Lesotho: A dream so near, yet so far!

It has been a while since I was last inspired to put pen to paper and share thoughts in a meaningfully constructed way. Sometimes the mind just goes into a sleep mode and refuses to cooperate, even when the will is there. Such is life. I remember back in the day when I used to harass Ntate Meshu at every opportunity that I wanted his famed moraba-raba painting and his standard response which did not sit well with me was that he was not inspired. How the tables have turned!

Today I want to write about a subject that I am usually passionate about, but of late the passion needs to be rekindled and reinvigorated. The subject is Lesotho, ‘hara mafatse ha le eo le tsoanang le lona’, a dream so near yet so far!

October 4^th 1966 – Independence Day

Lesotho as we know attained her independence on 04 October 1966, 4 days after Botswana hoisted its new flag to mark her independence. Swaziland or eSwatini as it is now referred to was the third country which completed the tripartite commonly known as BOLESWA during my time when I was still growing up. eSwatini attained independence in September 1968.

Leading to the independence of Botswana and Lesotho in 1966, the British parliament debated at length the readiness of the two nations in Southern Africa with an admission by British legislators that Britain had not done justice to the two nations in so far as economic and infrastructure development. This was more so for Bechuanaland (Botswana) than for Lesotho as Bechuanaland was significantly lagging behind and in all aspects.

Fast forward to 2022, the only real commonality is that the two nations attained independence in October 1966, merely 4 days apart. In the last 56 years, Botswana has made giant strides economically and today it overshadows Lesotho in almost all respects including sport which historically Basotho were always superior.  Gross Domestic Product (GDP) per capita of Botswana is nearly 7 times that of Lesotho.

How Batswana planted seeds of a brighter future

The success story of Botswana can never be complete without the story of how Batswana funded the development of their own university, University of Botswana, with the contribution of a cow from each Motswana. Batswana like most other Southerners used to further their studies at University of Botswana, Lesotho and Swaziland (UBLS) which was headquartered in Lesotho. The dream to have an own University was envisioned by Sir Seretse Khama, and the dream came to life in 1975/76 with the campaign code named ‘Motho le Motho Kgomo’ which translated ‘One man, one beast’ which galvanised the values of self reliance. Batswana heeded the clarion call and came forward to give their contributions, and the rest as they say is history.

To give context as to how much of a giant step this was, in 1966 at independence, Botswana only had;

• 12km of paved roads in the whole of Botswana
• Only 22 university graduates
• Only 100 people who fully completed Secondary schooling

This according to a research paper titled ‘An African success story – Botswana’ by Acemoglu, Johnson and Robinson (2001).

A vision without a sense of purpose and mobilisation is exactly that, a vision which is unlikely to be attained. A pipedream.

Today the University of Botswana is a well established University with a student population of 16,000, boasting a wide variety of faculties including a Schools of Medicine and a faculty of Engineering. Such are the strides that Botswana has made from the vision of Sir Seretse Khama in the mid- 70s.

Reflections from Lesotho Independence day 2021

Last year I followed a live stream event hosted by Tangerine, a local marketing/events company (I hope I am not misrepresenting them) and there were conversations about ‘Brand Lesotho: A catalyst for investment creativity and prosperity’.

One of the key speakers at the event was Thebe Ikalafeng, an eminent branding guru across the African continent who gave the audience a glimpse into how Lesotho is viewed by others, as well as showcasing what good and what excellent look like when countries position themselves correctly including ownership of intellectual properties belonging to that nation. He cited Kenya and its tourism industry and zoomed into the effort that went into securing the Intellectual Properties (IP) on the famed Masai people.

The Intellectual Property dimension was an interesting one and another panellist, Ntate Ralebitso who is also an accomplished marketer, and MD of Vodacom Lesotho, then asked why it is that the IP of the symbol of Basotho, the Seana-Marena, is not owned by Basotho, and neither was the manufacturing. At face value, this is a question that one can dismiss and say in business ‘you snooze, you loose’, the Italian family that owns Aranda has capitalised on the opportunity at hand and have done well for themselves and such is the nature of capitalism.

The question as to why Basotho do not even own the very symbol by which they are identified with globally is a very pertinent question. It should be a question that as Basotho we should ask ourselves what it is that we have done as a collective to advance the being of Basotho and to build lasting institutions which serve and advance our nationhood. What is our equivalent of the Batswana’s rallying call of ‘Motho le Motho Kgomo’?

I would like to argue that as a nation, we have never really done anything as a collective of Basotho for the advancement of Basotho. Although few and far apart, we have had pockets of excellence which unfortunately we have not been able to leverage and scale up.

Politics – the enemy of progress

I recall a time in the late nineties in the very early days of what eventually went on to become a flagship mining operation in Lesotho. It was shortly after the company had secured mining rights and signed an agreement with government, and as part of the initial phase we embarked on a process to register prospective employees (semi-skilled), especially those with prior mining experience.

One thing that stood out for me was that almost 1 in 3 registrants would amongst their credentials put forward their political party membership cards which naturally at the time would be membership cards of the then ruling party. The reaction from the registrants was always one of shock and surprise when we rejected the political membership cards.

Fast forward to 2022 where government is led by a coalition of at least five if not six political parties. This is the fourth coalition the last ten years, and the one consistent feature of the coalitions is that Ministries would be split in accordance with the coalition agreements, whereby every aspect of that Ministry would be politicised including parastatals and or private sector companies regulated by that particular Ministry. For example, the same flagship company I referenced, which is a private company, has had as many changes to the Board as there has been change of Ministers in the last ten years. An entity like LEC or LNDC, in the last ten years has had as many CEOs as there has been Ministerial changes, especially where Ministers come from different political parties. This revolving door has been nothing but a tragedy of catastrophic proportions, because there can never be sustainable progress when there is no stability nor clear policy. Success is a function of consistency.

Reading some of the books on political history of Lesotho, one quickly learns that this practice of using party membership cards to open doors for opportunities is not new. If anything it has been around from Day 1 in 1966.

At what point are Basotho going to say enough is enough? At what point are we going to make a realisation that it is not enough to vote and then expect miracles from a political messiah? At what point are we going to make a realisation that political promises have never turned around any country in the world?

Lessons learnt elsewhere globally

Ireland

Today Ireland is a key development partner to Lesotho and has been for a number of years now. In 1966 when Lesotho attained independence, Ireland was a poor country. Maybe not as poor as Lesotho, but poor nonetheless.

From the late 60s Ireland underwent accelerated industrialisation which was driven by rapid foreign investment after adoption of many friendly and open policies, including relaxation of foreign ownership, lower tax rates and a competitive labour market relative to its neighbours. One of the pillars of their success was the social pacts between government, investors and labour unions where there was a clear vision to position Ireland as an attractive market to specific industries such as IT, Pharmaceuticals and Health care and become a gateway into EU as such. Ireland also reaped a huge dividend from their earlier investment in education which was key in attracting the three sectors.

A key ingredient to turn around a country is unity of purpose. This unity needs to cut across the key stakeholder groups whose interests don’t always converge. In the case of Ireland, Labour Unions were persuaded to hold off their wage demands in the short term and to support long term plans of government to position Ireland as an attractive market boasting an educated but affordable labour pool.   

Singapore

The story of Singapore can never be complete without the mention of Lee Kuan Yew who transformed Singapore from a tiny colonial outpost, to one of Asia’s wealthiest and least corrupt countries.

In his words, Mr Lee who became Singapore Prime Minister in 1959, said ‘to understand Singapore and why it is what it is, one needs to start off with the fact that it was not supposed to exist and could not exist.’ Mr Lee pointed out that Singapore did not have the ingredients of a nation which was namely; a homogenous population, common language, common culture and common destiny. Despite all of these, Mr Lee was able to steer the relatively small Asian nation to becoming one of the most important nations of the East with a formidable economy.

One of the ingredients of the Singapore success story, was having a functioning public service. The Prime Minister, Lee Kuan Yew made a realisation very early in his tenure as Prime Minister that to attract the best talent to Public Service, Singapore needed to pay competitive salaries to top public officials including Ministers, Judges and the technocrats in Government. This way, Public Officers would immediately be deterred from seeking kickback opportunities arising from their normal day to day functions. Government of Singapore ensured that top government officials were remunerated the same as their private sector counterparts.

Conclusion

Out of the 57 odd political parties, there seems to be one that has unsettled many political actors the most. The Revolution for Prosperity (RFP) or Moruo led by prominent business magnate and philanthropist, Mr Sam Matekane. Many are already hailing him as the Messiah or the modern day Moses who will rescue Lesotho from the unending downward spiral that has gripped the country since the dawn of coalition governments.

Those of us who keenly follow history remember that Ntate Mokhehle was equally hailed as the Messiah who was going to save Lesotho in 1993 and he won by a landslide sweeping all constituencies.

Years later, one of his proteges, Mr Tom Thabane, came to the scene and was also touted as the Messiah that Lesotho had been waiting for all these years. In his second election under the banner of All Basotho Convention, he managed to wrestle the premiership from Mr Mosisili who had been at the helm for nearly 15 years. Since 2012 when Mr Thabane first became the premier, Lesotho has had one of the most tumultuous periods since she attained her independence, characterised by instability, political assassinations, sheer lawlessness and institutionalised corruption.

The truth of the matter is that no single person can turn the fortunes of a country. As citizens of Lesotho, we need to get to a point where we say, enough of the missed opportunities. As a nation we commit and re-affirm our loyalty to the country first, and pledge support to the re-building the country.

We all need to drop the camaraderie of being comrades where loyalty is towards political parties first, but rather all become patriots. As patriots our mission should be about ensuring that every vacancy that arises, whether ministerial, PS, Ambassadorial, CEO of a parastatal, Board member to a company where Government is a shareholder, that we must all seek the very best among us to take that position. We need to ensure that senior government officials have the best Personal Assistants to revive professionalism within civil service. We need to stop  parachuting people from boitsukuli to becoming heads of SOEs when they have not even managed one direct report let alone a department.

