BUSINESS MAVERICK Op-Ed
The Interview: Standard Bank’s Jacko Maree talks economic challenges, solutions — and that $100bn investment challenge
The following is the transcript of a podcast in which Andrew Skipper, head of the Africa practice at Hogan Lovells, interviews Jacko Maree, the non-executive deputy chairman at Standard Bank Group. Maree raises pertinent macro issues and challenges facing the SA economy and talks about the need for an investment-led strategy.
The podcast can be heard here:
Andrew Skipper: This is the fourth series of the A Perspective podcast in which I have been having conversations with some of Africa’s top business minds and investors alongside key cultural influencers. People who are deeply committed to building on the continent and spreading the word and the vision in a diverse way.
…Today we’re lucky enough to be chatting to Jacko Maree. Jacko is a renowned experienced leader in the South African banking sector, having been CEO of Africa’s largest bank, Standard Bank, for 13 years including building their pan-African business across 20 countries and securing a 20% investment in the bank by the Chinese.
After a four-year cooling-off period he returned as non-exec deputy chairman at Standard Bank Group and he serves as chairman of the Liberty Group. Crucially, he is also supporting South Africa’s push for investment as one of President Ramaphosa’s investment envoys, in which role Jacko is focused on attracting investments and the growth and reform of South Africa’s economy and how the private sector can play the biggest role in achieving this.
Jacko is a well-known and forthright commentator on the South African economic context and has continually expressed optimism about the future landscape while remaining committed to delivering truth to power about the real facts on the country’s prospects.
AS: So welcome Jacko it’s great to have you on this podcast.
Jacko Maree: Thanks very much, it’s great to be here.
AS: Jacko, last time I heard you actually, it was great hearing from you at the South Africa Chamber of Commerce Gala Dinner, and listening to your views on the South African economy, especially during these challenging Covid times, you were optimistic then, but looking at it with your experience I think there really is no one better to give an honest assessment of what we can look forward to in Africa now. Perhaps first, given your background, from your experience can you put where we are in a historical context – how bad really is it at the moment?
JM: Well, it really is obviously a very, very difficult time. Our actuaries at our life insurance business and at the bank believe that this is and has always been a one in a 100-year type event. So, something very out of the ordinary. To see our South African GDP contract by 7.2% in one year is something that I certainly had never experienced. And South Africa is sitting with unemployment at round about 32½% and if you use the expanded definition, unemployment sits at 42% and we lost last year alone something like 1½ million jobs. So, this is clearly a very difficult time and it’s going to require enormous effort to dig us out of the hole. Part of the hole was dug by us and part of the hole was clearly attributable to the crisis.
AS: Have the last 12 months made you reassess any of your previous assumptions? Have you had to reassess any of your previous assumptions about doing business in South Africa or has it simply reinforced your original thoughts?
JM: Well, if you think that you know we’re only likely to get back to GDP levels of 2019 in 2023… it really paints the picture starkly. I think the biggest, not change but re-emphasis, there’s a total reliance on the private sector to get this done. The government’s finances are in a parlous state, obviously downgraded to junk status earlier last year, but if you look at the debt to GDP ratios, the amount that the country is having to borrow etc. the government just doesn’t have the money to get anything really significant done. So, therefore, there’s a great reliance on the private sector money and skills.
Again, I emphasise that the only way out of this hole is an investment-led recovery. We must find ways of investing more, which will then lead to growth and to jobs. It’s of course largely going to be private sector investment or private-public partnerships rather than state or state-owned enterprise money. But finally, the fact remains that South Africa still is the most viable gateway into the rest of the continent for multinationals. And so, in that sense that thesis remains.
AS: …I’m interested about the private sector because the private sector has to drive a lot of growth, but it needs the support of the public sector if it’s to be enabled to do that… You’ve been set some really challenging targets in your advisory capacity for the president delivering investment. How realistic is this challenge… and how successful have you been at it? And could you give me a couple of examples of where this has really worked and where you’ve seen it in terms of that?
JM: Yes, we certainly were set some tough targets by the president: in round numbers $100-billion of additional investment and we’re talking about fixed investment here, not investments in stocks and bonds, but fixed investment over a five-year period. Importantly, it’s local and foreign investments, so it’s not just foreign investment. We’ve had three investment conferences since this target was announced, in November 2018, 2019 and 2020. And we’re about halfway there, halfway towards our target.
