Entering the site of the 4,800MW coal-fired Kusile power station in the northeast South African province of Mpumalanga, one has to clear the security checkpoint and forget about taking any unauthorized pictures. The site is large, covering 1,355 hectares, and buzzing with activity.
Abram Masango, the general manager of Kusile with a mechanical engineering background, started out at steel company Columbus Stainless before moving to state-owned power utility Eskom, working on the company’s Hendrina power station, one of the country’s oldest and the only one with 10 units, to establish the $2.4 billion Mpumalanga project. This included refurbishing power stations and constructing the Majuba Rail – running between Ermelo and the Majuba power station.
In 2004, a five-year, $13.1-billion investment plan in the country’s electricity infrastructure was approved by cabinet. This was changed to $22.2 billion for the five years to 2011/2012. Generation projects absorbed around 70% of the funds.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-2791" src="/wp-content/uploads/2017/04/132A9830-200x300.jpg" alt="" width="200" height="300" />
More recently, state-owned enterprises were allocated $39.1 billion of the public capital expenditure for the next three fiscal years. The public sector’s energy infrastructure will get $18.2 billion of this.
Eskom’s major energy source is coal, but it hopes to bring down its share in the primary energy mix to 70%, from its original 88%, while increasing its nuclear energy portion to between 17 and 25%, all by 2025.
Masango was brought in to run the Kusile project in late 2007. A decision was made to build it in eight years, instead of the standard 10. The team went with a multiple contract approach, divided into 62 packages.
Eskom didn’t feel it had a choice in the fast-tracking of Kusile because of the power shortage the country is experiencing. As for elements falling through the cracks, the team is adamant that managing the project as a world-class one, as well as placing the necessary skills in place, has prevented quality being compromised.
The Unit 2 TG block had to be destroyed and redone because of a quality problem.
“As much as we are fast-tracking, we are not taking a shortcut. We do sometimes have some quality challenges, and we pick them up and then solve them,” says Masango.
“If we compromise on quality, we will kill people.”
Another Eskom project currently underway is the 4,400MW, $10-billion Medupi power station. It is the fourth largest coal plant in the southern hemisphere and the biggest dry-cooled power plant in the world. It was originally slated to start generating electricity in 2011 but there have been numerous delays, ranging from faulty welding to strikes. French company Alstom was contracted to develop the Boiler Protection System (BPS) and Balance of Plant (BOP) control systems which repeatedly failed testing. Siemens was then brought in to work on the BPS for Unit 5 and 6 with Alstom. Alstom’s BOP has since passed the factory acceptance test.
Masango says that Kusile also experienced strikes but managed them better than Medupi.
Both Kusile and Medupi are important due to the power shortage problem in South Africa. It was in 2007 that the country first faced countrywide load shedding. More power emergencies came this year, with load shedding and blackouts.
In 2010, Eskom encountered a funding problem and Kusile could only continue on a skeleton base, while long term commitments continued. Funds were also redirected from Medupi, while Eskom tried to find a solution. In April 2010, the Development Bank of Southern Africa announced a $2 billion loan to Eskom. The World Bank approved another for $3.75 billion.
“The loan is provided to South Africa’s power utility, Eskom, and was brought about by unique circumstances including South Africa’s energy crisis of 2007 and early 2008, and the global financial crisis that exposed the country’s vulnerability to an energy shock and severe economic consequences,” the World Bank said in a statement.
Three billion dollars of the loan was earmarked for Medupi.
The funding plan took two years. It was in 2012 that construction on Kusile resumed at full steam, but not all the components were ready due to contracts having been put on hold. This came with some engineering integration challenges.
Eskom had to take on some of the design elements of the project, while waiting to give out contracts, in order to get part of the project &#8211; mainly the foundation &#8211; to continue. Some contractors had been given limited notice to proceed &#8211; for example placing a contract on the design of a component so that the specs could be given to another company that is responsible for that part of the project.
Kusile faced what Masango calls political, stability and unemployment challenges. It established a contractor academy providing eight months of intensive training for emerging companies in order to equip them with the skills needed to participate in the project.
Black Economic Empowerment (BEE) was a big component to consider. Kusile had an agreement with contractors to only bring their core people and then employ 60% from the surrounding communities. With time the team realized a new strategy with procurement conditions, forming joint ventures between large and emerging companies. To date, 409 companies have, in some way, participated in the project at a cost of close to $6.2 billion.
The two weeks of heavy rainfall during March set the project back a month. At the end of April it was almost 60% complete and the working goal is to get the entire plant operational by 2018. Unit 1 will be commissioned the second half of 2015. As of the end of March, construction on Medupi sat at 61%, with $7.4 million of the budget spent. Unit 6 is expected to be synchronized in the second half of 2014.
Due to growth, infrastructure is needed for capacity regardless of whether it’s coal, nuclear or otherwise. Last year a reported $130-million loan from France was granted to Eskom, to help finance its solar power projects. The trick, according to Masango, is trying to have a balanced mix – while bearing in mind that South Africa is still reliant on coal-fired plants.
According to Masango, Kusile has tried to ensure it is environmentally friendly &#8211; incorporating flue gas desulphurization, fabric filter plant, and supercritical design boilers which all decrease the air pollution that the plant emits. Medupi, and possibly some of the other plants, will in the future get these technologies as well.
A lot of the criticism of Eskom is about how the company has been managed.
“I think it’s also time that we [Eskom] go out and tell the public that they have to trust us because we’re doing our utmost best to deliver and make sure we keep the lights on,” says Masango.
Eskom has a lot to prove and only time will tell whether they can truly deliver this time.

