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Stellenbosch, Sandton and Soweto

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Andile Khumalo, a Johannesburg venture capitalist, recently raised the following vexing questions in a blog post (and Sunday Times column): “Is Stellenbosch going to continue to be the economic capital of South Africa, whilst Africans, in their townships and villages, remain the systematic consumers of its myriad of goods and services? Think about where you do groceries? Afrikaans capital. Think about where you bank? Afrikaans capital. Who grows your food? Afrikaans capital?”

Then the conundrum: “Why can’t Black people think-up, develop and roll out these ideas for themselves by themselves… to themselves?”

Stellenbosch is widely seen as the bedrock of white, mostly Afrikaans-speaking capital, and for good reason. According to the most recent Forbes list, five of the wealthiest forty Africans live in or close to Stellenbosch, and a sixth teaches at the University. Johann Rupert, fourth on the list, is chairman of Richemont, which owns brand names such as Cartier, Alfred Dunhill and Montblanc. Christo Wiese, eight, is the chairman and largest single shareholder of the continent’s biggest retailer, Shoprite. Twenty-seventh is GT Ferreira, chairman of the financial services company RMB Holdings. Jannie Mouton, executive chairman of PSG financial services (which he founded in 1995), is thirty-first on the list, while Michiel le Roux, thirty-third, founded Capitec in 2001.

The perceived wisdom is that Stellenbosch is a legacy of Apartheid, that most of this is “old money” from the days when whites were fortunate to have access to protected markets and state resources. Certainly some of this money is “old”, but there is little evidence that a large share of it was acquired with considerable government support; in fact, as an excellent history of Apartheid economics in the latest Cambridge history of South Africa (and, more anecdotally, Johan Rupert’s biography) clearly suggests, in many cases the needs of white entrepreneurs (for example, the need to appoint blacks in skilled or semi-skilled positions, the need for a high-educated, black labour force) were subordinate to the interests of a government committed to the vision of a racially segregated country. In truth, most of Stellenbosch’s “white capital” is “new capital”, acquired after the fall of Apartheid when white business was forced to enter a more equal playing field.

But how is that the former oppressor, now with less political freedom, gained in economic wealth? Clem Sunter, in a 2010 News24 column, eloquently answered this when he wrote:

“During the years of apartheid, there was a culture of entitlement among the volk (white, Afrikaans-speakers). With a good education you could end up as a Cabinet minister, a top civil servant, head of a parastasal or a senior executive in an Afrikaans-owned business like the Trust Bank or Sanlam. If you weren’t so privileged, you could get a job on the railways as an artisan, join the ranks of the army or police or work for a municipality.

After 1994, all these expectations came to an end. Suddenly Afrikaners were out of power. They had to take a leaf out of Steve Biko’s book: you are on your own and you will have to fend for yourself. And they have done so – fantastically well. I was told the other day that the fastest growing element of the Johannesburg Stock Exchange are companies owned and run by Afrikaners. The whole coast north of Maputo in Mozambique is now a string of safari lodges and dive shops established by entrepreneurs from Pretoria. The list goes on and on all around South Africa, and increasingly north of the border and elsewhere in the world.”

1994 liberated not only black South Africans. Instead, I would argue, white South Africans were liberated from an incentive structure that guaranteed a ‘safe’ job in the public sector, or in white-owned, state-supported business. Whites were forced to create jobs for themselves, not simply fill jobs; entrepreneurship, not political (or Broederbond) contacts, became a way to gain power. This is true of many cultural minorities across the world that has little political power: why is it that Somalians thrive in South Africa while their own country falls apart? It is because they know that here they are on their own. There’s an attitude of “if we fail, there is no one to blame but themselves”.

Ironically, the 1994 transition may have had exactly the opposite effect for black South Africans. While a democratically elected government brought political freedom, it also created an incentive structure of entitlement. The attitude was that “we had suffered enough during those dark days and should now share in the economic spoils”. Government policy made this easier: black economic empowerment, for all its good intentions, did not create entrepreneurs, it created a class of connectors, networkers, tenderpreneurs or whatever you would like to label those with the skills not in creating something new, but in redistributing. A few years ago I gave a lecture in parliament on trade policy. During tea, a PAC MP came over to ask one of the most important questions we’ve not answered as a collective. In his village, he told me, the farmer, the baker and the shopkeeper (read: the entrepreneurs) are still there, two decades after Apartheid, doing what they did back then. Only those with political connections have moved up, out, working in government departments. (I guess he included himself in this list.) Of course the next generation realises this. All the kids want to become politicians, not engineers, because that’s how you make money. In contrast, I told him, Afrikaans kids don’t dream about becoming president of South Africa; in Stellenbosch, at least, they dream about becoming Mark Zuckerberg. How to change this?

Andile Khumalo writes: “Black man, wake up! Your ‘real’ freedom is being outsourced to the minority, whilst you occupy yourself with meaningless politics and tenders. You are busy drinking skinny cappuccinos in Melrose Arch, whilst your markets are being penetrated by those who dare to dream, and do.”