The first two conferences raised almost half of the target. Unsurprisingly, [at] this last conference in November 2020, the numbers were much lower, of the order of only $10-billion, so we’re making progress, but in some ways we’ve attracted or reached the low hanging fruit and as time passes the target becomes harder and harder to achieve…
Ford has announced a very big expansion and South Africa’s got a very sophisticated motor and motor component industry programme. PepsiCo acquired Pioneer Foods, one of our big food companies, [and] is going to use that to expand across the continent. You’ve seen Microsoft and Amazon web services coming in to holding data centres and a lot of activity in renewable energy. So, there’s been lots of individual successes, but we need to get this at scale to really make the difference. You need an investment to GDP ratio round about 25%, most economists would argue, and we’re sitting at sort of the 16 and 18% level at the moment.
AS: But what are the roadblocks to delivering on your targets? Are these more economic, political, or simply emotionally in the sense that you need to structure the reform… or simply tell a better story?
JM: Well it’s not about telling a story…. I think investors, especially people that are making 20-year calls in terms of a factory or a plant or whatever, are going to see through the stories. It’s all about the reality on the ground. Of course, there’ve been political and philosophical differences within government. …Large sections of the ruling party… believe that we’ve got to be a developmental state and the state should play a very big role. The truth of the matter is if you want to achieve the growth rates that we are now talking about you have to rely more on the private sector and that does mean talk to structural reforms in a number of industries improving the ease of doing business.
South Africa used to rank around about 2009; it ranked something like 34th in the World Bank Ease of Doing Business ranking and it went all the way up to 84 a few years ago, so we’ve really [gone] backwards. More red tape and so on was introduced and legislation and we now need to roll that back and the president has made a commitment to get South Africa back into the top 15 in those rankings. And to do that you have to clearly remove a lot of blockages, make it easier for companies and make sure that the enabling environment is conducive, which in many cases, as investment envoys we find that it’s not.
AS: Do you feel that the South African nation is working together to deliver on success here?
JM: That is the million-dollar question… Like so many other countries around the world there are very big differences in views, there are so many different views that exist, so we don’t have a common purpose as a country… which makes it tough for the president. He sits within a party that is deeply divided on some of these issues. But, encouragingly, the economic reconstruction recovery plan which was announced in October last year really does come out of negotiations at Nedlac, which is a business, government, labour and civil society forum, and that plan has very important and sensible measures in it. The issue is now delivering that rather than making more plans.
AS: That’s very good to hear. Looking at it from the outside, when you’re talking to investors internationally, do you find the international markets are becoming more sympathetic to investment in South Africa? And what do you think can be done more to encourage them to invest? …China, you know from your personal experience, is a major trade partner with South Africa. How do you see the broader position and this relationship in particular developing into the future?
JM: Well, most of what we have to do as a country to attract investment is talk to individual companies. Of course, when you’re talking to China you’re talking to the government. You’re talking to perhaps Saudi Arabia, you’re talking to the royal family who might make national decisions as opposed to company-specific decisions. But generally, a UK company deciding to expand in South Africa is very company-specific, what prospects are like in my industry, what are the laws like, what are the tax conditions like in my industry? So, it tends to be very specific.
The important thing is that if I look at the stock of foreign investment in South Africa, roughly 78% of that comes out of Europe, of which 40% of that 78% is the UK. So, however we think about new markets, it’s critical, we’re blessed that we have so many foreign companies that operate in South Africa. Because of our, I suppose, colonial and historical past we have hundreds of foreign companies that are already on the ground here and it’s time to convince those companies to do more to grow their businesses and to expand. Much of that effort has to go to companies, call it the Old World. As much as we also have to be talking to China and Japan and so forth, it very much is our historical trading and investment partners that we need to be appealing to and they understand the country well and they’re hard-nosed commercial enterprises typically.
AS: Yeah, and with options.
AS: So, as to where they put their money. I think a lot of people… will be surprised by the level of UK investment actually still, given the circumstances. …I know that you are basically an optimist and I’m very keen to hear that positive narrative to South Africa. I think I’ve heard you speak of at least six reasons to be cheerful…. Could you maybe just very briefly run through those?
JM: Yes, these are some stats put together by one of our economists at Liberty and they’re shorter-term things, but they give you hope… that gives you some time to do some of the longer-term structural things that I talked about earlier.