The Long Crawl  To Electricity

Consumer services and industries are overtaking resource extraction as the most attractive investment area in Africa, a trend that is being overlooked by many global investors.
According to the African Development Bank (AfDB), consumer spending amounted to $680 billion in 2008 – up from $150 million in 2000 – and comprising nearly a quarter of the continent’s gross domestic product. It is set to nearly quadruple to $2.2 trillion by 2030, with sub-Saharan Africa making up the lion’s share of spending.
This puts the region on course to become the world’s fastest-growing consumer market over the next two decades, says UK-based research company Capital Economics. Spending will be driven by the continent’s rapid population growth, rising real incomes, increased urbanization and better access to financial services.
Africa’s population is currently estimated at one billion and is expected to more than double to 2.4 billion by 2050, making it bigger than India and China combined. The key question is whether the continent’s strong pace of economic growth and development can create the employment and living standards necessary to support the anticipated surge in consumer demand. So far, the omens are good.
The AfDB believes that Africa’s middle class – those earning between $2 and $20 a day – will climb to 1.1 billion, or 42% of the population, by 2060. That compares to 350 million, or 34%, at present.
“Consumerism in Africa is a really big opportunity over the medium – to long-term – there are lots of people looking to buy lots of things. Huge parts of Africa are under-represented in terms of daily items – this is underplayed to some extent,” says Simon Venables, deals leader for Africa at PricewaterhouseCoopers.
Nonetheless, rapid growth of investment into consumer products and industries on the continent has already begun, according to Ernst &amp; Young (EY). In 2007, extractive industries represented 8% of foreign direct investment (FDI) projects and 26% of capital invested in Africa; in 2012, it was only 2% of projects and 12% of capital – despite the booming oil and gas sectors.
In comparison, services accounted for 70% of projects in 2012, up from 45% in 2007, while manufacturing activities accounted for 43% of capital invested in 2012, up from 22% in 2007. In an EY survey of 500 business leaders last year, mining and metals was still perceived as the sector with the highest growth potential in Africa, but the number who believe this, dropped to 26% from 38%. In contrast, interest in African infrastructure projects is increasing rapidly, with 21% of respondents identifying this as a growth sector versus 14% in 2012 and only 4% in 2011.
“These changing perceptions of relative sector attractiveness in Africa reflect the changing fundamentals of many African economies,” says Mark Otty, EY’s area managing partner for Europe, the Middle East, India and Africa. This included “the diversification of sources of growth – the increasing contribution of services and the growing consumer class – and of the actual FDI flowing into these economies.”
Overall, Africa’s appeal as an investment destination has been growing in recent years, in step with its average annual pace of growth of 5% during the past decade. FDI flows to Africa increased by 5% to $50 billion in 2012, while global FDI fell by 18%, according to the United Nations Conference on Trade and Development. The global financial crisis placed the continent on investors’ radar screens as its economic performance outshone many other global regions.
Global consultancy firms such as PwC, EY and KPMG have all reported a significant increase in enquiries about Africa’s investment potential in the past year.
KPMG Africa chairman Yunus Suleman says that telecommunications remains a big growth area as the continent still has the lowest teledensity rate. Financial services offer another opportunity – there are four bank branches per 100,000 people on the continent compared with up to 18 in other emerging regions. Health care is attractive, as is agriculture, since the continent has 60% of the world’s unused arable land.
Africa’s poor infrastructure is both a challenge and an opportunity for investment – the AfDB estimates that it needs $93 billion a year, mainly in transport and power generation. This has already taken off. In 2012 there were 800 infrastructure projects worth an estimated $700 billion in Africa.
Nonetheless there are other big barriers to investment on the continent, with negative perceptions still globally entrenched. The EY survey showed that 86% of businesses in Africa rate the continent as the second most attractive regional destination after Asia, while those with no business presence rank Africa as the least attractive.
“We are seeing some realism creeping in but distant and uninformed investors with no knowledge of emerging markets will find it difficult to get the risk/reward balance right,” says Venables.

