Now that apartheid has gone, what is the future for South African markets and the economy?
Find out about business in South Africa and growing opportunities in Africa in general.
Liron Mazor started a company called Greengrass Wealth Management in South Africa in 2005. He is a certified financial planner who helps personal and corporate clients and is also a radio show host. I recently interviewed Liron on my radio show, Goldstein on Gelt. Read his transcript below. If you would like to watch a video version of the interview, scroll down to the middle of this page.
Douglas Goldstein: What does the economy look like now in South Africa?
Liron Mazor: We’re in a very interesting state in terms of the economy really. More than anything else, it’s because of the ANC leadership. After we had the apartheid, the ANC came into power and people are very nervous. There’s a lot of discussion about socialism, about taking over companies that the government would own. Over time, what we’ve really realized is that there’s still a very strong democracy in place.
There are times when we still get speed wobbles. There was recently the ANC Youth League, which was run by a gentleman called Julius Malema, and he was talking very much of converting the mines or any future mines into ANC hands to fund what they’ve decided as socialism, but most people just felt it was just a form of cronyism where they just really wanted to pocket the money themselves. But recently, as of last week Thursday, there was a judgment against him where he actually disobeyed and embarrassed the ANC both locally and overseas and they were basically called him in and they have now suspended him from the ANC.
So normally, I’d be quite worried because for any country to really grow, you need to be able to sustain and maintain your democracy and ensure that the democratic process is always in place. With the suspension, really it says no matter who you are, you’re still accountable and there’s still going to be a proper law in place and real accountability that ensures at all times that they’ve still got that democracy in place. I’m very excited about the future. I think that one or two out of the very interesting developments that has taken place is also one of the ex-finance ministers got into one of the finance steering committees where they are trying to really target growth to around about 2030 and are trying to understand what is causing poverty in South Africa.
What’s really been very fascinating about this whole committee is that also about a week and a half ago, they came out with what they believe are the six items that they need to identify or have identified to start focusing on in order to get the economy to start really working and their target to get this done is 2030.
Douglas Goldstein: What makes you think that South Africa could be successful in doing this?
Liron Mazor: I don’t want to say they can be successful. I’ll be honest, I don’t know, but I love the fact that they’re addressing the issues and they’re trying to find ways to solve the issues. I’d be more concerned if they weren’t addressing these issues and saying, “Great, guys this really would be great to start putting our energy towards.” The reason being is that in that case you don’t have a focus. You don’t really know where you’re going. It’s like in business. If you don’t really know what you’re differentiation is or your problems, you don’t know what to create. You’d be going to a constant spiral and keep going down and down.
Here, you’re saying we have to stop the spiral, we have to understand why it hasn’t worked and what we have to do to correct this. If they’re going to do it, I’m not too sure. I’m confident in terms of the fact they’ve addressed business in general, the steering committees are about 30% of the independent businesses, part of the most successful businesses in this country and the remaining 70% are from both different political parties and the government itself.
Douglas Goldstein: Is the South African economy friendly to small business owners?
Liron Mazor: Not at the moment. It’s a big problem especially when it comes to loans and also from the skill set. The biggest problem that we’ve got is that we’ve got such a high numbers of uneducated individuals that really what you’ve got is a lot of basic trade going on. I’m talking about stores on the streets where you can have people selling fruit or sweets, so even looking outside my window, I find that I have got hawkers right outside my office and on the side street opposite my building, which I can see as I’m speaking to you.
They are not really coming with much education and don’t have the ability to go to the bank and say, “I’d like to raise funds so I can open up a store.” It’s very preventative at the moment, but the government has identified this and businesses in general have identified that. From a Jewish community perspective, there’s an organization called Orjet, and they run an annual business competition and the best business plan ends up winning. One of the plans that they have identified is an existing business where they’re running internet cafes, and what they have now started to do is to create a place where people can come and load their CVs and get a bit of guidance. But it’s more for the low end of the market, and they’re using it to try to attract especially in government or people at a small SMEs that are able to use these individuals to get them into business, plus the government started a semi-mentor program and I’ve done it through what they called the seaters. The seaters are anybody that sends about 1% of the earning towards a skills development levy. The government, depending on how many people are employed and how you send them through different education, will give you money to pay for education, to pay for them and they will actually give you a tax deduction per the member that you’ve taken on.