Khumalo is correct in saying that Afrikaans capital has prospered. But it’s not because white South Africans are inherently more entrepreneurial (or, worse, that they have mafia-like tendencies that aim to control the lives of the masses), or that black South Africans tend to enjoy the luxuries of Melrose Arch more. Stellenbosch is thriving because it has accumulated a group of highly skilled individuals – black and white – that realise that prosperity is not tied to political contacts, but to innovative ideas and to the people that help turn those ideas into reality. Their attitude is: You are not on your own – Khumalo knows this when he says that great ideas always secure funding, and Stellenbosch is not the worst place to start looking – but that creating wealth is your responsibility. These are the virtues – creativity, diligence, responsibility – our society must reward. The only way South Africa – and especially black South Africans – can prosper, is if we start spreading these ideas (Khumalo calls them dreams) to the Sandtons and Sowetos of our country.

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Written by Johan Fourie

May 20, 2012 at 21:23

11 Responses

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  1. […] favourite post would have to be Stellenbosch, Sandton and Soweto, partly because I think it is still extremely relevant. If I have to identify a theme for my first […]

  2. […] could be relied on for support, where rent seeking could be a profitable exercise. Instead, as I’ve written before, it was Afrikaner entrepreneurs that came to the fore after 1994 – Jannie Mouton, Michiel le […]

  3. I worked for party in Parliament, applied for vacancy in parliament, I was interviewed, but was told it’s only a front, and that they will give the jobs to Black Africans only.

    Digo

    May 24, 2012 at 07:14

  4. Jonathan, perhaps when I read the reference to JSE-listed companies I incorrectly assumed that the author’s intention was to illustrate that Afrikaners are more entrepreneurial than others (note the absence of the word ‘inherently’ in my previous comment and how it magically appears in your reference to my comment).
    Like you, I believe the persecution complex is part of what incentivised Afrikaner entrepreneurship, hence my earlier reference to the collective identity fostered through skin colour, language and religion. One need only consider the renewed vigour with which all things Afrikaans have been promoted or bought in the last decade.
    There have been parallels drawn between the volk and the Israelites for a very, very long time, both being God’s chosen people, both having experienced an exodus, both having to defend themselves against foreign tribes, both on their way to the promised land, etc.

    A sense of common identity builds trust amongst those who can subscribe, a necessary condition if one wishes to reduce transaction costs or extend credit or goodwill at low to no interest rates.
    If considered in a vacuum, this in itself is beautiful, but when it necessarily excludes other groups from participation, it smells a bit like pre-1994 (in the separate but unequal way it was intended) bar the on-paper endorsement.
    The Khumalo part of the argument also suggests that ‘black’ business be liberated from Afrikaner capital. Really? How? To suggest that this is remotely possible without resorting to highly inefficient protectionism is funny, to say the least.
    The other question I have is in relation to how encompassing the term ‘Afrikaner’ is. If this includes those staying in squatter camps or even formal housing in areas such as Ruyterwacht and Maitland (who were also liberated from almost-guaranteed state employment), is the response to incentives that generalisable? I doubt it, but of course someone with more experience of these areas could disprove the notion that one requires a tad bit more than an ‘I can do it’ attitude to succeed or that socio-economic circumstance (individual as well as the surrounding area) matter in entrepreneurial development and success.

    Eldridge

    May 23, 2012 at 09:09

  5. Fascinating post Johan. Firstly, a brief response to Elridge’s comment suggesting that the “central hypothesis…seems to be that the Afrikaner…is more entrepreneurial than other groups”. On the contrary, the author makes it clear in the closing paragraph that white Afrikaans South Africans are not inherently more entrepreneurial, but rather that they have responded to a set of incentives that has encouraged an innovative and dedicated approach to business.

    The piece reminds me of a recent discussion I shared with a Jewish friend on the prominence of Jewish intellectuals/leaders across several fields (think, for example, of the relatively large number of Jewish Nobel Prize winners). One of the factors that she attributed this success too was a cultural “persecution complex”, which has driven Jews to work towards proving/staking their place in society, for lack of a better phrase. Without discussing the merit of her point, I think that it provides interesting parallels to the debate above.

    In the post-apartheid era, the Afrikaans community draws little influence or status from its political and social standing. In fact, I would argue that many Afrikaners feel undermined by the political power of the predominantly black ruling party. This sense of insecurity might drive success outside the political arena, perhaps in the business world, where innovative ideas are rewarded with financial success – a new form of Afrikaner status? Just a thought.