More Middle Class Means Money

Mark Shuttleworth is a South African-born tech entrepreneur and venture capitalist who is perhaps best known in the rest of the world for being the second “space tourist” to spend time living and helping with experiments on the International Space Station. After a year of training and reportedly paying about $20 million, in early 2002 Shuttleworth rode on Soyuz spacecraft to spend about eight days on the space station.
Shuttleworth had the wherewithal to buy his space ride since 1999, when he sold his four-year-old internet security company to VeriSign for about $570 million. Since then, he has used his wealth to finance and build new companies as well as to fund charitable ventures.
But living in South Africa, with its restrictions on capital movements, created problems for Shuttleworth’s international operations. This soon prompted him to take advantage of his dual British citizenship and emigrate from the land where he got his start to the United Kingdom, where he settled on the Isle of Man.
An international move is never cheap, but it wasn’t until Shuttleworth tried to move his capital out of South Africa that things got really expensive thanks to the South African authorities. That is why Shuttleworth also made the news this year in his attempt to get back a substantial sum (taken in levies) by suing those same authorities.
Perhaps the greatest irony of that case, Shuttleworth vs. South African Reserve Bank and Others, was that the laws relevant to the contest were themselves the cause of the very actions they were intended to prevent. In other words, had exchange controls not existed, Shuttleworth might still be living in South Africa.
The exchange control laws created two problems for Shuttleworth as a resident of South Africa. First, by imposing paperwork and bureaucratic second-guessing on all transactions involving foreign-exchange, the exchange controls prevented the efficient and competitive operation of any international business or charity projects. Second, the bureaucratic controls imposed costs and barriers to the optimal international deployment of already existing capital.
Although South African exchange controls have been loosened considerably during the past 20 years, they are still in force and they still place hurdles before travelers and businesses, especially when large sums of money are involved. The sums involved in the Shuttleworth case were not only very large but also subject to a 10% levy imposed as a condition for the granting of permission to expatriate blocked assets. For the privilege of moving the last of his own money out of the country, Shuttleworth paid, understandably under protest, a levy of more than $30 million to the South African Reserve Bank.
As if to highlight the irony, in a statement to the court, the Reserve Bank described the purpose of the levy: “The 10% charge, generally speaking constituted a disincentive to the exit of large amount (sic) of capital, thus asserting to maintain the financial stability of the South African economy.”
No doubt, the 10% charge was a disincentive to his decision to expatriate his capital, and it is understandable that Shuttleworth would later sue (unsuccessfully) to have the amount of the levy returned. But the interesting fact is that, despite the legally imposed cost, Shuttleworth still chose to move the money out.
Although exchange rates fluctuate for myriad reasons, it is not irrelevant that since early 2010, when Shuttleworth received approval to expatriate the last of his funds, the rand has depreciated 23% against the US dollar. Exchange controls are most likely to be in force in countries that have other self-imposed problems. South Africa’s relatively high inflation is entirely self-imposed and is one of many good reasons for South Africans to diversify into other currencies. It was Shuttleworth’s judgment that he would lose less by leaving.
The persistence of exchange controls, albeit liberalized, almost 20 years after the transition suggests a lack of confidence by the South African government in its own policies. It also signals a poor understanding of the rationale for its own policy of exchange-control liberalization. Such signals are not lost on either South African or foreign investors. But on the other side of this, a naïve belief that exchange controls give the government the ability to respond efficaciously to financial and economic crises, might embolden the government to enact the very types of policies that make such crises more likely.
The existence of exchange controls in any country is a special, and perhaps extreme, manifestation of a general failure to recognize that such regulations are more likely to aggravate, if not cause, the kinds of problems for which they are believed to be the cure. The Shuttleworth case itself gives us an example.
Proponents of regulation have claimed that exchange controls protected the South African financial system from the 2007-08 financial crisis. A weak response to such claims would suggest that sensible banking regulation protected South Africans, as it did residents in other countries such as Canada and Australia, neither of which has exchange controls. But a more sophisticated response would emphasize that it was not the presence of supposedly protective regulations but rather the absence of the types of pernicious regulations that set up the American financial and real estate sectors for failure.
A proper analysis of that crisis cannot ignore the distortions created by a host of government interventions such as government loan guarantees, the regulatory compulsion of banks to make subprime loans, tax incentives to purchase property, government-backed companies created to hold mortgage bonds, government-backed insurance of bank deposits, and central-bank accommodation of the financial and real estate bubbles.
The key intellectual error underlying the existence of exchange controls lies in the belief that government officials have the knowledge necessary to coordinate our lives and to provide for our needs. History has demonstrated that where this belief is most firmly held and has manifested in the various shades of central planning, the people have suffered accordingly.
It is naïve to believe that government officials have both the knowledge and nimbleness required to protect us from the symptoms of international financial crises. In a world of fiat currencies with routine official interest-rate manipulation and credit expansion, it is no wonder that we have periodic currency crises and disruptions in the foreign exchange markets.
In the early 20th century, South Africa followed the lead of Britain in its experiment with exchange controls. Neither country can claim to have had a good experience with such controls—they never live up to their stated purpose—which is why Britain eliminated its controls in 1979. South Africa should do the same.