We also need to make a realisation that a Prime Minister on his/her own, cannot change the fortunes of a country. We all need to pull our weight –

• The person who put up the first road sign coming into Maseru from Maseru Bridge, needs to fix that ‘Kingsway Raod’. Kingsway is sufficient without a surname, let alone a misspelt one
• The person who controls volume on LTV needs to make way for somebody who can manage volume control. So is the person who is responsible for subtitles on LTV
• The people responsible for the maintenance and cleanliness of toilets at border and at airport, need to pull up their socks and become the best in their field.

We all need to adopt a new mindset as a people. A mindset of service above self, and a mindset of hunger for success in a global setting. It starts by seeing ourselves as agents of change beyond the election booth. It goes beyond recycling our wardrobes with the latest political colours.

For those who follow football, we have recently seen two of the most successful managers emerge once again victorious over their counterparts. Pep Guardiola with his Man City charges winning 4 out of the last 5 domestic EPL titles. We have just seen Carlo Ancelotti emerge as the only football manager to have won 5 of the top European domestic leagues – Italy, Germany, England, France and Spain. Amongst their very many ingredients for success, one of them is making sure they field the very best players at their disposal for every single encounter.

Their success, which we can learn from, can be attributed to their consistency in always seeking to have the very best and fielding the very best for the task at hand. The one thing that Lesotho has done and done in abundance is to train her citizens. The talent is there in almost all the disciplines. Let Lesotho like Josep Guardiola or Carlo Ancelotti field her top talent and let us see where that takes us.

Khotso! Pula! Nala!

The dire need for media to raise the bar!

Legend has it that one fine day back in the 17^th Century, a young man witnessed an apple fall from a tree, an occurrence which was by no means miraculous. Apples fall everyday and one can only assume apples have been falling from trees from as far back as the days of Garden of Eden.  What stood out about this particular apple fall in the 17^th century was that it fired up curiosity in a young man called Isaac Newton, who asked himself why objects fall straight down and not sideways. This curiosity ultimately birthed a theory on what we have come to know as law of gravity.

Time immemorial, knowledge has been advanced through inquisition. The depth and breadth of our inquisitiveness is what results in us becoming better informed and enhances our understanding of any subject matter. This is a universal principle and applies well beyond academic settings.

Media fulfils many roles in any society – informing, educating, entertaining are probably the top most roles that one can think of;

a) It therefore goes without saying that a society that has excellent media will be better informed and this will be reflected in the choices of that society;

b) Media plays a central and strategic role in holding both public and private sector officials accountable; and

c) Equally, a better informed society is more vigilant and hard to mislead/misinform.

This last point is particularly important in the era of social media where unverified information can very easily go viral and be opportunely used by those with bad intentions to misinform and mislead the public. Since the advent of the Covid-19 pandemic we have seen numerous such attempts by many to spread misinformation to the detriment of the public.

Turning the spotlight on local print media

In recent weeks, I posited that one of the sectors that need urgent reform in Lesotho is the media sector, and this was following some highly questionable reporting that one could only ask how the articles escaped the attention of the respective editors. It was not the first time that I lamented about this dire situation on my social media pages. Allow me to share with you some of these examples.

1. ‘Vodacom registers 12billion Maloti revenue drop’

This was a headline in the business section of one of the leading weekly English papers. The actual story focused on Vodacom Lesotho (VCL) and its annual results for the Financial Year ending March 2021. To a significant number of readers, there was nothing untoward about this story. However, to somebody who pays particular attention to performance of major corporations, the headline was completely false and misleading.

Let me give it some perspective. If Vodacom Group, which comprises South Africa, Tanzania, Mozambique, DRC and Lesotho was to report a R12bn Revenue drop, the CEO of the Group would most likely be shown the door by the shareholders. A R12bn Revenue drop for Vodacom Group equates to about 15% of the Groups Total Revenue and in its 26 year history, a drop of that magnitude would have been unprecedented.

For Vodacom Lesotho, it is not possible to have a revenue drop of 12 billion Maloti, and this is simply because, Vodacom Lesotho’s annual turnover is still well below the 2 billion Maloti mark.

It then dawned on me that the majority of the public are completely in the dark about how leading corporations perform generally, and this stems from the fact that we do not have a culture of transparency by corporations, whether private or public. It was only until recently that the banks began providing some semblance of reporting to the public in the form of snapshots of Income Statements and Balance Sheets. Other Companies, irrespective of ownership, whether fully owned by state or partially, and publicly owned, do not do any form of reporting to public, which means for the most part Basotho are in complete darkness about how major corporations perform. As a case in point, Lesotho is home to the largest textile factory in Africa, supplying mostly the US market. We do not know if this company generates 100 million, 1 billion, or 10 billion annually. We do not know if this company is profitable. The only measure we know is that it employs thousands of Basotho, and I doubt we can say with precision the exact number it employs. Some could argue this is a private company, and has no obligation to disclose its performance to the general public. I would argue that most of these textile factories enjoy benefit of tax holidays and sometimes highly subsidized factory shells, it is only fair that the sponsors (public) get a sense of how they are performing.

2. ‘LCA Chairman sacked as CEO is suspended’ read the front page of one of the leading papers, exactly a week later after the M12bn Revenue drop story.

The actual article referenced a letter by the Minister suspending the Board Chairman of LCA and the rest was pure speculation about the fate of the CEO. Whilst I accept that newspapers still need to have catchy headlines that will drive the readers’ interest and eventually sales, newspapers are duty-bound to report factually. There was a complete disconnect between the headline and the actual story stemming from the use of the terms sacked and fired, when in fact it was a suspension. Even at a stretch, these terms cannot be used interchangeably.

3. ‘Vodacom appoints first Mosotho MD’

This was the headline in the business section of yet another leading paper in June 2021 following the announcement of Mr. Ralebitso as the new MD of Vodacom Lesotho.

One presumes that a lot takes place before a story lands inside a newspaper that is placed on the shelves for sale, including but not limited to fact checking and research, and the green light by the subject to say the story is good.

A quick desktop research on VCL (Vodacom Lesotho), shows that its very first MD was a highly decorated Mosotho engineer by the name Andy Moqhali. He served as MD for a fairly long stint of +7years and it was under his stewardship that a stake in Vodacom Lesotho was sold to a broad based Basotho outfit called Sekhametsi.

These three are just recent examples of the lack of depth or the absence of due care by the editors. I am acutely aware that a more forgiving reader would ascribe in part some of these gaffes to the weekly pressure that goes with strict timelines and deadlines ahead of printing. Please allow me to make my point using different examples, this time focusing on topics that were covered for extended periods but without the requisite depth and befitting rigor.

The LCA/VCL saga which culminated in an attempted revocation of VCL’s GSM license

The saga between the Regulator and the very first Mobile Network Operator in Lesotho took a while to brew and whilst it is not over, there is a key aspect which I would like to table which highlights the lack of inquisition by our journalists.

One of the key transgressions as alleged by the Regulator was that the Audited Financial Statements by VCL could not be relied upon as they were signed off by a conflicted auditor, who was related to the Chairman of VCL. All the leading newspapers ran this story over an extended period as the story unfolded, and for the most part, the story was reported almost verbatim from the press releases by the Regulator. This was/is a material allegation given that the Regulator places reliance on the Audited Financial Statements to determine some of the license costs payable by VCL.

This was the golden opportunity for those covering the story to then wear their Newtonian hats and ask themselves ‘why the apples were falling straight down and not sideways’. There is an Institute of Auditors in Lesotho which is custodian to rules and code of conduct of auditors. To give readership some balance to the story, the Institute should have been the first pit stop to obtain the full guidelines on how the noble practice of Auditing views conflict of interest and how this is to be managed when it arises. I have no recollection of the Institute being asked to give its view in order to strike balance in reporting the matter.

In recent years, the Institute of Directors of Southern Africa (IODSA) also inducted the local chapter of IOD and soon after its induction, it unveiled the Mohlomi Code of Corporate Governance specific for Lesotho based entities. Again, if we are to speak about doing a thorough homework, one would have expected the Institute of Directors to give commentary from a governance perspective to give readership a better view and a sense of what the appropriate codes of governance say in respect of board compositions especially audit committee, definition of conflict of interest and how it is managed per best practice.

Disappointingly, we did not see anything other than papers regurgitating the story as presented by LCA via its press releases, or responses as coming from VCL.

The Diamond industry and the benefits to Lesotho

Another topic which journalists do not do justice is the diamond industry in Lesotho and the cumulative benefits that accrue to Lesotho and Basotho at large. Reporting on this all important industry is very scant and often limited to royalties that Lesotho Government earn from sale of the individual large diamonds, a topic that generates a lot of unhappiness amongst many Basotho.

Perhaps for context, one needs to highlight that the revival of the mining industry in Lesotho was marked by the signing of a Mining Agreement and Lease between Lesotho Government and Letseng Diamonds in November 1999, a year after the political unrest of 1998. The mine went into full commercial production in early 2004 and its subsequent success attracted a handful other mining operators which were looking to emulate the success of Letseng.

It has been 17 years since Letseng commenced its commercial operations and without fail, Letseng has been producing some exceptional large, high value diamonds, every single year. Each find is always followed by much fanfare and international media coverage. I remember one of the earlier finds in 2006, the Lesotho Promise which sold for $12,4m in Antwerp. The controversial debate that followed was why is Government only receiving about $1m in Royalties?

