Opinionista Michael Fridjhon 21 July 2016

Beyond transformation in the Cape Wine industry

It seems that in South Africa these days, no one thinks of alternative or lateral ways of approaching seemingly intractable problems. If a Stalinist fiat cannot produce the desired result, the alternative appears to be simply to leave well alone. Nothing else can explain the absence of transformation in the Cape wine industry.

I recently attended a debate (between a school debating team and some of the old boys) in which the proposition “Rhodes Must Fall” was the subject of the discussion. Much of the argument was frivolous and fatuous, either because some form of humour appeared mandatory or because jargon was allowed to replace real thought. Unsurprisingly, the word “colonial” was treated to excessive airtime. To the credit of the school boys they did point out that Shaka was as much of an imperialist and colonising force as Cecil John Rhodes. Like many of these issues which are driven by gut response rather than by intellect, the outcome was always destined to be an entrenchment of existing views. That said, the youngsters did come up with an interesting suggestion in in favour of maintaining (or at least not eliminating) the presence of Mr Rhodes: instead of suppressing him (and therefore his memory), they suggested beating him at his own game: show the failure of his white supremacist position by being everything he believed black people were incapable of being.

I guess it all depends on whether or not you see life as a challenge to which you should rise, or an obstruction which must be lowered. If the former, then a barrier to entry is simply a temporary obstacle. Moreover, if you think laterally, you also know that there are cleverer ways than a frontal assault. It’s easy enough to see that much of what is presently happening in the South African environment involves an opposite strategy: raise barriers to those who can do the job and lower them for friends, associates, cronies. This is a pretty popular arrangement with the beneficiaries but it’s not cost-effective and it’s certainly not cost-free: if it’s applied in a service environment, the quality of the work deteriorates and everyone who depends on the deliverable receives a diminished outcome. This has the appearance of a “victimless crime” because no one person is funding the inefficiency: it’s a little like those computer programmes that skimmed the 3rd decimal point off all the interest payments at a US bank, leaving millions of people fractionally poorer and the hackers (temporarily) a lot richer.

In fact, this is pretty much the way the ANC has gone about its business in the past couple of decades. The very term “deployment” speaks of an appointment which is not skills based. If you appoint people on grounds other than competence there must necessarily be a deterioration in the quality of the work done. Do that extensively, and for long enough, and you finally land up with a collapsing education system, a dangerously diminished health care system, poor policing, the law courts in disarray, an unresponsive municipal government, an incompetent defence force, a power utility that has consistently failed to deliver in terms of its mandate, potholes in the roads, rising road accident death rates, and most importantly, a presidency which can act with impunity because meritocratic criteria have been abandoned and almost everyone who has done well out of the system knows they’re not in a position to point fingers.

It also means that no one thinks of alternative or lateral ways of approaching seemingly intractable problems. If a Stalinist fiat cannot produce the desired result, the alternative appears to be simply to leave well alone. Nothing else can explain the absence of transformation in the Cape wine industry. It’s not like mining or banking, where empowerment can easily be achieved by bringing on board black shareholders and funding their equity through dividend flow.

For a start, when it comes to wine farms, mostly there is no dividend flow. No one who hadn’t inherited one, or made a fortune in another industry and was ready to make the “lifestyle” transition to the wine business, would ever actually buy into the deal. The arithmetic is so bad than even expropriation appears to be off the table: the government is making so much real money from taxation – alcohol tax and VAT – that it doesn’t entirely mind the relative lack of company and personal tax income. It sure as hell doesn’t want to lose the income flows and to have to start handing over money to the beneficiaries of a misguided expropriation policy.

But there are, as the old adage would have it, other ways of skinning the cat: wine-farming has pretty much been a monopoly of old Cape families for a few hundred years. This doesn’t mean that the most important revenue stream of the wine business resides in primary production. Land ownership has always had barriers to entry: capital, access to borrowings, specialised farming competence, willing sellers, to name a few. When Jewish immigrants arrived in Southern Africa in the late 19th and early 20th century, very few – if any – brought the kind of skills and money which would make agriculture an obvious first port of call. Some, like the Back family of Backsberg, came to land via manual labour followed by trading skills. Others took those trading skills and came to dominate the retail industry (OK Bazaars, Greatermans/Checkers, and Pick & Pay) in general and the retail liquor industry in particular: Solly Kramers, Benny Goldbergs, Norman Goodfellows, Rebel, Aroma, Drop Inn and Liquorama, to name but a few. In time they did a lot better than most of the farmers. Owning the route to market is better business than primary production in the modern era.

It’s clear that ownership of land is not the only way to take control of the food and drink business. On the contrary, the parlous state of agriculture, and in particular the marginal state of wine farming, should make it clear that the smart money doesn’t invest in land. If the government wishes to effect a significant transformation of the liquor industry, it doesn’t have to intervene at the level of basic production. All it needs to do is to facilitate transformation in the distribution, wholesale and retail sectors. Of course, you don’t achieve this by deployment. It takes hard work, cost containment, clever buying, competitive selling and margin management. The skills are there, if not the appetite. The shebeen sector is vibrant, populated by countless entrepreneurs who understand the industry and serve a growing retail market.

This is where the DTI should be investing its efforts, and where an immediate result can be obtained. Instead, it spends its time devising ever more restrictive regulations and constricting the commercial environment in a strangulating morass of red tape. Any wine producer will tell you (with some regret) that the real money lies with the gate-keepers – the distributors, wholesalers and aggregated retailers. Why chase transformation in the most marginal segment of the value chain when, with just a little liberalisation, infinitely more wealth (and a vastly greater number of jobs) are waiting to be created? DM

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