It Cost Mark Shuttleworth More To Leave South Africa Than It Did To Leave The Earth

On March 1, 2001, a small bank opened in South Africa with the aim of providing easy and affordable banking services to its customers. Attracted by this alluring promise, in no time people were queuing up to open a Capitec account. Today, the bank has more than four million customers; clearly CEO Riaan Stassen’s move from the liquor industry to banking has been a fortuitous one.
Born in Cape Town, Stassen earned a Bachelor in Commerce Honors degree from the University of Stellenbosch. He then did his articles and CA qualification at PricewaterhouseCoopers (PwC) before spending 14 years in the liquor industry.
The course of his career changed in 1995, when Stassen was asked to reengineer Boland Bank, a conservative regional bank established in 1900. After South African retail billionaire Christo Wiese bought Boland, it merged with Natal Building Society (NBS) and Board of Executors (BoE).
Stassen spent five years at BoE Bank, during which time he came up with a different banking concept: a retail bank for mid-to-lower income people. According to Stassen, the incumbent banks were failing in four areas: accessibility, affordability, simplicity and personal service. He left BoE with his management team and a goal to succeed where others had failed.
Stassen says that South Africa’s existing banks had never transformed to align with the cultural diversity of the country.
“So we saw that as quite a key opportunity for us to create that cement with our customer base,” he says.
Stassen and his team were approached by PSG Holdings, a company owned by South African millionaire investor Jannie Mouton, to manage PSG Specialized Lending, its micro-lending company focused on low-income customers. The name was changed to Capitec and the bank listed on the Johannesburg Stock Exchange in 2002.
It was no easy road for Capitec. The start-up capital was R250 million ($28 million), it listed with net assets of just under R400 million ($45 million), at R2 (around 2 US cents) a share. Within three months its market capitalization dropped to just under R50 million ($5.6 million).
The first few years of Capitec’s life were dedicated to developing an application platform that could handle high-volume, low-value transactions, efficiently and at a lower cost.
The system is run from Bellville—a small town just outside of Cape Town. From there the bank runs the administration that usually takes place at branch level, shifting the branch focus to its customers. The last fundamental of the technology component is the ability to conduct all processes in real time.
The bank uses fingerprint biometrics to counter fraud and is currently testing new ATMs fitted with the system. Capitec is also the first bank in South Africa to allow coin deposits at ATMs, further evidence of its focus on low-income customers.
Stassen says other South African banks are rife with high costs, lack of transparency and confusing jargon.
“We believe what a person needs from a bank is to move money, to park money and to get money,” he says.
Capitec’s solution to this is its Global One account—a single account that can be used for transactions, including online purchases, as a savings vehicle and as a way to apply for credit. Customers can get up to R230,000 ($25,700) in cash within minutes of applying for a loan. This amount is determined by an affordability assessment based on their monthly cash flow and is repayable over one to 84 months, also based on personal ability. The interest paid, 17% to 28%, also depends on the individual’s credit profile.
A big bone of contention in South Africa has been unsecured lending. In the past, borrowers were required to secure a loan with collateral. With unsecured lending, clients do not need this security, “In South Africa nowadays unsecured lending has become a swearword, and that’s absolute nonsense,” says Stassen.
He points out that as far as Capitec is concerned, it’s not about the assets a person has, but their cash flow.
“There are 20 million active credit clients in South Africa. There are 1.8 million credit clients who have any form of home finance, a mortgage grant. Only 1.8 [million]. So what are the other 18 million people doing to improve their standard of living?” asks Charl Nel, the head of strategic communications at Capitec.
Few deny the fact that South Africa, like most of the world, is a consumption-driven society as opposed to a saving one, or that defaults are part of the territory, but as it currently stands, over 95% of Capitec’s book is current. Despite citizens’ household debt often being greater than disposable income, according to Capitec’s interim results from September, its number of arrears had decreased to 4.4%.
“The profile of our credit client is definitely changing as we are seeing new credit clients with higher income levels attracted to our offer,” the interim report says.
