BD DIALOGUES 30 MAY 2011 - complete

Part 1 and Part 2 (first hour)

Peter Bruce: I’ll start with Itumeleng on my left. It’s the hardest thing to start a conversation that’s going to go on for a long time - how can South Africa raise its levels of investment for expanded growth and employment?

Itumeleng Mahabane: The important thing here is we have to ask what we mean by investment? I think often in environments like this we’re probably talking about foreign direct investment (FDI) but I think it’s a more multi-faceted question than that. The most important aspect of investment that we have to talk about is infrastructure investment – that helps to create balanced economies, facilitates long-run growth and promotes productivity. In the case of South Africa we happen to be in the fortunate but challenged situation of actually needing to invest in that - the question we have to ask is how do we finance that? Is that through government or the private sector? So there is public sector investment and there is private sector investment, and how do you promote private sector investment? The third thing is FDI. If you talk about fixed investment from a public sector perspective I think one of the things that’s interesting is despite the fact that for about four years we’ve known that South Africa has this challenge we haven’t actually come up with a mechanism to fund this in the long term – we’ve known we needed to invest in infrastructure for a long period of time but in four years we haven’t developed a mechanism saying how are we going to ensure we can fund this. In the Budget for instance this year we’ve seen a decline in the allocation towards infrastructure

investment and we have to ask ourselves the questions between consumption and infrastructure how do we manage South Africa’s capital? Should we be spending more on consumption or should government be pushing more of its money towards fixed investment? In terms of private sector investment I think stability is a key part of this - you can’t get the private sector to invest in an environment that’s volatile. I think there is too much volatility in the South African policy environment at the moment. The other thing is the question of communication - I think the quality of communication does not promote an environment that facilitates investment decisions. If we talk about FDI one of the things that we should actually also talk about here is not all investment is necessarily going to help us achieve what we need to achieve - in the normal course of things all investment is good of course, but somebody buying into one of our big banks doesn’t necessarily mean that we are going to be creating lots of new jobs at the pace we want to - but of course that kind of commercial activity is important within the business cycle. One of the things that we are doing badly around FDI in South Africa is again the issue of how we are managing the communications around our policies and our processes – it’s fine and well to talk about nationalisation but I think it naïve to think that the quality of how you conduct that conversation doesn’t impact investment decisions. If you don’t care about the quality of how you talk about something that fundamentally affects capital risk then why would investors take you seriously?

Peter Bruce: Turning to Harald Harvey addressing the broad question Itumeleng raises - the issue of the quality of the environment in which investment takes place?

Harald Harvey: One of the tricky things of course is that we are always looking for broad brush stroke answers to the questions - I think the problem is that the investment decision that somebody is making whether that’s in consumer goods, the

retail sector or in the mining sector they’re all driven by different sets of issues. Obviously certainty about the regulatory environment is key - I see in our own business there’s a lot of decisions that are not being made because there are questions of uncertainty. What we face today in the post 2008 world is uncertainty is not just about the policy environment - there’s a whole lot of uncertainties. The nature of uncertainty has changed so whether that’s in commodity prices, input costs, exchange rates - the number of things that are now uncertain is a lot bigger than it used to be historically. The second thing is that velocity of uncertainty is a lot higher - so it happens much more quickly. A lot of big corporates have just thrown their planning departments out of the door because it’s impossible to try and predict the world - you just have to live in that. For me there are two issues we really have to come to grips with - one is that we’ve sorted out the macro issues, and yes the infrastructure investment etcetera needs to persist - but actually we need to get down and dirty in the detail of what are the growth opportunities sector by sector, getting very clear about what are the three big things that we can do in any one sector and where in the value chain you are going to do it? The second issue is I think, we’ve passed the point where this is what government has to do and what the private sector has to do - you can’t do this unless we are in partnership and we are very clear about each other’s roles. Our classic Sunday afternoon South African sport of throwing stones at each other has to end - we desperately need to roll up our sleeves together solving problems on a very practical basis. You can’t pass broad brushstrokes legislation – I’m not saying that there aren’t issues that we can fix. There is definitely stuff to do solving problems and de-bottlenecking and figuring out how it is. We have to be bold about it - it can’t be about three jobs here and four jobs there, this is hundreds of thousands of jobs that we’ve got to be creating, millions of jobs...

Peter Bruce: Miriam, partnerships?