15 years later we are still seized with the same debate and it remains as controversial as ever. I remember laughing at a tweet from 2018 that was recycled in 2021 and emotions still ran high. The tweet from one @ali_naka read as follows “Lesotho getting $3million from the $40 million sale of a single diamond and you call that INVESTMENT? Idiots!”. The question we need to ask ourselves as Basotho is where are our modern day ‘Isaac Newtons’ whose curiosity will lead us to gaining more knowledge about the subject matter? Why have our journalists not stepped up to play an educative role in this instance?

Based on publicly available information, Letseng Diamonds is a private company owned 70% by Gem Diamonds Limited, a London listed company, and 30% by Government of Lesotho. Shareholders typically get their return in the form of dividends, and the shareholding % will determine what each shareholder receives.

As we know, shareholders are the last people on the queue to be paid, after suppliers, employees, debt holders and taxman. Other than dividends, Gem as a shareholder can probably extract value in the form of management fees that they can charge for the managerial oversight and technical expertise they bring to the table.  

On the other hand, Government of Lesotho has multiple streams from which they benefit from the mine;

• Royalty (8%) – This is turnover based and for every US dollar realised, Government receives 8 US cents irrespective whether the sale is profitable or not.
• PAYE for all salaries paid to mining staff.
• Withholding taxes on the management fees levied by Gem Diamonds
• Corporate tax levied on profits generated by the company
• Further withholding tax on dividends earned by the foreign shareholder.
• Annual lease rental payable for the mining area.

All this information is publicly available in the Integrated Reporting done by Gem Diamonds which is a publicly listed entity on the London Securities Exchange.

If our ‘Isaac Newtons’ are to follow the cash that accrues to both shareholders, it will become very clear that the aggregate cash that flows to Government is somewhere between 45% and 55% despite its shareholding of 30%. This is before one needs to rationalize and debate issues of who bears the risk and who does not. This was at least the structure that was in place for the first 15 years.

The $3m out of $40m that @ali_naka was quoting relates to the Royalty of 8% only. But because he/she is blind to all other aspects of the arrangement, he/she ends up with a myopic view that is not helpful to Basotho in understanding whether the current agreements are equitable and just.

Can the agreements be bettered or improved? Absolutely. I am sure there are aspects that can be optimized. But as a society we can only make such a call if we had a thorough understanding of the Agreements as it were.

Conclusion

There is without a doubt, a dire need to raise the bar when it comes to reporting, business or otherwise, and to achieve this we need to have all stakeholders coming to the party. The media fraternity, Business and Academia in particular will need to invest in the development and capacity of media. I am almost certain that not all Economics and Accounting graduates are absorbed by the labour market, and their skills could be put to good use to markedly improve our business reporting. Media houses will need to co-opt these kind of skills and perhaps have short media courses to sharpen their writing skills and reporting acumen. They (Economists and Accountants) can at least talk the language of business and will be familiar with the subject matter/s, and they could interrogate the topical issues for the benefit of the public.

Today we have a buzzing industry in the form of medicinal cannabis cultivation. We all just know this is like the new gold in Lesotho, but as the public we know very little apart from the fact that licenses were at some point lucrative currency. We need to get to a point where we become informed about the different opportunities in the cannabis value chain, whether it’s the sub letting of communal land for benefit of communities, or whether there is opportunity to aggregate produce and beneficiate so that we create a new sub industry with scale. We can only know these if our Basotho ‘Isaac Newtons’ occupy public space and provide insightful coverage on subjects such as these.

Once the bar is raised, even the quality of engagements on matters of national importance will improve!

17 Aug 2021

Mediocrity: The enemy of progress

Today is the last day of the first month of the year, and this has been a January like no other. I suppose this is just a reflection that 2021 has literally taken over where 2020 left off!

A new year is always a good time for reflection, introspection, and a time to aspire for better and commit to new goals. It is also a time to erase those bad memories from the previous year that haunt us.

Often, we have these kind of reflections at a personal level. Companies and organisations also tend to have similar kind of reflections in the form of annual performance reviews, business planning sessions and target setting. However, as a nation and as a people, do we ever pause and reflect on;

• Whether we fared well and became a better nation in the previous year?
• How can we become a better people and a better nation in the new year?

In a context of a least developed nation, that is hopefully aspirant of becoming a developed nation, I think these kind of conversations and reflections are important. Important for the nation to assess progress and whether we are on course to achieving the desired goals and dreams. We also need these kind of engagements to understand the constraints that restrict us from achieving that which we desire.

Against this backdrop, let’s pick an example such as Lesotho Television (LTV), our own national broadcaster. Let’s compare and contrast the quality of LTV in 1988 (this was the year they commenced the pilot if I am not mistaken,) and today. If we are to be honest with ourselves (ha re ipuela ‘nete ea Molimo), how much has LTV improved in the past 32 years? Has it seen a significant improvement, a moderate improvement or none at all? Let me reserve my comments about their volume control lest I unduly influence your assessment.

As a side note, DSTV the company through which LTV is broadcast, was founded in 1995. Its forerunner, M-Net was founded in 1986 (just two years before LTV) and in 1993 it was split into two divisions, one of which saw the offshoot DSTV which today broadcasts in 50 countries. From a single channel in 1986 to literally hundreds of channels and the extension of its footprint across most of Sub Saharan Africa as the premium home entertainment provider.

At what point did Basotho fully embrace sub mediocrity?

The noun mediocrity means the quality of being average or ordinary. The adjective is mediocre and it originates from Latin; medius (middle) and ocris (rugged mountain), combined it becomes mediocris (of middle height or degree). Sub mediocrity will therefore be short of even average or ordinary, and my question is ‘when did we (Basotho) embrace a standard below average as our default setting?’

Many will find this to be an undeserved and controversial accolade. Some will even ask what qualifies me to ask such a question. Well, let me share with you a personal experience to give you an appreciation of where I am coming from.

Sometime in 2004, my then employer, a diamond mine which had just commenced commercial production, was approached by the Lesotho Amateur Athletics Association (LAAA) and Ministry of Sports, to sponsor a High Altitude marathon in Mokhotlong. The proposal itself was underwhelming and had it not been the persuasive lobbying by a prominent Minister from the area, it was likely to have been rejected. The Minister sold a very compelling vision of a marathon that in years to come would be at par with the likes of London or Boston Marathons, if not better. Given that the race was happening within the neighbourhood, and had international runners from the Region, it became a no brainer for the mine management to give sponsorship, and a cheque for M250,000 was duly signed. This was to be Lesotho’s biggest sponsorship deal for a single sporting event then.

As a sporting enthusiast, I was assigned the responsibility to look after the mine’s interest in the race, and from time to time I would attend the stakeholder meetings and progress briefings ahead of the race. Closer to the race date, it became apparent that organisational capacity was lacking and the mine as a sponsor recommended the co-opting of the late Olympic sprinter, Ntate Motsapi Moorosi, who had been a long time sports organiser for different sporting codes in Lesotho, to assist with the planning and coordination. He came in at the eleventh hour and his mandate was to make the best out of limited resources racing against the clock. Like a seasoned professional, he hit the ground running and immersed himself into the project. He drafted a checklist of the ‘must haves’/essentials and ran thru the list to ensure that these were covered. This was followed by ‘nice to haves’ which would require minimal effort but be impactful.

Within the short of space of time that Ntate Motsapi worked with the LAAA team and the Ministry of Sports, all seemed to be falling into place. On the eve of the race, I received a call from him asking me to delay my departure in order to take delivery of medals which he had arranged from a supplier in Bloemfontein. Given the enormity of his responsibilities and the fact that he still needed to be in Mokhotlong in time for issuance of race packs, I obliged and agreed to wait even though this meant I would have to drive in the night to Mokhotlong. The medals eventually arrived around 18h00 and I immediately hit the road to try and arrive in time. I made it to Mokhotlong around 21h00 and handed over the medals which were locked up in the District Administrator’s office. This sounds like a digression and an unnecessary detail to the story, but with time you will appreciate the essence of this detail.

Cometh the hour, cometh race day! The moment of truth had arrived and very sadly everything that could have gone wrong on the day, went horribly pear shaped!

1. First the race starter did not pitch on time, and the race started 45 min later than scheduled start.

I arrived at the starting point at around 05h30 and on arrival the organisers were already busy issuing race numbers and other paraphernalia to runners who could not collect on the previous day. The race was scheduled for a 06h00 start, largely to afford runners the best conditions before it gets too hot and the race starter was to be the Minister of Sports. Come 06h00, no Minister in sight. We were advised that Minister was actually double booked but all arrangements were being made to ‘fly’ in the Minister by chopper from a party political conference. It was a long wait for the poor runners, and the Minister eventually arrived, some 45 minutes late. There was very little ceremony and the Minister shot the gun and runners were away for their 42km race from around Mapholaneng to Mokhotlong at a very high altitude in hot conditions.

2. There were no water sachets which is standard for marathon races of the same calibre. Instead the race relied on the generosity of villagers who had bucket loads of water with paper cups.

I must say the presence of villagers, old and young alike brought a lot of excitement to the race. The ululations and the cheering, especially to the local runners was especially welcome. That is the type of camaraderie that adds to the uniqueness of an event such as this one.

However, when you have international runners who wanted to challenge themselves against the toughest conditions, you also want to provide a race setting that is consistent with all other respectable races. First, there is the inconvenience that one nearly has to stop in order to grab a paper cup with some water without spilling, which means runners lose their momentum and pace. Secondly and most importantly, there is the question of ‘where is this water in buckets coming from?’ Yes, Lesotho is home to some of the freshest water but that is not to say one can just drink any water. This made life a bit awkward especially for the foreign runners who would have been extra cautious with what they drink and what they eat before and during the race.

3. There were no distance markers on the road to indicate distance covered or distance left

This was in 2004 and from memory I don’t think there were many smart wearables that today’s athletes have which can tell the user all sorts of useful data including their own health vitals, distance covered, altitude and even their pace statistics.