According to a report by South Africa’s National Credit Regulator, unsecured credit in the first quarter of 2012 grew by 49.4% year-on-year. This is a rate far higher than any of the other types of credit.
Capitec has millions of customers, and Stassen attributes the bank’s success to widespread discontent with the big four banks among their customer base, as well as its strong proposition to customers. His is the first bank in South Africa to be open on Sundays, a move that persuaded one of its large competitors, Nedbank, to follow suit.
“We had to think a lot on our feet. We change things a lot. What we thought was going to work had to be changed slightly. And often in a very old, stale, established organization you get resistance and that’s dangerous because people kind of trip up the process,” says Nel.
How does the bank manage to make money and a success out of low-cost banking, especially when they have kept their prices unchanged for the past three years? As most business minds know, you can only undercut your competitors for so long before it becomes costly. Stassen says Capitec could only be priced significantly lower than their opponents if they took smaller margins or lowered their cost structure. Their solution appears to be running the bank like a production line.
“Stassen is an exceptional CEO. One of the best that I’ve come across because since he joined Capitec we’re really focused. They developed a great computer system and it’s a great success,” says Mouton.
Stassen admits that they were initially ignored by the bigger banks because they started off as a micro lending organization. When they began to look beyond this; their competitors believed their primary focus would be on the unbanked and the lower income market. Then around two years ago the more established banks started to take notice.
Capitec now has around 9% of South Africa’s banking market share and their most important objective is to attract primary banking accounts, those into which salaries are directly deposited. The bank also plans to launch a credit card at the end of this year.
The interim results stated that Capitec’s transaction fee income for the first six months of the financial year grew by 61% to R583 million ($65 million) year-on-year. Headline earnings per share grew by 35% to R7.02 ($0.80). Income from credit was R3.6 million ($403,000), which the bank says is due to growth in the unsecured credit market.
The management team at Capitec had been part of a share incentive scheme, allowing them to buy into the company. Last year, there were numerous reports and speculation as to Capitec’s health and suggestions that its captain, Stassen, was abandoning ship, and that other executives were offloading their shares too. When asked about it Stassen says: “It was very bad reporting”.
The truth of the matter is that Stassen sold most of the shares in his own name but that 95% of his investment in the bank is held by a company in his family trust. The private investment company owns more than R400 million ($44.8 million) worth of shares.
“I believe it’s extremely dangerous for executives to be over-extended to the company they run,” says Stassen.
He says this is because, when executives become over-exposed, they start making short-term decisions and manipulate numbers to protect the share price.
Last year, Capitec sought to raise funds through a rights issue, which increased the bank’s capital base by R2.25 billion ($252 million). The funds were for the extension of the branch network, with 55 to 75 new branches proposed for this year, and to increase lending.
Earlier this year PSG sold off some off its stake in Capitec to repay debt incurred in the purchasing of approximately R724 million ($81 million) from the rights issue last year. PSG’s stake in Capitec has dropped from 32.2% to 28.5%, and the company says it will not be selling off any more of its shares.
Then in February, the South African Public Prosecutor confirmed that it will launch a formal investigation into a black economic empowerment deal, from 2011, resulting in a consortium with ties to the country’s ruling party acquiring nearly R1 billion ($122 million) worth of Capitec shares. Nel says they will cooperate fully with the investigation.
Capitec is currently focusing on South Africa but will start identifying opportunities in other countries on the continent. Its long-term goal has always been to internationalize its banking model. Infrastructure is however a concern as the bank is highly reliant on technology. As the fastest growing retail bank in South Africa for individuals, winner of Africa’s Top 100 JSE Companies for the second time, forging into an under-tapped market and making the big dogs follow suit, could mean Capitec will lose its underdog title.
Goliath may not be down and out yet, but he is certainly taking notes on David.