Firstly, global commodity prices are much higher than we saw previously. So we saw a very strong rebound in commodities in 2020 and particularly in gold and platinum, iron ore. We saw a 24% growth value of exports last year from South Africa, which was a real win… and it looks like commodity prices are going to remain relatively elevated. So, despite some of our challenges with some of our mining legislation, we are getting a benefit here even though volumes haven’t necessarily gone up yet. The amount of money coming in has gone up.
South Africa, as a second point, recorded a record trade surplus which is counter-intuitive really in 2020 compared to a tiny surplus in 2019. So, this is really going to help the balance on the current account stage from a big deficit to a big surplus for the first time in decades. So that’s something positive.
Our interest rates are historically low, the Reserve Bank has reduced the repo rate over a period by something like 300 basis points to 3½%, which is the lowest since it was introduced, the lowest I can ever remember. And this has been entirely sensible. And inflation hasn’t taken off, so inflation has surprised on the downside, so that means that the Reserve Bank can probably afford to keep rates lower for longer, which I think will help consumers and businesses.
Tax collection has improved quite dramatically as well…. So National Treasury is now forecasting much higher revenues than previously; maybe they were a bit conservative this time a year ago, but you obviously had the benefit of the mining taxes and, interestingly enough, of the job losses, that I spoke about earlier, have tended to be low-income earners so that hasn’t hit the fiscals that significantly, which is slightly counter-intuitive. I allude to the fact that we are having to borrow a lot as the country to fund our deficits and so on.
But, the government has been able in recent times to reduce the amount of debt on sale and the weekly bond auctions have been consistently oversubscribed and so the government plan and borrowing plan is well ahead of budget and so the fact that there’s going to be reasonably strong cash balance from this overfunding does give the government flexibility to be more aggressive, for example on procuring vaccines.
And lastly, foreign investments into South Africa have turned around. In 2020 foreigners systematically disinvested from South Africa and foreign ownership of government bonds, which is critical, fell from a peak of over 42% foreign ownership in 2018 to just under 30% in October last year. But this trend has reversed, and we’ve now seen foreigners obviously looking for yield and so on, but buying bonds late last year and early this year, and these flows which are… not fixed investment flows but they are critical flows to finance and the country. So, this gives us some space to implement what the government is saying in terms of the economic reconstruction recovery plan, the reforms and structural reforms. We’ve been dealt a little bit of time to get our act together.
AS: Which is great and leads back to promoting investment and you didn’t mention the British Lions tour, which is probably number seven, assuming it happens. But let’s keep our fingers crossed on that one.
…You’ve got extensive experience, personal experience of growing a business in South Africa but also into Africa generally and becoming a global player. So, what tips would you give South Africans and South African companies looking to replicate success in Africa?
JM: And it’s certainly worth thinking about because there are many examples of South African companies who have tried and failed in their quest to move around the continent. I think the first fundamental question is, what competitive advantage do you have? Merely going to plant a flagpole in another country isn’t a good reason. You’ve got to be able to figure out how you’re going to add value in the country that you’re going to be investing in. And I think quite often that hasn’t been the case, in that people haven’t figured out how they are going to compete in what their advantage is. I also think that when you’re talking about investing across Africa which will probably be the same if you’re thinking of investing across Latin America.
We’re talking about lots of economies, smaller economies, and different types of economies. You really need a portfolio. Just investing in one or two countries puts you at very high risk because things might go pear-shaped in a particular economy. So, in our case with a portfolio of round about 20 countries, you’ve always got two or three that are experiencing some difficulty, but the portfolio helps you, and I think that’s important.
How to be relevant in the country in which you operate? Typically, operating in developing countries you must be a contributor rather than being a business trying to extract profits from a country. So you have to be seen to be relevant to helping the country build and I think it’s in that sort of context critical if you can have a local CEO rather than have a CEO parachuted from home base, which also links in to the fact that you need a diverse group of people; thinking that you can start your African operations with a bunch of South Africans or South African leaders is just a poor strategy, so that’s very important.
And finally, I think it is making sure that you don’t bet the company – your expansion must be aggressive but if things go wrong… you don’t want to be betting the farm as it were… DM/BM
* Story corrected to reflect Maree’s position and deputy chairman, not chairman of Standard Bank Group. Apologies for the error.