For the poor runners, it meant they were running blind, in hot conditions due to a late start and with limited water supplies. By any standard, this was a less than ideal maiden race if the ambition was to establish the High Altitude Marathon as an elite marathon race internationally.

4. Prize giving without medals

As if the mishaps of the day were not enough, the most bizarre were left for the end of the race which ordinarily should be the pinnacle of the day. As I watched the post race proceedings from the crowds, I noticed as runners were called to the podium that there were no medals. Instead the runners that were in the prizes were getting a handshake from the presiding officials and then handed white envelopes.

I then approached one of the organising officials to enquire about the medals and about the envelopes. The explanation I was given was that after I delivered the medals at the District Administrator’s office the previous night, the office was duly locked, but the keys somehow landed with the DA’s son who on race day left Mokhotlong for Quthing for personal errands. This meant that none of the runners could obtain a medal on account of the DA’s son, who had left with the office keys, to travel to the Southern end of Lesotho.

As if that was not enough, I was advised that the envelopes being handed out were cash prizes (chelete ea lipampiri) for the top runners. This explanation was all very casual and the person relaying this information simply did not find anything untoward about this arrangement. Think about it this way. This is 2004. The organisers took the sponsors cheque and cashed it at the bank in Maseru. They then travelled with two hundred and fifty thousand in cash on the day before or earlier from Maseru to Mokhotlong. At some point before the race, somebody or a team of people sat in a room to split the prize into lots and put it in envelopes, and on race day this was shipped to the open venue for the prize giving. The risk alone should have been a deterrent against such a clumsy arrangement, because if the organisers were to be robbed, the sponsor would not issue another cheque. What was even more clumsy was seeing poor international runners getting their prize money in local currency. These were people who  were literally due to return to their respective countries immediately after the race. And they were now stuck with wads of cash in local currency deep in the highlands of Lesotho

Never before had I seen such a series of blunders all in one day. Not even Ntate Motsapi could rescue this situation given that he only became involved at the eleventh hour and his involvement was limited to the race logistics and not the totality of the race organisation.

What happens when mediocrity multiplies?

The shocking organisation of the High Altitude was not a unique case of our clumsiness, or inelegant execution of tasks/projects and lack of pride in doing things the right way. It has become part of our fabric as a people. Re etsa lintho hampe feela, habohlasoa feela, re sa natse hore na mang o tla reng. As a people we have set ourselves the lowest possible standard which then makes it impossible to hold each other accountable and to set ourselves the highest standards of delivery.

The ‘investment’ that Lesotho makes in educating her people does not bear fruit which makes one wonder if we would not be better off not training people at all. After all the results will not be materially different. And I am intentional in using the inverted commas because by definition, investment is something out of which there will be future benefits. So, us sending people to be trained and not utilising their skills disqualifies the spend as investment.

We see similar cases to this comical marathon every day in our lives, and sadly, it often happens with far more serious matters than a sporting event. The wool and mohair saga being a case in point where there was a vision with potential merit (I use this reservedly) which was followed by the most patently shambolic execution thereby placing Basotho livelihoods at risk. There are Basotho whose livelihoods have been decimated as a result of this ill considered scheme.

Consider the LCA/Vodacom Lesotho saga. At the height of a pandemic that has brought an already ailing economy to its knees, LCA in its wisdom, unilaterally overplays its hand and revokes the license of the largest mobile operator and one of the largest taxpayers. For purposes of this article, let’s make a healthy assumption that LCA was indeed correct in its findings. Does that justify their dictatorial approach? We must remember, Vodacom Group does not have

• an unemployment problem
• an FDI problem
• a tax collection challenge

It is Lesotho that has these problems. It therefore goes without question that Lesotho has a great responsibility in dealing with sensitive matters with due care, now more than ever, lest it undermines the confidence by investors and potential investors.

It therefore comes as no surprise that even in matters of life and death, such as the Covid-19 pandemic, we still respond in our usual sloppy and amateurish fashion. It has just become our signature way of doing things. This explains why we have had two different structures, NACOSEC and its predecessor, which have both gobbled somewhere between M700m and M1,5bn depending on who narrates the story, with very little to show for the funds spent. Whichever number we choose, the amount of money expended by these institutions is profound, yet they are still faltering on the basics such as tallying of cases reported. Forget the much more critical aspects such as procurement of PPE and vaccine.

If you believe the examples take a simplistic view of complex situations, let me cite a much more simple example to drive home my point. I ask that you dedicate at the most, 30 minutes of your time along Kingsway Road on a normal weekday. Look out for ‘government’ vehicles. Yes, I do know these days ‘government’ vehicles are no different from privately owned vehicles, but, specifically look at the branding that identifies the Ministry from which the vehicle is from. You will notice that government cannot even standardise the stencil (I hope that’s what it is called) used to brand these ‘government’ vehicles. Some have font 100, some have font 20. If you are my age you would remember that there was a time when something as simple as branding on government vehicles was standardised and all vehicles were identifiable by their red number plates with Mokorotlo X for and Mokorotlo Y which I believe was for project owned vehicles.

The saddest part of all these gloomy tales is that, in almost all the instances, we have properly qualified Basotho who are fit for purpose. But because they do not belong to the politics of the sheriff of the day, or are simply not pliable, their skills will never be utilised optimally. They will remain frustrated on the periphery.

Let me use another sporting parallel to make my point. Let us consider the Golden Era of Barcelona Football Club which had Samuel Et’o, Lionel Messi, Thierry Henry, Xavi, Iniesta, Busquets, Puyol, Pique,  Toure and Victor Valdes at the posts under guidance of Pep Guardiola. This team won everything under the sun that was winnable for a club and they played the most beautiful soccer. Now imagine if Guardiola decided much like our sheriffs to;

Frustrate Messi and bench him,

Make Xavi a left back,

Make Iniesta a goalkeeper,

Make Valdes and Puyol the main strikers

Ask yourself how much that same team would have achieved? Why is it that we ask ourselves day in and day out, why the likes of Botswana and eSwatini are developing faster than us when we know that we have not fielded our best talent in the field of play? Is it even a reasonable expectation on our part that we should be at par with these neighbours?

Our intent as a nation is exemplified by the people that we put in strategic positions when we know that in fact they are ill qualified to even be at the table. In the era of coalition governments, the situation has actually worsened. Each political party will fill all positions with its loyal members from PS to Senior Execs of parastatals under their stewardship and potentially all the way to a sweeper in the Ministry . This means the chances of ever filling positions based on suitability, experience and skill are almost zero. This means we should condition ourselves for less than inspiring results for a long time to come.

Conclusion

As we continue to struggle with volume control on LTV, 32 years since it’s formation, a Mosotho successfully led the expansion of Multichoice on the African continent to become the entertainment giant that it is.

I know many of us are pinning our hopes on the constitutional reforms that are now underway. I wish to challenge everyone and ask how reforms will provide a cure for such endemic mediocrity. The best laws on their own will not be adequate to help Lesotho chart a new path of growth.

There are many more Basotho who are hungry, able and capable who are just waiting for the call to meaningfully contribute to the success of their country. For Lesotho to start being counted amongst other nations, we need to start weighing on

1. Price of ineptitude which benefits a few at the expense of many

vs

2. The prospect of giving ourselves the best chance which will ultimately benefit all.

Wishing you all a safe 2021. Let us all look after ourselves and our loved ones.

Mask up! Sanitise! And most importantly stay home!

KK

How well is the Eskom problem understood?

At the outset, I must state that I hold no brief for the Eskom Board nor for the Government as sole shareholder. I am just an independent observer. The news of the appointment of Mr de Ruyter as the incoming Group CEO of Eskom has been met with rather strong disapproval from a variety of sectors of society – Opposition political parties naturally, Union leaders, and surprisingly by some of the analysts and commentators. The main criticism is that

1. He has a poor track record given the 5 year share price performance of Nampak where he has been at the helm
2. He is not an engineer
3. He is a he and he happens to be white, which is seen as anti transformative.

Allow me to share my views on each of these criticisms and why I think they are off the mark.

What does share price tell us?

Firstly I doubt that there is any CEO who could stand up and boldly state that the share price appreciation we see for their company is singularly a reflection of their contribution. Listed companies by their nature are large, complex and often multi businesses under one umbrella. This implies that their success or failure is a collective effort of the broad leadership teams.

Secondly and more pertinent, share price is generally a reflection of a number of factors, a) confidence in leadership team ie. Board and Executive Management, b) prospects of the specific  industry which in turn dictate pace of growth, c) business confidence of the entire country. If we take the current top 40 companies listed on the JSE today, over the last 5 years, 15 of these have had negative growth in their share prices. Does that indicate that 15 CEOs were unfit? My answer is no, not necessarily. We know that in the last few years business confidence has been at the lowest since the dawn of democracy.

Thirdly, if we were to use the share price to assess how the market (shareholders) received news of the departure of their CEO, we need to look at the direction of the movement. Normally if the share price appreciates with the exit, it simply means the markets had little or no confidence in the CEO and the company prospects are better/improved without that CEO. If however, the share price declines, it signals the opposite. It signals that market had confidence in the CEO and the leadership team. In the case of Nampak, the share price on 18 Nov, prior to the announcement that de Ruyter was leaving was R7,35. On Friday 29 Nov the share closed at R5,50. At no point in the past two weeks did the share appreciate beyond R7,35 to signal shareholder happiness with the news of the departure.

Does the current Eskom context require an Engineer for the turnaround?

Like him or hate him, the one thing that Brian Molefe, the erstwhile CEO of Eskom did very well was to articulate the problems of Eskom. Yes he is discredited, but facts will remain facts. Shortly after he had taken reigns as Acting CEO, Molefe boldly stated that 98% (if not more) of the times Eskom was able to meet the power supply requirements of SA despite its mounting challenges. He stated that challenge arose when one of the power plants became unavailable due to planned maintenance or if there was an interruption to their coal supply that they are compelled to do load shedding to avoid a total grid failure or blackout.

