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Sticking His Neck Out For The Right To Make Money

On April 27, democratic South Africa will turn 18 and come of age. In this edition of FORBES AFRICA we examine where Africa’s biggest economy is heading. Self-made millionaire, Herman Mashaba, argues capitalism is the only way.

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As if it were not enough to call himself “proudly capitalist” in such a politically correct country like South Africa, one of the country’s most respected pioneer black entrepreneurs, Herman Mashaba, is now getting ready to blaze another trail, albeit a much more dangerous and potentially costly one this time around.

Mashaba has just been elected chairman of the board of the Free Market Foundation, an organization that in its heyday was a rallying point for all free booting, free marketeers, die-hard capitalists and liberals. It used to dish out honors, accolades and advice to anyone and everyone of a similar mind.

South African entrepreneur Herman Mashaba, Sandton; 22 February 2012 – Photo by Brett Eloff.

Mashaba, a recipient of the foundation’s annual Free Market Award in 1994 and one of their few chosen blacks at the time, has agreed to lead the organization, “revitalize” it and come up with some “bold new initiatives”.

He is taking no prisoners.

In what he accepts could end up in a very ugly public spat with the country’s mighty and powerful, Mashaba is prepared to tell all and sundry that a mixture of “flawed policies”, widespread corruption and pandering to union interests will soon make South Africa worse than it was under apartheid or colonialism, for that matter.  “I blame it all on the country’s stringent hiring and firing laws, the myriad of bureaucratic processes and the swelling costs of this ineffective bureaucracy.”

It’s a stance, and language, previously thought to be the preserve of the political opposition, certainly not what South Africans are accustomed to from business. “Business has been too quiet for far too long now, we need to let the people of South Africa hear an alternative economic policy,” says Mashaba.

Top of his to-do-list is mounting an unprecedented challenge on the country’s Labor Relations Act—a piece of legislation that the unions see as sacred.

The act regulates, among other things, employer-employee relations, trade union activity, collective bargaining, as well as strikes and lockouts. It is seen as an antidote to the exploitation of workers under apartheid and makes it difficult to fire people.

Mashaba wants it repealed.

“We have a crisis on our hands and we have to address it now. When we fought apartheid it was not to replace it with something worse,” he says, with a great deal of irritation.

His main gripe?

Some of its provisions, such as allowing for a stipulation of minimum wages, are making it difficult for employers to retrench surplus workers.

“This act is really destroying jobs in our country,” he says, without a hint of contradiction in his voice: “No-one goes into business to employ people. You go into business to make money.”

“Capitalism has become something of a dirty word, while the unions and the youth wing of the ruling party are free to talk socialism.”

Mashaba is gathering money, including his own, to take the government he helped vote into power to the highest court in the land. In the Constitutional Court he will argue that not only is the act a hindrance to foreign investment, but that it is thwarting entrepreneurs’ attempts at creating new wealth and jobs.

In the past, to even suggest that the labor laws should be repealed, drew threats of “blood on the floor” from the two million strong Congress of South African Trade Unions (Cosatu).

Sdumo Dlamini, the president of Cosatu, disagrees: “If anything, Cosatu wants the Labor Relations Act tightened. We want to remind Mashaba that even the current arrangement was negotiated.”

The closest business has come to challenging the legislation has been to say it is restrictive and should perhaps be reviewed. No-one has dared to oppose it as vehemently as Mashaba intends to.

South Africa, Transvaal, 1994: The CEO of ‘Black Like Me” company, Herman Mashaba in his factory. Black empowerment business enterprise innovation entrepreneur organization
Photograph: Graeme Williams/South

Backed by two prominent firms of attorneys, who are offering free legal advice, Mashaba says he has set the ball rolling by commissioning a study to put before the courts.

Ironically, the organization Mashaba intends using as his vehicle is an entity that went missing, presumed dead, at the dawn of democracy in South Africa in 1994.

Established in 1975, it was created, to quote its handbook: “to promote the principles of limited government, economic freedom and individual liberty.”

The Free Market Foundation, once had as its members leading multinationals: Coca-Cola; BP; British American Tobacco; Microsoft; Boehringer Ingelheim; GlaxoSmithKline and Independent Newspapers. Among South Africa’s own were SA Breweries; the Bidvest Group; Pick ‘n Pay; Edgars; Sasol and the Johannesburg Stock Exchange.

With the exception of people like National Federation of Commerce and Industry stalwart Sam Motsuenyane, the foundation’s members were at some point the who’s who of South Africa’s distinguished, white, captains of industry—people Mashaba had very little in common with except his belief in and love for capitalism.

Mashaba says his love for money and self-reliance was formed early in life. He was two years old when his father died in Johannesburg, leaving his domestic worker mother to look after him and his four sisters.

At a very young age he would watch other boys go in search of weekend jobs in the white suburbs of Pretoria North. The stories of indignity the boys came back with, only to be rewarded with R1 or R1.50, was too much for young Mashaba to bear.

He decided to become, what in the townships they used to call a “knocksman”—that is running a back street dice game.

With a pair of dice, he would organize a venue and persuade his mates to gamble their hard won earnings with him.

