a proponent for the abolition of exchange controls but I must agree with, and, in fact, I called Minister Manuel and I said we were saved by foreign exchange controls. I'm sorry there are a couple of banker friends of mine here and fund managers, but you would also have been seduced by the higher yields available n the sub-prime and other markets. So for once, thank God for foreign exchange controls.

Our labour markets have not been as flexible as those of our competitors and this will become an issue. In terms of our socio-political policies however, we have fallen woefully short. Citizens are not safe in their own country. We have a democracy but some of our fellow South Africans continuously threaten to resort to violence if they do not get their way - "we will kill".

Freedom of speech is guaranteed under the Constitution but any criticism of any government policy is viewed as counter revolutionary, racist and is stifled by a hypersensitive leadership. Honesty and transparency in government have been sadly lacking, very sadly. The perception is that corruption is not deliberately and efficiently combated.

The law of unintended consequences has also been at work in a number of areas. Let's take black economic empowerment, a very good idea. I lived in Malaysia, correction, I didn't live there, but we have a pretty big business in Malaysia. The Bumiputra asked us to give 25% of the company. Initially this had to go to cronies of the prime minister but we put it with the government pension fund, so it was triple B double E. In South Africa, there has been a real shift of economic power towards black South Africans and that is continuing apace. Too often, however, empowerment has resulted in the enrichment of the few rather than the many, leaving behind a vast army of uneducated unemployed. This can only be addressed by a far more effective nationwide programme of skills training. There are no unemployed carpenters, stonemasons, electricians or plumbers in South Africa or any where else for that matter. The apprentice system needs to be reinstated and the basic educational system orientated towards economically useful skills needs to be reinstated. SETA is totally mismanaged and t simply does not work. As anybody who has ever asked for a grant can tell you.

BEE has also led to the creation of some of the worst sub-prime credits ever. When a bank lends into a BEE scheme it often funds the select few lucky insiders to buy shares from the public. The public shareholders always include pension and provident fund where the workers have their savings. Should the company then approach the bank for funding of a new factory, for instance, which will create new jobs, the bank is forced to take the BEE exposure into account. It has to have a look at exposure to the industry and to the company. More often than we believe the bank's exposure will be limited and the factory may not be funded.

Furthermore, when will BEE end? Malaysian friends tell me that the Chinese are leaving. They'd rather create wealth in China, Singapore and even Taiwan.

Will our youth not feel the same?                   

Let's take employment equity. South Africa can only succeed economically and politically on the basis of a genuine partnership between black, white, brown and not on the basis of white privilege or black advancement at the expense of any form of competence. Now everybody uses the zebra as the principle, my friend Patrice (Motsepe) as well. But the zebras that they look at are only black and white. Where I come from in the Cape the Coloureds have been severely disadvantaged. They were too black in the past and now they're too white. So I prefer the Cape mountain zebra that at least had a bit more touch of brown in.

Now we all know, shoot the zebra and you'll die. We'll get back to that later.

We have to work together. One of the worst of apartheid's crimes was the Bantu education system, which resulted in an horrendous skills deficit, which has to be addressed and cannot simply be wished away. In 1986 only about 15% of graduates were black. These are the individuals who are now in their mid-40's. Employment equity codes will have it that they make up a far bigger percentage of senior management than 15%.

Are you going to put your money in the bank where they don't have the best management? Or are you going to put it where your money is safe? We sign on to codes without realising the results, the unintended consequences. And, by the way, who mentors the smart young biack kids who come out of university now? An incompetent "suit"? I think not. We all want employment equity to work. It's not only the right thing, the moral thing, but it's also the smart thing. Between 94 and 2007 the numbers of black graduates have increased dramatically. I think by 2008 well in excess of 60% of all graduates will be black. The situation will resolve itself. Now we've all seen and experienced the disaster of this policy of advancement at the expense of any form of competence. Look at the institutions where experienced managers were "encouraged" to leave - Eskom, the Land Bank, SAA I can go on and on and on.

By the way, regarding Eskom, when some business leader stated that "we're all to blame", they certainly did not speak for me. And, again the children suffer. The senior leadership of various parastatals and parts of the civil service, though not at treasury, revenue and the central bank, have been empowered to appoint at which in some cases they can no longer deliver basic services required of them. There has to be a successful mixture of old and new management for any of these enterprises to prosper.

This is also true at a local government level. For example, in Stellenbosch, my home town, the newly elected ANC town council fired one of the most impressive executives that I have ever met, Mr David Daniels. Interestingly, he taught Trevor Manuel at school. The problem with Mr Daniels is that he was too apolitical, too honest and too able to kow-tow to a group of individuals with a narrow sectarian interest. There goes another town into total disarray. Nearly every town failed. But how can it not happen when over a third of our local councillors are illiterate. I'm not talking financially illiterate, I'm talking illiterate.

Click here to continue onto the second part of Dr. Johann Rupert's address ....