Molefe singled out Commercial Agreements with large customers and with main Coal Suppliers as the main headache at Eskom and he dedicated much time and energy in extricating Eskom from those contracts that he deemed unfavorable and securing better terms with suppliers, both in terms of pricing, and service level agreements.

The other big problem which he cited was of course the heavy debt burden which put a lot of strain on the parastatal’s cash flow. Eskom debt as at today stands at a whopping R450bn. To give the reader some perspective on the size of the Eskom debt, it is twice (double) the  size of debt for Transnet, Vodacom Group and MTN Group combined. All three are generally very big entities.

Based on Molefe’s assessment which in my view was spot on, Eskom woes are of a financial and commercial nature. Eskom needs a CEO who is highly experienced in these domains, and not an operational guru. That is what the COO is there to do, to drive operational excellence and efficiencies.

Let’s pause for a second and try and think of Eskom in layman terms. Imagine running a spaza shop where

• Your biggest customers, who account for 60% of sales, buy from you at significantly reduced prices
• 40% of the smaller customers continue to get their supplies but have never paid in the last 12 months
• Instead of running the spaza shop with one person and one assistant, you employ 5 full time employees
• Instead of buying stock as a collective with other spazas shops, you appoint two of your nephews as middlemen who in turn add their margin to all supplies
• To make up for the shortfall in cash flow, you continually obtain funding from the mashonisa down the road.

What are the prospects of success for the spaza shop? What are even the prospects of being competitive relative to other spaza shops? This simplistic example speaks to the other big responsibility on the shoulders of the incoming CEO, that of changing the culture and governance practices of Eskom. For a long time there has been a culture of interference at Eskom. There has also been a culture of non accountability. This certainly does not require an engineer.

In closing the subject of whether Eskom necessarily needs an engineer at the helm, perhaps it is worthwhile to look at all past CEOs and their performance. Undoubtedly, one of the best performing CEOs based on financial performance was Mr. T. Gcabashe who was not an engineer. Neither was his Chairman, Dr R. Khoza. This should close the case for having an engineer as a must.

Does the appointment of a single individual reverse transformation progress to date?

In the last 10 years, Eskom has had 10 CEOs including those who were in acting or caretaker capacity. Eight of these CEOs were Black Africans, one Coloured and one white. If we are to stretch this to review CEOs from 1994, there has been

1. 2 white CEOs, one substantive, and one acting
2. 10 Black African CEOs, five substantive and five acting
3. 1 Coloured CEO who was substantive.

By all accounts, even if we used CEOs alone and not make up of Exco and Board, Eskom has long transformed, unlike many other companies in the private sector where the only black member of top leadership is the Head of Human Resources. That said, transformation within a broader context cannot be measured by appointment of the single executive. It has to be measured broadly, i.e. composition of Board, Composition of Executive Committee, make up of the senior leadership in its entirety, and using these broad measures, Eskom is certainly on of those entities that have long transformed. Notably in their past Excos, Eskom has had black African females leading portfolios of Finance and Customer Services.

Conclusion

What becomes apparent with this review of Eskom, is that there has not been stability at Eskom, both at Board and at Executive Management. The last CEO who served a full term was Mr. Gcabashe from 2000 up to 2007. The subsequent CEOs hardly serve two years before they depart prematurely. Such an environment is never conducive to steer the company back to success and sustainability.

For a turnaround, it is also very important to get a leader from outside who has no baggage from the past. This will afford the CEO to question business practices unhindered as opposed to somebody who will still have institutional memory ingrained.

It is incumbent on the Board to protect its management, and let management focus on the running of Eskom whilst the Board manages the shareholder. The shareholder also needs to show restraint and allow those charged with running Eskom to do their work professionally. This is what has been lacking with SOEs in the last decade.

By Kabi Kolobe

01 December 2019

ReplyForward

‘Will Basotho ever enjoy economic inclusivity or will it always be about maleo?’

Imagine watching the prime time bulletin on LTV and for economic news the newsreader reports “Shares on the Maseru Stock Market jumped to an all time high today following excellent results announced by the Palama Limited*, the first listed Lesotho entity which leases vehicles to government. The stock market was further propelled by Bua Limited*, the listed mobile network operator whose shares jumped 30% on news that they acquired a major stake in one of the existing local operators”. Better yet, imagine seeing these headlines in your lifetime on your local newspaper;

“Palama Limited to pay its 50,000 Basotho shareholders a record special dividend following excellent financial results”

 

“Bua Limited shares go up 30% in daily trading on news of acquisition”

 

At this point, you are probably wondering what variation of cannabis I smoke or whose socks have I been smoking. I know for sure that to many this sounds all too far-fetched, especially for our beloved Lesotho whose headlines are usually about some political wrangling or presentation of some donation by an international donor. We have become a nation without hope. Let me at the outset bring my non-Sesotho audience into the conversation. The term ‘maleo’ figuratively speaking refers to spoils of war, and it goes without saying who the beneficiaries of the spoils are. In a literal sense, ‘maleo’ refer to the more exotic edible parts of an animal, which are the sole preserve of the men who slaughter the beast. As a passer by or a late comer to the ceremony of slaughter, one would not have a ringside position around the fire. They would literally have to wait until those who slaughtered have had helpings to their heart’s content.

 

Our current reality

 

About three weeks ago I came across newspaper headlines that the Government Fleet tender has once again landed in the courts of law with allegations of tender rigging and impropriety. It is alleged that the preferred bidder should have been disqualified from the outset. This was hardly surprising given the divisive history of the government fleet contract. The contractwas central to the demise of the previous 7 party coalition headed by former Prime Minister Mosisili where allegations of corruption were leveled against then Minister of Finance, Dr Khaketla. To date, all allegations against her are yet to be tested in a competent court of law. Apart from the bribery allegations, the biggest gripe from Basotho was that the then Minister deliberately opted to exclude Basotho from this lucrative opportunity.

 

In his article penned in 2014 at the height of political troubles for the first coalition government led by Prime Minister Thabane, Tito Mboweni asked a very pertinent question, ‘What are people fighting about?’ He then proceeded to explain what causes political strife in Lesotho. ‘The answer to this question is a very long exposition. There are books and periodicals written about this. But to our readers, let me state the obvious. In this country, which is POOR and with a small economy, control of government is key to the most primitive forms of wealth accumulation’.

 

Fast forward to today, the current government made amends and when the contract with the previous operator Bidvest expired, Government made sure to use vehicles leased from individual Basotho. Government basically opted for a hybrid model where vehicles would be leased from Basotho and whatever deficit would be supplied by a larger contractor who would also oversee the overall contract from a day to day management perspective. The jury is still out on whether this was the most optimal design in terms of Basotho participation and from a client perspective, client being government.

 

Historical background and context

 

To give better context and some historical background to the whole concept one will need to go back to the 90s after the military had handed over power to a democratic government led by Dr NtsuMokhehle. Developing economies across the globe were enticed to the International Monetary Fund’s (IMF) silver bullet of the time – Structural Economic Reforms which was centred around Privatisation. Given the state of her economy, which was characterized by ailing parastatals, unsustainable debt levels and limited tax base, Lesotho like her peers was compelled to sign on the dotted line and implement privatization. The goals of privatization in the main were to

 

• unburden government of the many state entities and activities which were deemed as non-core to the regular business of government,
• raise funding from the disposal of these non-core assets to supplement government financial muscle, and
• realize efficiencies and optimal budgeting structure for government

This resulted in the liquidation and disposal of entities such as Agric Bank, Lesotho Building Finance, Lesotho Bank, Lesotho Telecommunications Corporation, Lesotho Airways and most relevant to the topic at hand the Plant Vehicle and Pool Services (PVPS). The ‘storm’ of privatization came, conquered and vanished, and in the end all these entities had ownership change from government to predominantly foreign ownership, something which is a topic for another day on its own.

 

The biggest lesson that Basotho should have learnt with privatization is that without properly functioning domestic capital markets, Basotho will always be at a disadvantage when large opportunities such as these present themselves. This in fact is a well documented lesson for all countries that embarked on this journey of Privatization in the 90s.

 

Golden opportunity – hit or miss?

 

In 2016, the Central Bank of Lesotho launched the Maseru Stock Market (MSM) in a bid to provide a platform for Basotho to channel their savings and invest in domestic companies. Late as it were given the lessons from privatization a decade before, this was an important and welcome development in many respects. For one, we have local pension funds which conservatively should be valued at anywhere between 7 – 10 billion Maloti, which to date leaves our shores to the Republic of South Africa in search of investment opportunities. The simple reason being that there are not enough credible and sound investment opportunities at home.

 

My logic says:  Govt Lease opportunity + Platform to raise capital (MSM) + Vision = Perfect Storm to jump start the economy to the benefit of Basotho.

 

I think Lesotho missed a golden opportunity on a silver platter to create inclusive wealth creation and value. As stated earlier, when the Bidvest contract came to an end, Government of Lesotho opted for a hybrid model where Government would lease vehicles directly from Basotho, and then ultimately award a fleet management contract to a provider to oversee operational management. The problem with this approach is multi fold;

 

1. The sole purpose of privatizing PVPS was premised on a business case of ownership vs leasing. As we know, government previously used to own all its vehicles which necessitated in them having to have a unit that focuses on maintenance. For government this meant running a both a large capital expenditure budget to acquire new cars and a recurring operational expenditure budget for the maintenance and repairs of the fleet. Once outsourced, government had all the capital budget for acquiring vehicles freed up to priority capital projects and only had recurring operational budget for the use of the vehicles. The lease costs most importantly come as a managed service cost which includes fleet, maintenance and the management thereof. The current model (interim) is in contrast to this principle as the client now pays for the leasing with Basotho individuals and still has to oversee the management and provisioning of the fleet by itself.