A Plucky David Banking  On Beating Goliaths

Forty-five years later and now among Africa’s 30 richest people with a net worth to match–he is worth more than $545-million–Raymond Ackerman still bears the scars from the worst day of his life. The day still gnaws at his mind, fresh, like it happened yesterday. It has driven and defined his life.
“It was a Monday morning in 1966,” Ackerman, now 80, recalls. “Norman Herber, the chairman, called me in and just said you are out.”
The least Ackerman thought he deserved was an explanation. Certainly, for someone who had served the company with distinction, for the previous 15 years–at least as far as he was concerned. He had joined the retail group, Greatermans, as a 20-year-old trainee, rising through the ranks to become MD of its struggling groceries division, Checkers. He had built the besieged subsidiary from three stores to 85 by the day of his firing.
<div id="attachment_827" style="width: 484px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-827" class="size-large wp-image-827" src="/wp-content/uploads/2017/04/AV_00020165-766x1024.jpg" alt="" width="474" height="634" />SOUTH AFRICA &#8211; Date unknown: Pick &#8216;n Pay Chairman, Raymond Ackerman (Photo by Gallo Images/Sunday Times)</div>
To Ackerman’s shock and horror, Herber was in no mood to explain, nor did he seem to think he owed anybody anything, least of all his underling.
“I said Norman, what went wrong? He wouldn’t explain. He just said ‘Raymond, I know we are close. But from today, you are out.’”
With his last paycheck, off went Ackerman to his wife, Wendy, who was at the time heavily pregnant with their fourth and last child. Although equally devastated, she would give her husband the best advice he ever got.
“Raymond, this is the best chance of your life–open your own business.”
But where was the capital going to come from?
As Ackerman pondered the question, he remembered an American businessman he had met during the time he was learning the ropes at Checkers. He had told him: “Business is 90% guts and 10% capital.”
For the next few months Ackerman and an accountant friend would go around speaking to a wide range of potential investors trying to convince them to buy into their business idea. About 40 backers would line up and the following year, 1967, a new retail group, Pick ’n Pay, listed on the Johannesburg Stock Exchange.
Ackerman and company would start out by buying four small Cape Town stores, laying the foundations for what is today a US$6.76-billion turnover company.
Pick ’n Pay is now South Africa’s second largest food, general merchandise and clothing chain. The group boasts 775 stores, mainly in South Africa but also in neighboring countries: Botswana; Zimbabwe; Zambia; Mozambique; Namibia and Swaziland. The company is also in Mauritius. According to the latest annual report, 100 more stores are due to open over the next financial year. The company employs more than 38,000 people.
With that kind of achievement many men of Ackerman’s age would probably want to spend the rest of their lives in peace–traveling the world; looking after their grandchildren or simply tending the garden. The last thing you would expect from such an achiever is appetite for a new, if not hazardous, struggle.
Well, like an old war-horse sniffing gun-powder, Ackerman is bracing himself for a new war. In it, he wants to gallop ahead of younger stallions, including his eldest son Gareth, whom he anointed as his successor and chairman in 2010.
Ackerman discloses, during our interview, that he has drafted himself into a select and close-knit team that is working hard and spending a fortune on a battle plan to fend off marauding United States invader, the world’s biggest and ruthless retailer: Walmart.
Walmart–a multinational both feared and respected–bought a majority stake in Massmart, South Africa’s third largest retailer. It was an acquisition opposed by unions that went through a turbulent hearing at the Competition Commission in Pretoria. Many in the unions feared the company’s rough-and-ready approach to labor relations. Other South African retailers feared they’d be undercut and shoved out of the market by Walmart.
<div id="attachment_828" style="width: 484px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-828" class="size-large wp-image-828" src="/wp-content/uploads/2017/04/0000139705-821x1024.jpg" alt="" width="474" height="591" />CAPE TOWN, SOUTH AFRICA ñ 28 May 2011: Businessman Raymond Ackerman receives an honorary doctorate from the University of South Africa (UNISA) in Cape Town, South Africa on 28 May 2011. (Photo by Gallo Images/Foto24/Nasief Manie)</div>