The luck of the dice paid his way through high school, where he matriculated and went to Turfloop University, in Limpopo, where he was forced to enroll for a Bachelor of Administration degree majoring in political science and public administration. He wanted to study law, but couldn’t secure a place because he had failed Afrikaans, which at the time was a prerequisite for legal studies.

In his second year, following campus unrest, the authorities closed down the university and sent the students home. To this day Mashaba has never returned to university.

After months of trying, unsuccessfully, to leave the country to join exiled liberation movements, he decided to look for a job.

His first job was at a supermarket, as a dispatch clerk, where he worked for seven months before joining a furniture store where he would spend the next 18 months of his life.

More than two years later he saw a classified advertisement in a local newspaper looking for sales representatives. You could write your own pay check, the ad said. All you needed was a car and selling experience.

Mashaba had never driven a car, let alone owned one. Two months later, he had organized someone to teach him to drive, bought a car on hire purchase, and got married, so he could not be distracted. He and Connie Mashaba have been together ever since and have two children.

South African entrepreneur Herman Mashaba, Sandton; 22 February 2012 – Photo by Brett Eloff.

Every day, for years, he would defy the strict apartheid pass laws that stopped black people from “loitering” in white suburbia.  He would go and knock on doors to the snapping snarls of vicious guard dogs, selling everything from dinner sets, to linen, crockery, fire detection instruments and hair care products.

The promise of writing his own pay check was realized. Soon he was making two to three times more than black doctors, who were among the best-paid black professionals at the time.

His big break came through permed hair, the fashion statement of the day in the townships. Hair salons were mushrooming across the country and Mashaba dived into the market. By selling hair products he was earning around R4,000 a month, which he says was serious money back then.

In 1984, while still a salesman, Mashaba approached two of his colleagues. Joseph Molantoa, a fellow salesman and friend from the township, and Johan Kriel, an Afrikaner guy who was production manager at the same company.

Mashaba didn’t know Kriel that well, but had picked up that he used to own a hair products firm that went under.

“I took a chance and shared with him my dream,” he recalls.

This was the moment that led to the creation of South Africa’s first black-owned hair products manufacturing company. The trio approached a township entrepreneur, Walter Dube, for finance. Dube, whose wife was a client of Mashaba’s and owned a hair salon, agreed to lend the business R30,000—a fortune back then—he charged them prime plus 10% and insisted on owning 25% of the business.

On February 14, 1985, the Black Like Me range of hair products hit the market. South Africans immediately fell in love with the products.

Mashaba, Molantoa and Kriel were in the money. Dube’s loan was repaid within seven months.

Four years later, Mashaba bought his friend Molantoa out. Three years later he bought out Kriel.

Dube would cash in only in 1997, when Mashaba decided to sell a 75% majority stake to beauty and personal care company Colgate-Palmolive hoping the multinational would take the brand further. Alas, it was not to be.

“Slowness, bureaucracy, stood in the way. I quickly made an offer to buy back,” says Mashaba,

Two years later, Black like Me was back in Mashaba’s hands. And he had bought it for much less than he had sold it for.

“Yes, I had made another profit,” he says, with a naughty smile, then a chuckle.

Another two years later the company would see a rapid 47% growth. This after Mashaba had rebranded it, launched it in countries like the United Kingdom and added fragrances and cosmetics to his range.

With the advent of democracy in South Africa in 1994 came numerous other opportunities for seasoned black entrepreneurs like Mashaba.

South African entrepreneur Herman Mashaba, Sandton; 22 February 2012 – Photo by Brett Eloff.

The newly elected ANC government had adopted black economic empowerment (BEE) as official policy. In an effort to empower blacks, it initially nudged, later forced through legislation. It meant white-owned companies had to bring on board blacks by giving them equity.

“When BEE started I was never attracted. It made no sense to me, even though I had invitations,” says Mashaba.

“But as soon as it dawned on me that, with or without me, this thing is happening, I decided to take advantage.”

And take advantage he did, starting in 2002 by becoming part of a consortium that initially bought 10% of a ferrochrome smelter that previously belonged to Samancor, a few years later increasing their stake to 19.9%.

Ten years down the line Mashaba’s Lephatsi Investments has assets under management of R600 million ($80 million), stakes in 12 different listed and non-listed companies that operate across economic sectors encompassing mining, property management and development, energy and information communication technology.

Always the one keen to demonstrate that he always makes money—he quickly points out that he spent R40 million on the Samancor deal and sold for R2 billion a few years later, while they bought Stocks Building Africa for R80 million and sold it for R1.1 billion a couple of years ago.

So, considering the fact that a great majority of South Africans don’t even dream of talking about, let alone owning, those amounts of money, doesn’t Mashaba think it’s a bit unfair to have mustered the wealth he has and still expect workers to agree to less generous Labor Relations Act provisions?

“No,” he replies, “never take away from people the opportunity to make money. Let’s come with policies that ensure that we are fair. Let’s make sure we manage the greed. But let’s allow South Africans to be natural. My understanding of the capitalist system is that it’s only natural. It’s a natural system for human beings.”

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