 

2. The biggest problem of them all is the non inclusivity of the model. Let’s pause for a second and glance over Lesotho in numbers. If we conservatively assume that a base sedan retails at M250,000 and a base double cab bakkie retails at M400,000, how many Basotho do we exclude purely based on affordability? I know for sure that theinformal trader who sells fruits and vegetables is excluded. I know for sure that the factory worker is excluded. I know with certainty that the young graduate who is starting out in their first job is also excluded. I know with certainty that the majority of the working population is excluded which is essentially a few hundred thousand people. How is this even fathomable given that the major partner in the coalition has its slogan as ‘sera samothoketlala’ ?

 

3. All leading service providers who offer fleet management services, do not offer this as a standalone service. They normally provide an end to end solution where they provide a vehicle that is insured, and comes with a maintenance plan. They use economies of scale to their benefit and to that of the customer. It would be difficult to lure their services if as a client you have already leased vehicles from 800 individual providers who all have different maintenance plans, different insurers and different tracking mechanisms to their vehicles. It simply becomes an unmanageable or too costly to manage contract which defies the whole point of a leased arrangement for government as a client.

 

I can count many more of these challenges and constraints which make the chosen model impractical, but I will leave it at these top three.

 

Realizing a dream – Building wealth for the majority

 

How far-fetched is it that the government fleet contract can have participation of at least 50,000 Basotho and not just 500 Basotho who can afford to buy vehicles that meet the specification of government? Is this even practically feasible?

 

Basotho can come together to establish a large publicly owned company to be listed under the Maseru Stock Market. Shares in the company will priced such that they become affordable to most Basotho e.g. M100 per share. It is within reach for Basotho to raise M500 million for argument’s sake, and all it takes is for 50,000 Basotho each to investing M10,000 , though in reality this will vary, others will invest more and others less. Where Basotho individuals come short, the institutional investors in the form of Public Officers Pension Fund could step to shore up the investment and ensure target capital requirements are met.The listing will serve both as a means for price discovery for the valuation of the entity and an exit and entry for those wishing to dispose or acquire more shares as the entity goes into the operational phase.

 

The next biggest move for the entity would be to identify a suitable strategic partner in the form of a Fleet and Maintenance Leasing partner which would come in with its share of capital but even more critically bring the experience and intellectual capital to manage the operation. At a strategic level, shareholders would elect a Board of Directors that would craft the strategic direction of the company.

 

Given the size of the expenditure by government on leasing its fleet, this new entity by turnover will immediately be in the top 10 companies by size in Lesotho if not in the top 5. The company will easily be turning over +M700m per annum which is very significant. Properly managed without undue interference, this company can easily diversify its operations and venture into the many facets of the motor industry given its capital base which will be of benefit to the multitudes of its shareholders.

 

This is how sustainable value and wealth are created. Value from a customer perspective, i.e. government will reap the true benefit of the outsourced model. Wealth will be created all round. There will now be an entity that pays significant corporate tax, and all other forms of taxes. There will be +50000 shareholders who reap the benefit of dividends on a sustained recurring basis, meaning more money will circulate within the economy. The local Pension Funds will also now have an avenue to invest locally other than shopping malls whose payback periods are much longer. The Stock Market will also benefit in that more businesses will now have a practical reference point to demonstrate how capital markets function.

 

Without a doubt in my mind, there is no better model than the proposed model. At a listing price of R100 per share as an example, the graduate who has just landed his first job can afford to buy a few shares; the informal trader who sells fruits and vegetables can afford to buy herself some shares. The factory worker who earns barely M2000 per month, will now have an opportunity to also invest for the long term and get an additional income stream. It is a win-win for all parties.

 

Conclusion

 

The problem that Mboweni identifies is indeed true, that people (read politicians) fight to control economic means in a small and poor economy. However, what is an even bigger problem, is the fact that none of those fighting work hard enough to expand the size of the pie. The mentality remains that of ‘How do we extract immediate benefit’?

 

The time for Lesotho to stand up and be counted is now. We need to chart a new path towards prosperity for all. We as Basotho need to overcome this hopelessness that permeates across our society. We need to implant a new winning mentality. We need to cultivate an ambitious mindset, a mindset of a nation that co-creates, that collaborates and that is creative in responding to our economic challenges.

In a recent social media exchange, I listed 12 countries, all much smaller than Lesotho, and all of them all having GDP per capita much higher than South Africa – some by as much as six times. All of these did not start as wealthy nations. Some were actually poor as recent as 1960, but they charted new growth paths, and executed their plans diligently and with discipline. The reason for comparing these 12 countries in size to Lesotho and GDP to South Africa, was to dispel two notions that are on many people’s minds;

 

1. That size is a constraint to Lesotho’s prospects of economic prosperity
2. That integration into South Africa is the answer to our economic challenges. This would only limit Lesotho’s true potential.

 

As Sankomota said, ‘It is now or never’!

 

 

*Palama Limited and Bua Limited are fictitious company names.

 

‘Weighing in on the wool and mohair saga’

I know you are probably asking yourself what it is that has not been said that is worth listening to/reading about the raging wool and mohair debate, ‘Farelane le Seiboko’ as they are commonly referred to. My short and simple answer is ‘A lot. And this lot is a lot that we barely ever hear from either side of the divide’.

About ten years ago I got the privilege to study at one of the foremost Business Schools in Africa, and one of the many unforgettable learning memories from there were the talks by the Dean during our orientation specifically referencing Africa and why Africa had continued to be a perennial underachiever.  The Dean said in all his travels in Africa and rest of the world he always measured every new destination with the ‘toilet paper test’, wherein upon arrival at the airport, he would make sure to inspect the restrooms to see if;

• There was toilet paper or not
• If present to check if its double ply or single ply

The finding from the ‘toilet paper test’ was that many African countries failed the test, i.e. the airport restrooms would often not be provisioned with toilet paper. But most importantly, the test had proven to be a reliable and accurate measure of the health of the economies. The conclusion drawn by my esteemed Dean was that most African countries failing the test were in actual fact not failed by their political elite, but instead by their educated middle class which often stayed below the radar, and not staked their claim in the battle of ideas towards the betterment of their native countries.  With this musing, I intend to turn a new leaf and invite a much more robust debate on one of the economic pillars of our beautiful Kingdom.

Why the sudden interest in wool and mohair?

I certainly wouldn’t want to speculate on the part of Government as to why this has become a subject of national interest at this very juncture, but on my part, my interest in the wool and mohair industry dates back to early 2017 having come across a post by one of the social commentators that Lesotho sold wool to the tune of M388 million in 2016, of which BKB realized M888 million from the sale of the same wool. I found this to be intriguing if not bizarre.

Based on this startling information, I then dug up a few articles on wool to understand the value chain of wool, all the way from the shed to the shelf in boutique shops where we buy woolen garments. The research proved to be an eye opener but still did not shed much light as to how it is possible for the business to be as lucrative for BKB.

The next step was to make enquiries with the Livestock division in the Ministry of Agriculture, and I was linked to the office of the senior most official responsible for Livestock. Our telephonic conversation, after the customary pleasantries, started on this note,

‘Ntate, why are we leaving so much money on the table?’ to which he exclaimed ‘Ntate?’. I repeated my question to him and gave context that I had read somewhere that we (Basotho) had sold wool to the tune of M388 million which in turn BKB sold and realized M888 million, meaning we are leaving half a billion on the table. Ntate Director then asked how much time I had on my hands, and I confirmed that time was not a constraint.

The conversation that ensued lasted for at least three months with various probing emails on my part and followed by very robust and insightful responses from the Director who for the most part schooled me about the wool industry and its complexities.

The long and short of Ntate Director’s response/s was that

1. BKB acted as a broker on behalf of Basotho who sold wool. In other words, BKB is an intermediary which gets wool from Basotho to the physical market and presents the wool for sale. In turn, BKB would charge handling fees, brokerage fees and some other administrative charges. In other words, BKB does not buy wool from Basotho cheaply and sell it at a high price for its own benefit.
2. Despite the high demand for it, the Lesotho clip is in actual fact NOT sold on its own. It is blended into other wools due to its unique quality. Even in the latter stage processing, the Lesotho clip is blended with other fibres to fortify the final product.
3. In relative terms we produce small quantities, which if we were to beneficiate locally before selling would mean our ultimate export is even smaller. In his words, ‘local beneficiation would alter the product and transform it into a product with less demand due to the low quantities’.
4. Given the seasonality of the business and the volumes produced, he was of the view that an investment in a local beneficiation plant would result in a semi white elephant unless Basotho grew their productive capacity exponentially, i.e. we would end up with a facility that runs at near capacity for half the time whilst the other half it would lay dormant.

In the ensuing dialogue, I presented counter argument after another counter argument and alternative scenarios with a view to build a case for localization, but at every turn, there was a comprehensive analysis and response that would come my way. By the time I threw in the towel my literature review had been immensely enriched. I had lots of reading material including a Masters Dissertation by a Mosotho titled ‘Investigating the benefits of establishing a wool scouring plant in Lesotho’, whose conclusion was that at current productivity levels, it would not be viable to establish a local scouring plant.

Understanding markets, pricing and the drivers of competitiveness

 Let’s consider the below example of two farmers from Hololo valley who both harvested one hundred thousand (100,000) heads of cabbage;

• Farmer A decides that due to high fuel costs he will only sell his harvest in Butha-Buthe
• Farmer B decides he will hire a truck and take his harvest to Maseru for sale

All things being equal, who do we think will sell his harvest quickest? And who will maximize his revenue? As the economists say, price is chiefly determined by supply and demand, and where supply exceeds demand (sales in Butha Buthe) price will drop until a point where sufficient demand exists. In the other scenario however (sales in Maseru), the likelihood is that demand will outstrip supply and price will be pushed up and sales will be quicker. This is how market forces interact and this is how pricing is determined.