In the aftermath of regulatory approval, the US outfit made no secret of its intention to capture a much larger market share in South Africa by starting a price war with the likes of Pick ’n Pay.
“With Walmart coming, we want to be the best in every part of our business. We’ve redone our buying; we’ve redone our warehousing; and we’ve redone every aspect of our business. We are gearing ourselves for the fight, a very big fight.”
And fighting, it must be said, is something Ackerman is used to. After all he has spent a lifetime fighting his South African rivals OK and Checkers in the cut-throat world of supermarkets–where the cheapest baked beans can be a shot to the jugular.
I put to Ackerman that Walmart, with its deep pockets and huge operations around the world, could prove to be the toughest, if not most formidable, opponent he has ever faced.
“We’ve done our homework and will fight a good fight,” he says.
“I’ve studied deeply what they’ve been doing but I don’t want to get into that. I don’t think they’ve succeeded everywhere. We are looking at the weaknesses that we’ve picked up around the world, what countries they’ve done well in, what countries they’ve failed in. We are gearing ourselves to fight a good fight, not against a ruthless guy, but against a company that has shown that it’s got weaknesses.”
It also turns out that Ackerman’s much-publicized retirement, announced two years ago, never really was. Or, as he prefers to put it, he is “technically retired.”
Ackerman still goes to work everyday. He still arrives at 8am. In addition to attending to social responsibility programs, he advises the executive management team on administration and merchandising.
What happens when his son, Gareth, and his team don’t take his advice?
“I try not to interfere with the day-to-day running. They listen to some of my advice and sometimes they don’t. When they don’t take my advice I get upset but I don’t take offence. If I took offence, then they would feel that I’m interfering. It’s not easy, by the way. It’s not easy retiring when you’ve built a business from scratch.”
What some may call meddling or refusing to let go, Ackerman merely calls passion.
“I’m passionate about what I do. I want to build a company that will last forever”.
The only way to make a business last forever, Ackerman advises, is by sticking to good values–something he says he tells everyone who cares to listen to the story of his success, including the scores of entrepreneurs, business leaders and students he always gets invited to inspire and motivate.
It all goes back to advice a Professor gave Ackerman and his class back in 1949, at the University of Cape Town, where he graduated with a Bachelor of Commerce degree. The lecturer asked all those who wanted to go into business so that they could make money, to put their hands up. Almost everyone raised their hands, including Ackerman. The professor then advised the class: “If you think making money is the purpose of business, you are going to fail.”
Ackerman took the advice and it is his motto to this day. It is something he says analysts always miss, whenever they examine his business performance.
“Analysts are meant to analyze a company by this triple line and corporate governance–but analysts will never ask me about what I do on social responsibility, what I do for my people. They just want to see profit…profit…profit. I want to build a company that will last forever. The analysts just want profit growth, profit growth, profit growth.”
“South Africa, in my opinion, needs desperately more businesses involved with triple line reporting. You must give back to the community. The more you give, the more you will succeed.
By giving, Pick ’n Pay removed an albatross from around its neck.
When Nelson Mandela came into power after South Africa’s first democratic election in 1994, one of his first moves was to ask the country’s white business establishment to sell a stake to their black counterparts, in a program now known as Black Economic Empowerment.
Ackerman says he grabbed the opportunity with both hands, by creating franchises for black entrepreneurs. The result was a win-win solution that helped both black entrepreneurs and Pick ’n Pay grow. Ackerman converted some of his underperforming grocery stores into franchises and has been building scores of new stores in townships. Many of the franchise stores are owned by black entrepreneurs.
“It was a major shift for Pick ’n Pay, now half our stores are franchised. I thank Mr. Mandela for influencing me,” he says.
Ackerman’s relationship with politicians, though, has been strangely ambivalent–at best.