    Jonathan Reader

    May 22, 2012 at 21:14

  6. Tlotlang, Eldridge and Frank make excellent points. There is much truth in saying that wealth creates more wealth, and that access to credit markets (see one of my earlier posts) and education are key in explaining economic growth. The point of the post, though, was to highlight what I believe is a critically neglected factor: entrepreneurship is not only having excellent education and excellent credit markets and some built-up wealth; economists like to say these are necessary but not sufficient conditions. Afrikaners also had those during Apartheid and they weren’t entrepreneurial at all. I argue that, over and above those factors – and many others – the incentives in society should be directed at rewarding those with the ideas and the vision and perseverance to turn those ideas into reality.

    Certainly Apartheid limited the opportunities of a large proportion of the South African population, but I don’t think Apartheid is a good explanation for the lack of an “I can do it too”-attitude. I would argue it is a post-Apartheid entitlement syndrome, which, for all its good intentions, is ironically exacerbated by policies such as affirmative action. I don’t know if reversing these policies will cure the problem; in fact, I doubt it. What we need, as Tlotlang suggests, is a holistic response where each corrective step is judged by a simple question: “Will it promote those traits/values/conditions that entrepreneurs require to be successful”.

    Johan Fourie

    May 21, 2012 at 16:22

    • I’m not sure that post-apartheid entitlement syndromes are particular to certain groups in South Africa. There are reams of electronic evidence easily available if one does a Google search on anything even remotely related to race in South Africa.

      I would also be hesitant to make general statements about any “group’s” response to government intervention. Although I cannot deny that some responses have been unfavourable, one runs this risk regardless of skin colour, creed or language (as was the case in the old days). I do, however, have the greatest admiration for those individuals who work really hard for what they want (the blog owner is one of those individuals).

      However, I think one would be hard pressed to deny that someone who produces trinkets such as wire cars or sells flags at traffic lights before rugby games does not have some sort of entrepreneurial urge. But this person is entrepreneurial out of desperation rather than being inherently skilled or experienced. And this is one of the many reasons (other than having to enter extremely competitive markets, access to credit, market information, etc.) that this business is unlikely to weather the almost inevitable storms that may come.

      There was a quote from someone (probably from the UCT crowd) who questioned the ability of someone to pull themselves up by the bootstraps if the person could not even afford bootstraps. For those who have never experienced the ugly, despondent, dreamless inertia associated with having no or broken bootstraps, it might be easy to question someone’s inability to progress beyond their current situation.

      The ability to dream and “I can do it” attitudes are a function of circumstance, experience and confidence that one can succeed. After matric my biggest dream was to be a builder, when I eventually got a job in retail to be a department manager and when I was a taxi driver to one day own my own vehicles. It’s not that I was particularly ignorant, but more that the reference groups I had were very different to what others may experience and because 14-hour a day (mostly 7 days a week) jobs which pay just enough to get by, dull one’s dream capacity ever so slightly.

      In closing, allow me to question the central hypothesis here which seems to be that the Afrikaner (perhaps there is a clue in the continued reference to the collective identity) is more entrepreneurial than other groups. My question to the author is: why? I think the answers could go some way to understanding how entrepreneurship is born, bred or nurtured.

      Eldridge

      May 21, 2012 at 17:54

  7. To add to Frank’s and Eldridge’s comments about how wealth begets wealth, education is also an important tool of wealth accumulation. Apartheid operated with a two-tier education system, which added an extra obstacle to those produced by the lower, inferior rung post-1994.

    Also, work done by the Global Entrepreneurship Monitor has established that entrepreneurship also begets entrepreneurship. So if you’ve seen members of your own family or close network create or run successful business, you’re more likely to feel you can do the same. This feeling of whether one can succeed as an entrepreneur has been found to be racially skewed, not because blacks like Melrose Arch lattes, but that “I can do it too” entrepreneurial culture is lacking, arguably because apartheid limited opportunities available to black enterprises so they do not have the same history and culture of entrepreneurship that Afrikaans businesses have.

    In short, comparing growth in post-94 Afrikaans capital to that of black capital might not be comparing like with like because they did not begin in the same place.

    I think the simple answer, when looking at these issues, is often wrong or myopic, and an ill-diagnosed problem’s almost as good as not diagnosed at all. I’m sure that there are other inhibitors to prosperity over and above what you, Andile Khumalo, the previous commentors and I have identified. I think what that means is that it requires a holistic, well thought-out response.

    T.O.M

    May 21, 2012 at 15:35

  8. Agreed with Frank. Assets equal access to credit which could possibly beget more assets. Even access to assets as a primary user can make a very large difference in entrepreneurial activity.
    I assume by minorities you’re referring to migrant minorities, who are not your average citizens. Generally they would also be culturally homogeneous to some extent as well, the significance of which I am sure is not lost on groups who to this day foster a common identity primarily based on skin colour, language and religion. There are some places in South Africa where subscription to all three of the aforementioned does not hurt at all.

    Eldridge

    May 21, 2012 at 11:40

  9. Interesting view on the situation. It is easier to make money if you have money though. But, having a lot of businesses growing from the university, and the common connection to facilitate cooperation does not hurt either.

    Frank

    May 20, 2012 at 21:55


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