The second and most important consideration to remember is that success for any business venture is achieved when revenue (price x volume) is maximized. It is only then that the venture can satisfy the needs of all other stakeholders;

• Employees will be assured of wages
• Suppliers will be assured of orders and payments
• Receiver will be assured of tax collection (Income Tax, VAT)
• Owners will be assured of Profits which means a share will re-invested in the venture and another will be distributed in the form of dividends.

The structure of the wool industry is no different to the example above both from a perspective of pricing and a competitiveness. The industry can be best understood using Professor Michael Porter’s ‘Five Forces Analysis model’, a world renowned Harvard University professor.

1. Wool is supplied by multitudes of Basotho farmers, most of whom are small farmers (by output). Basotho farmers take their sheep to the local sheds for shearing and initial grading. The variety in quality is just as wide – no consistency in quality. On the other hand, the buyers of the wool are large organized corporations who either supply textile industry or are verticals of the large textile factories. In terms of bargaining power, the buyers being fewer and being more organized would have more bargaining power. Farmers are price takers
2. It is common knowledge that the SA textile industry is on its knees. It has gradually lost to other key textile nodes which are more competitive. It is not by accident that the wool market is in Port Elizabeth which is part of the COEGA economic hub boasting a modern harbor. As soon as the wool auctions are concluded, the wool is containerized and shipped immediately to destinations such as Mauritius and Australia for further processing. It is no surprise that world renowned companies such as Pringle of Scotland have large plants in Mauritius.
3. Availability of substitutes – This point also corroborates point 1 above. A producer of a product with no substitutes will have far more bargaining power. But on the contrary, a producer of a product with substitutes has virtually no bargaining power. Think of an oil producing country versus our scenario of wool. If Lesotho insists on pulling its wool from an established market such as Port Elizabeth, price for the SA wool is likely to appreciate, thus benefiting the SA farmers.
4. The price of wool is normally quoted by many establish wool (commodity) markets globally e.g. Australia, and United States. However the quoted pricing is normally indicative pricing. Wool is sold by auction and the different bales are presented as lots which buyers physically inspect and make their bids. We therefore should not take it as a foregone conclusion that localizing sales will yield the same prices as the historical sales in Port Elizabeth.

Will localization maximize revenue for Basotho?

 Hopefully the different Government departments have applied their minds to this question. This is the crux that all stakeholders should be debating. Considering the background about the quality of Lesotho wool and what it is typically used for, I think it will be very difficult to generate the same demand that we have seen from the Port Elizabeth auctions.

Secondly, given the profile of wool buyers and the location of their operations, I will be pleasantly surprised if they would attend local auctions in large numbers and carry logistical burden of transporting their consignments to PE for shipping to final destinations. To the buyer, the localization of Lesotho wool auction will not be adding more value to them (recall bargaining power!).

It has been suggested that part of the problem is the fact that BKB does not pay local tax, without specifying which forms of tax. Upon export from Lesotho to South Africa, no tax or duty should apply as with all other exports. However, given that BKB is a non-resident service provider, Withholding tax should be deducted from their payment at an applicable rate. Then for the last leg, which is the transfer of proceeds from the sale, it then becomes incumbent on the Mosotho farmer to declare their income to Lesotho Revenue Authority in order for ‘Caesar to collect what belongs to Caesar’. Arguably, from a Receiver’s point of view, it would be sensible to have Lesotho wool auctioned where revenue is maximized, because the Receiver’s share will be commensurate.

Conclusion

To conclude, I wish as Basotho we can rise to the occasion and debate the merits and demerits of the localization without turning the debate into a ‘political football’. For as long as my memory serves which is from my social studies education in the early 80s, Lesotho has always been exporting wool. If we are to change this, let’s do it in a sober and well calculated manner. I am mindful that my views are not exhaustive and that there may well be other strong and well motivated views. Let’s hear them out.

 11/10/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The pressing reform that hardly ever gets a mention!

In 1886, on a hot summer’s day, two prospectors working on a farm in Langlaagte in Witwatersrand hit the big time. They discovered gold. Unlike other areas in the Eastern Transvaal where small pockets of gold had been discovered, the gold found in Langlaagte was different. It was an ‘endless treasure’!

The discovery not only changed the face of Transvaal. It changed the face of the entire Southern Africa. As news of the discovery spread across South Africa and the world by telegraphs, men made their way to what was to become the city of gold, Gauteng. No different to others, Basotho men also made their way to this new place of hope, Johannesburg.

Within a year of the discovery of gold, the whole Reef was estimated to have some 7,000 people with 3,000 living in Johannesburg itself. Also within a year, another major development took place. The Johannesburg Stock Exchange opened its ‘doors’ for trading on 8 November 1887 where PUBLIC COMPANIES traded their shares to raise capital and commence commercial mining operations in Johannesburg.

Today some 130 odd years later, Gold has for all intents and purposes, dried out in Johannesburg. But the JSE stands tall as the largest stock exchange in Africa with a market capitalization in excess of R14 Trillion Rand. In its formative years, the JSE was dominated by gold mining companies and financial services companies. However as the structure of the economy evolved, new entrants emerged and today the largest primary listing on JSE is a technology and media company, Naspers. Not a single gold counter is among Top 10 shares by market capitalization.

Why does all of this matter? And what has this got to do with Lesotho?

In 1959, nearly a century after diamonds were found in Kimberly, a prospecting team led by Colonel Jack Scott made a remarkable find at a place called Letseng la Terai. They ‘discovered’ diamonds. Soon thereafter, more prospecting missions followed which led to discovery of a handful other kimberlite pipes in Lesotho. It was not until 1977 that Lesotho had its first commercial mining operation at Letseng co-owned by De Beers and Government of Lesotho. The operation was however short-lived due to a number of economic factors, and to a degree, some political factors.

Fast forward to the early 2000s when Letseng got its second lease of life under a co-ownership model between a private operator (majority) and Govt of Lesotho (minority). The mine soon made global headlines for its unsurpassed quality of diamonds and frequency of exceptionally large gem quality diamonds. Soon thereafter, mining operators from South Africa, Canada and Australia, amongst many, were queuing up at Govt offices to negotiate mining leases for all other diamond properties in the hope of scoring fortunes similar to Letseng’s. The blue print has largely been the same in terms of mining lease covenants, Govt takes a minority stake and the foreign operator acquires a majority stake. The key selling point is that the mining ventures create the much needed employment for the economy.

Diamonds like gold, run out. And when they run out, the mining operators will simply shut down and move to their next prospect. And unlike Johannesburg, which is about 420km as the crow flies from Maseru, Lesotho will not have a sustainable diversified stock market, unless a deliberate intervention takes place. We will have missed our ‘golden’ opportunity!

Why it is beyond critical for the Maseru Securities Market to come to life

Many see the idea of a stock exchange as just another lofty inconsequential idea without necessarily understanding how vital it is in a modern economy to have one. A stock market is the most efficient vehicle and enabler to channel savings in an economy into economic investment. This means those with surplus funds can invest their savings in companies that in turn will invest expanding their means of production or expand their operations for a return in the form of dividends and increased value of shares (capital appreciation). This in a nutshell is how modern economies are built and expanded.

Using the example of the formative years of the JSE, many people with savings essentially clubbed together to invest in gold mining companies, and in turn the companies invested in mining plant and equipment in order to optimally mine gold and make profits. Without a stock market which is a well regulated environment, it would have meant local mining companies stood little chance of raising sufficient capital in order to operate competitively, or alternatively they would have been compelled to raise capital at significantly high costs in the form of debt.

It has now been two years since the Maseru Securities Market opened its doors for business and to date not a single listing has taken place. To an ordinary Mosotho this does not warrant any alarm bells, after all, we have existed all this time without a stock market. But to economic scholars trying to get to the root of the perennial underperformance by our economy, this should warrant red flags. The implications are very grave to say the least. For one, it means that ordinary Basotho do not have an opportunity to invest locally in companies that in turn plough back and make economic investment locally. They are limited to saving (not investing) their money with their banks to earn interest income. It is not easy to quantify off-hand how much our aggregate savings at any one point are, but considering losses with the likes of MKM, MMM and the like, there could easily be a Billion Maloti floating about (locally) looking for a home for economic investment.

Savings in an economy are not just those by individuals. The biggest component of savings is actually those held by pension funds. In the absence of a local stock market, this again means our pension savings on a monthly basis leave our shores to be invested in South African companies on JSE, which in turn make economic investment in South Africa to grow the South African economy. The Public Officers pension fund as at today is valued at just over Four Billion Maloti, the bulk of which is invested in South Africa. There exist many other pension funds in Lesotho under the umbrella of private companies. This means that conservatively at any one point Lesotho has at least M10 billion invested on the JSE, working for the South African economy.

Even at a fraction if we said arbitrarily 15% should be invested locally, that would equate to M1,5billion invested with local companies which would go a long way in the creation of local jobs and sustainability of the economy.

 

What next? How do we ‘arrest’ the situation?

1. Firstly, I think as a people, we must adopt a new outlook to business. For the most part, Basotho in business go it alone. If we look back and reflect over the last 40 years or so, numerous individual (family) business people have emerged as successful business people, and hardly any public companies. It has only been in recent years where we have seen the emergence of Sekhametsi and Moruo which are more passive holding companies. The challenge or constraint with one man businesses, is that they are un-listable. The public cannot just invest in a lone man company for the simple reason that if he/she gets hit by a bus the next day, then the whole company would be thrown into disarray.

Therefore, we need to create more public companies, and ideally these must be operational companies. We need to adopt the letsema principle to the world of business.

 

2. Secondly, government has a big responsibility in creating a conducive environment and enabling the creation of the first listed entities. By way of example, government is a significant shareholder in many companies which over the years have been underperforming as a result of under-capitalisation and general lack of accountability. The beauty about taking companies public is that not only would the companies be properly capitalized, but boards would be constituted by fit and proper non executive directors as opposed to political appointees.