In the dangerous days of apartheid South Africa in the 1970s and 80, when the country was in flames; many well-off whites were emigrating.
“Sure, I had misgivings about our decision to stay. Thank God we decided to stay with it,” he says.
In those difficult days, Ackerman met politicians. He vividly remembers a talk with Prime Minister, B.J. Vorster, who was in power when black students took to the streets and were mowed down in Soweto in 1976. It was on Vorster’s watch that more opponents of the apartheid regime were detained in a climate of racial conflict.
“It was quite an amazing thing, we wanted to promote black managers but it was against the Group Areas Act, [the legislation that apportioned land by race]. I went to see him [Vorster] and said we are doing it. He said, ‘I know you are doing it, and it’s against the law’. I said, ‘here are letters from ministers’ wives saying how courteous this or that manager is’. I showed him these letters that my wife had prepared. He turned around–I won’t forget that day–and said, ‘Mr. Ackerman, go ahead, even if you are breaking the law I won’t arrest you’. I asked, ‘do I have your word ? Can I have it in writing?’ He said, ‘go ahead, I won’t arrest you’. I said, ‘give it to me in writing’ and he said, ‘I won’t but you must do it’.”
In 1980, Ackerman went to see Vorster’s successor, P.W. Botha, a very stubborn man–who was called ‘Die Groot Krokodil’”, Afrikaans for ‘the big crocodile’, who oversaw the most violent years of apartheid rule. Ackerman wanted to discuss several issues, including a housing scheme he was contemplating for his black managers: “I asked him why we can’t have houses for blacks? Why not have a 99-year lease like they have in Sweden and Finland. He called in one of his ministers. I think it was Connie Mulder. After about a week of discussions, Botha came up with a 99-year-lease-hold, which was later changed to full ownership.”
Ackerman would also meet F.W. de Klerk, who was a senior Cabinet minister at the time.
“There was such a breath of fresh air about him,” Ackerman says of the man who would go on to succeed Botha, and later, release Mandela from prison.
“I’m not trying to say we played an enormous role,” Ackerman adds quickly, “but we played a role.”
Even in the so-called “new South Africa”, where there’s “tons of things going wrong,” Ackerman says he will, in his small way, continue to play a very positive role. That’s not to say he’s happy with everything that’s going on in the country.
For example, he wouldn’t mind being taxed more–a call that has been made by such people as Nobel Peace Prize laureate Archbishop Desmond Tutu, in part as a gesture towards reconciliation and redress. “I’d be happy to pay an extra tax to uplift and help entrepreneurs help businesses start,” Ackerman says, “but we’ve got to deal with corruption.”
He adds, however, that he always reminds people that corruption is not just in government, but also in the private sector, and that inequality and unemployment were “twenty times worse in the sixties and seventies.”
As a believer in entrepreneurship, in a free economy, he was delighted to hear South African President, Jacob Zuma, reject the calls for mine nationalization.
“You can’t create jobs through government. You need to excite the entrepreneur to invest capital and to invest in new things. I respect the fact that the government has by and large left a free economy.”
He is also delighted that government is not agreeing with the Congress of South African Trade Unions–the biggest workers union which is also an ally of the governing African National Congress–that labor brokers should be banned in South Africa.
“Unions hate labor brokers because when there’s a strike, the labor brokers come in and soften the strike and we can run the business without them. I hope he (President Zuma) doesn’t listen to labor unions. If he cuts out labor brokers he’s going to play into the hands of labor unions for strikes,” Says Ackerman.
So, when all’s said and done, what would this doyen of retailing and grandfather of 12 like to be remembered for?
“I’m not saying I’m different. I’m not saying I’m clever, I’ve just worked my whole life to rebuild myself after I was fired.”
The lesson for entrepreneurs?
“Find something you are passionate about, and make it your life’s work.”

Tag: Capital

FORBES AFRICA SOCIAL MEDIA

The Long Crawl To Electricity

More Middle Class Means Money

It Cost Mark Shuttleworth More To Leave South Africa Than It Did To Leave The Earth

A Plucky David Banking On Beating Goliaths

The Pain That Put The Fight Into A Tycoon