Douglas Goldstein: Many members of the wealthy white community who were Jewish have left South Africa. What’s the impact to on the economy there of that change?
Liron Mazor: From a skills development point of view, it’s problematic because you’ve got such brilliant skills that have left the market. On the other hand, especially from middle income earners, because so many people have left the country, you’ve had a big influx of black individuals taking over those positions and that’s created a whole new middle class within the black community, which are now defined as “black diamonds.” The benefit of having “black diamonds” is that they’re not only gaining knowledge that they didn’t have before, but they are also introducing an entire new segment to the population into the working world. So on the one hand, it’s being detrimental and on the other hand, there’s been a good benefit to it. The benefit being that as the black diamonds become more knowledgeable, they’re now opening up their own businesses and employing more people. That’s really what people start pushing to.
I think that comes back to one of the previous points, when we spoke about Trevor Manuel and his steering committee where really what they’re trying to do is say how we do help people to get into business or start the businesses and once they’re in there, the most important thing is how we get them to become successful in running a business. As you know, most businesses fall within the first five years.
Douglas Goldstein: Do you think that the model of the change that happened in South Africa is something that other African countries will be able to follow, or that this was a unique situation?
Liron Mazor: I’d hope that they could, because I think ultimately when you’ve got a democracy, it really makes a big difference, but as you’ve seen for example in Zimbabwe, it hasn’t happened. In Nigeria, it has happened as they’ve still got a very good democracy, and Nigeria’s economy is doing exceptionally well. What you’re finding is many South Africans are now looking at how to do business in Nigeria or other countries.
One of my clients runs an educational institution where they are now looking at saying how you get into Nigeria. If you look at the numbers, if I can quote it from a cash flow perspective, it’s quite astounding because, let’s say for this specific educational institution, Nigeria becomes one of the new countries that it’s now offering its services in, they are able to almost double the current cash flow just by going in and let’s say addressing only 20% or 30% of the population. That’s according to the figures and that’s always something that’s on paper, so it’s not definite, but the ability to be able to have such growth is quite astounding. You aren’t really able to find that chance on Africa. Countries like Mozambique, Nigeria and Angola, all of them are really starting to change and their economies are doing brilliantly
Douglas Goldstein: Is South Africa a good bet for foreign investors to send their money?
Liron Mazor: Let’s look at it from a different perspective. Do I believe South Africans should be investing in South Africa or they should be investing overseas? Over the long term, I have seen that JC has been able to give us many cash from overseas markets. The JC to be able to invest into it as a local investor has definitely given you superb returns. Many companies are without a doubt solid.
The problem that I’ve got, it’s a problem I always have in Africa, is that there is just this constant uncertainty because at one minute you’re seeing this glimmer of hope, which is great, it’s a brilliant democracy and we’ve got nothing to worry about. You’re seeing Walmart coming to South Africa because they want to use it as part of the stepping stone to get into the rest of South Africa. Surely, a company like Walmart is seeing a good opportunity. It has to say something for the region. There has to be a good opportunity, but if I had asked for myself moving forward where would I want my clients to be invested, I think I’d actually like them to be probably investing 50% or even 60% offshore and 40% in South Africa.
So now coming back to your question is do I believe that foreign investors should be in South Africa, I think when it comes to abundance they’re definitely well processed. I think the banking structure is exceptionally solid, so I think that you can be very comfortable there. How much would I invest in South Africa, I’m not too sure. I don’t think I’ll be putting a lot of my money into South Africa but having said that, I still see a lot of opportunity. I’m just risk adverse when it comes to my clients, so I’d rather put you on something I can say 100% than something I can say 40%.
Douglas Goldstein: Could you just tell us how could people follow you and learn more about the things that you’re saying?
Liron Mazor: The two best ways are either through my website, which is www.greengrasswealth.co.za, or you can log onto www.highfm.com and that’s my radio station. Every Tuesday night from 7 o’clock to 8 o’clock, I have a show where we discuss different topics. Sometimes they’re locally based, sometimes they’re mentor-based, bringing some of the top business mainly in South Africa, black or white and trying to understand some of the stories and what led them to their success. Often we also deal with overseas individuals and where they are investing, and why they are investing there, or what they’re feeling where the market is going to be going.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.