Examples range from mining, telecommunications, hotels, manufacturing in the form of breweries and the likes of Loti Brick which are under the LNDC portfolio. It is important at this juncture to clarify that for a listing, it is not mandatory to float the entire share capital. Even 20% of the issued shares can be floated. By disposing some of these companies, Government would not only raise money for its coffers in the short term, but it would also be expanding its tax base for sustained future tax collection. It should after all be the goal of any government, to have more successful tax payers.

 

3. Thirdly and most importantly, how do we get government to anchor some of the public companies that we create? What lessons can we draw from the likes of China where some of the largest listed companies are state sponsored?

 

If we consider the capital expenditure by Ministry of Public Works to Category A contractors in the last 10 years, wouldn’t that be sufficient to sustain a publicly held construction company that would outcompete foreign contractors?

 

If we consider the spend by Ministry of Health on pharmaceutical supplies in the last 10 years, wouldn’t that be sufficient to sustain a listed Basotho owned pharmaceutical? Perhaps the Govt spend alone is not enough to sustain a profitable pharmaceutical company, but surely it would be enough leverage.

 

If we consider the spend on the leasing of vehicles in the last 3 years alone, government could easily enable the formation of a listed vehicle leasing company which would allow participation by a lot more Basotho as opposed to those who can afford to buy vehicles. These are just a few examples.

 

Currently government spending benefits individuals. Each time a new government is formed, new beneficiaries (individuals) emerge from party ranks. My take is that we can graduate from this cycle and begin to build a sustainable private sector that benefits a much wider array of shareholders and employees.

 

Conclusion

 

Hugh Masekela in his celebrated song ‘Stimela’ says ‘there is a train that comes from Namibia and Malawi, there is a train that from Zambia and Zimbabwe. There is a train that comes from Angola and Mozambique. From Lesotho, from Botswana, from Swaziland. From all the hinterland of Southern and Central Africa. The train carries young and old, African men who are conscripted to come and work on contract in the golden mines of Johannesburg…’

 

Our forebears left their villages in search of hope. They went and built the city of Johannesburg with their blood, sweat and tears. They came back to retire in their underdeveloped home country. Sometimes they came back too sickly. Sometimes they came back in caskets to be buried.

 

Today, 130 years later, we export our sweat in the form of savings to continue to build Johannesburg/South Africa. Monthly Electronic Transfers to Asset Managers in Cape Town have replaced the train that took our forebears to Gauteng.

 

At what point do we say, ‘Enough! Lesotho le Basotho pele!’

 

By Kabi Kolobe

 

Cause and Effect!

The dust is finally settling after the frenzy of the rating agencies and whether SA was to be downgraded to junk. We now know that there is effectively 6 months within which to get the house in order. The outcome came as a relief albeit, one that seems will be short-lived.

In a nutshell if one was to sum the concerns from our esteemed rating agencies;

• The SA economy is not growing at a sufficient pace. It is way below the benchmark set in the National Development Plan 2030
• The welfare bill and government payroll are growing much faster than the tax collection resulting in govt having to take out debt to maintain current bills. This is seen as unhealthy and unsustainable despite debt levels being within ‘reasonable’limits
• There are also concerns that govt is not always resolute with its policies, something which govt needs to pay attention to and speak with a single voice.

The question that begs is what must be done in practical terms to grow the SA economy at 6 – 10%?. Who must do what? And when (by when) must it be done? In most of the opinion pieces, very little is offered in terms of these simple questions.

At this point, let me confess, I am not an economist, but in the few instances where I studied economics modules, the are two fundamental concepts that stuck in my head;

1. Time value of money
2. Y=C+G+I+(X-M)

The theory of time value of money in simple terms says all things being equal, R1 today is worth more than R1 in 12 months time. In other words, with time money loses its buying power. This if you like is a natural phenomenon.

The second concept, Y=C+G+I+(X-M), which is the crux of my thesis, is a summation of Gross Domestic Product, otherwise loosely referred to as ‘the economy’. In that equation

C = Consumption by private households. This is a function of disposable income (tax rates) and cost of debt (interest rates). Rising tax rates or rising interest rates affect C negatively.

G= Govt spending. Govt can only spend what it collects from taxes and what it raises thru various forms of debt. Raising corporate taxes usually makes a country less attractive as an investment destination, and in turn means unemployment would continue unabated. In an SA context given current concerns, this lever is largely constrained, and expectation is that net G should decrease and be better managed to yield better results

I= Investment predominantly by business. This much like C above is directly affected by tax rates and interest rates (cost of debt). Rising tax rates and rising interest rates affect I negatively.

X= Exports to other markets. Exports are a function of previous investments to build production capacity. This unlike the previous levers is not an immediate lever that one could adjust in order to spur the economy. It has various other dependencies such as access to markets, currency exchange, competitiveness relative to other producers etc.

M= Imports from other markets. This unfortunately is also one of those that are inevitable. An economy will always import all that it cannot produce itself, and these can be inputs for other products, or can be final products for consumption.

Based on the above, it is evidently clear that Govt is constrained. The option to increase taxes is simply not there and would it would negatively affect C and I. The option to obtain more debt in order to increase G spending is also not there. With a prospect of junk status, not many institutions would be queuing with blank chequebooks.

If growth is indeed the priority, why then does the Reserve Bank hike interest rates in the name of keeping inflation in check? If there was an order of priorities, why prioritize inflation ahead of growth? It is almost improbable (if not impossible) for the economy to grow with rising interest rates. Is inflation the right mandate for the Reserve Bank?

Isn’t it that by hiking interest rates we are aiding the very same corporates that are hoarding cash and not investing in the economy?

At best, the decision to hike interest rates will mean inflation is in check with no growth. At worst the hike in interest rates could result in failure to keep inflation in check and no growth. The consistent effect is No Growth, something which should worry all South Africans, and by extension, the entire SACU members.

By Kabi Kolobe

19 June 2016

 

 

 

‘Money does not grow on trees’

Once again we were confronted with news of a collapse of some dubious financial arrangement, MMM, founded by some serial Russian convict. Participants in the scheme took to media and social media with much aplomb to defend their scheme and refute allegations that the scheme had gone belly up.

My basis for calling MMM a financial scheme, is because the scheme in its current guise  was cleverly designed to technically not meet criteria to be called a ponzi scheme by de-linking ‘maturity’of investments from referrals. Interestingly enough, the owners of the scheme made attempts to legitimize their scheme by registering under the umbrella of Stokvel Association, an attempt which was unsuccessful. So somehow this MMM finds itself in what we can a No Man’s Land. It is neither a stokvel, nor a Ponzi scheme in the conventional sense. Being in No Man’s Land, the scheme is neither legal nor illegal necessarily.

What makes pyramid schemes thrive? What compels people from different walks and backgrounds (including educational) to always seek these miracle schemes that offer astronomic returns? I can think of many reasons but ultimately I think it boils down to two drivers; greed and the innate ‘not me’ syndrome.

Whether the scheme has indeed collapsed or whether it is still to collapse is neither here nor there. I wish to share some free lessons which will come in handy especially to those that will have benefitted at the expense of late or even greedier entrants;

1. Money is a standardized, unitized expression of value. It is not money itself that grows, instead it is value creation that leads to the appreciation. What exactly do I mean? If three of us club together contribute R1, there will be R3. If our scheme says invest R1 and get R3 return, there will have to be three R3 for each of the first investors, meaning we will need 6 other participants to invest R1 each. In turn for the 6 new participants, there will have to be 18 new participants. This means our scheme will be viable for as long as new entrants join in the required multiples. This is certainly not how value is created. Value is created when the 3 of us club together and invest in a business venture which is able to sell to customers at a higher revenue than what it costs to run it, thereby generating dividends.
2. Banks are not the enemy. Neither are banks competition to pyramid schemes. Being a tightly regulated industry, banks have a duty to ensure that within the banking system, all funds come from legitimate sources. Their effort to caution customers arises out of this duty. Most importantly we need to appreciate the difference between savings and investments. Banks typically are for the former whereas investments are best suited to other avenues such as capital markets.
3. Time is your best friend in the world investing. It is only with time that the power of compounding is triggered. This concept applies even with livestock farming.

As we reflect on these, we need to be mindful that ‘money does not grow on trees’.

 

Choreography on the exchange

Stability and steadiness of share prices on a stock exchange is a function of how well information is managed and funnelled to the market both by company management and the market analysts. Any other scenario would result in volatility or in plain English rapid fluctuation of market expectations which in turn would result in rapid fluctuation of share prices.

Volatility most unfortunately is often mistaken for risk, and as a result not many investors have an appetite for it.

At the centre of play is management of the firm. This is a team of people that shareholders entrust with creating and building value on their behalf. Since the advent of share options, an innovation by Walt Disney (believe it or not) most management teams of listed firms have part of their remuneration in share options. The rationale is that as part-owners, they will prioritize share price appreciation as well as growing earnings for the benefit of all shareholders.

On the other hand, there are independent market analysts who offer insights into different companies. Such insights are used by rating agencies for cases where the companies have to secure debt. The insights are also used by the investor community to make investment decisions, buy or sell shares.

Between the two, management and analysts, there exists a symbiotic relationship where;

• Management by hook or by crook, has to make the numbers in line with analysts’expectations (stick to script) to be regarded as capable. Any deviations are seen as a reflection on the quality of management. Good management delivers to analyst expectations
• Analysts on their part have to intimately understand each company, its key drivers and the management plans. Ability of management to deliver to expectations bodes well for analysts because it means the market can rely on the analyst, and in turn this can translate into new clients.

Such is the choreography of the market place. There is too much skin in the game for any spontaneity.

By Kabi Kolobe

27 March 2016