Miriam Altman: The way society comes together is going to be quite important and I think we might underestimate that. When the New Growth Path came out everyone was focussing on its proposals around jobs and very little was said about its proposals to move towards an investment-led growth path. Until the downturn at least 50% of the growth that we experienced was as a result of consumer spending and in a small economy that’s not very sustainable - you can carry on with that for a little while and it creates a lot of jobs and it did, retail construction and so on - but it’s not sustainable in a small economy. If we want to carry on that way we would have to open up the region which I think we should do - we need that platform, Massmart, Walmart - we need to be moving into the region and selling fast moving consumer goods through the region and attracting investment on that platform. Another example being the Financial Centre for Africa that’s been in discussion for many years – that’s a critical opportunity we are seeing pass by. Alongside of that we need to be thinking about raising investment rates. I think globally all successful economies have achieved investment to GDP ratios around 25%. That may just sound like a number but South Africa has never actually achieved that - we’ve been hovering around 15% to 20% for some years - and that means we almost have to double our rate of investment and that’s an important issue to put on the table. If we wanted to move from a consumption-led growth path to an investment-led growth path most of the elites in this society would feel we were going downhill. Why is that? We would have to reduce luxury imports just as an example - we wouldn’t be importing so many SUVs, we would have less product diversity in our imports. Many people in senior positions in this society would feel that the quality of their life was going down although the long term trajectory would be improving. That’s where we need to start having some critical and meaningful discussions.

Peter Bruce: Mark Lamberti - the quality of the environment in which investment takes place, are we getting it right?

Mark Lamberti: I think the issue of legislative certainty has been touched on - when a junior politician confronts a minister directly that doesn’t imbue confidence into the potential investor. I think the whole thing of safety and security is something that we need to think about. In my position as chairman of Business Against Crime I’ve been pleased to see the statistics coming down over the last while but billions are being spent by business to protect their employees, their clients and their assets - as we see at every turn unless one is vigilant someone is trying to damage you through one of those. The issue of government efficiency is an important issue around services, and around licensing. In every business that I’m involved with at the moment we could be moving faster if licence processes were granted quicker, if services were provided more quickly to a new building site, etcetera. The issue of skills is becoming a very painful one for us - as we are all aware talent is one of the most exportable products on earth, the market for talent is one of the true global markets. Unfortunately we’ve shut out our opportunity to introduce skills into this country by virtue of our legislation – it’s not easy to bring talent in, and at the same time we have massive gaps in our education system for example last year from the 100 graduates we took into our company’s training programme two could not pass our in-house company tests and these are people who have come out of the universities. The last thing is the monopolistic provision and pricing of various services such as electricity and the Transnet situation - these are some of the things that if one has to stand either as an external investor or a local investor they raise the risk, and as we all know capital is deployed on the basis of risk. The last point I would make is the anti-business sentiment in the country at the moment that’s quite disturbing - if you consider the engine room of growth that business is for this country, the recognition of what it is as a taxpayer, as an employment creator and as a tax collector.

Just for example last year Massmart on its own either paid through company tax, collected on behalf of the government through VAT and paid through duties and paid through PAYE for its employees that’s 1% of the tax base of this country and that’s just one company so for the general tone to be so patently anti-business for so much of the time I think is unhealthy. Business at its best can be a wonderful source of societal change so we shouldn’t allow the aberrations and behaviour of some individuals to colour us all with that negative brush.

Peter Bruce: Daphne Mashile-Nkosi you’ve taken a big bet - your company is going to invest if I’m not mistaken R4billion at Coega so you’ve obviously had a look at the environment and you have your own feelings about investing long term money - tell us why you felt able to do that?

Daphne Mashile-Nkosi: When one looks at the environment all the issues that have been raised today are issues that are there - that we can all see - I think the issue of constructive engagement with government in terms of where we are going? In the sector I’m in the fact is we took a conscious decision to build a smelter at Coega with the challenges of electricity, rail and the port. The statistics show that Transnet for instance can transport about 50% of all the freight but at the moment they’re sitting at 12%. There are challenges in terms of the bottlenecks. For me the biggest question is will there be enough capacity for all of us next year when we are able to export the product so we can honour the loans that we’ve taken from the banks? I think there is a clear plan from Transnet, Eskom and from government - but the biggest question is will that be on time? Do we have the will to deliver the infrastructure on time? The other biggest challenge for me is do we have the innovative voice of actually looking at it and saying, what is it? It takes a long time before government takes decisions and therefore it might take the next five years before

we can reach the goal. I’m also looking at it from an external point of view – I’ve just come back from an international conference where the issue of South Africa as an investment destination was raised, and the biggest issue is in manganese is we represent 80% of world reserves - but we are sitting with the problem where our biggest clients where we are actually the biggest supplier of manganese at 70% between Australia and South Africa – but our biggest client is saying “can we invent a technology that can actually replace manganese?” That’s simply because we cannot deliver on time so those are some of the issues that are there. As a company we took a decision that we would engage with government to make sure that we don’t only sit here in South Africa and deal with the issues when we don’t understand what the market out there is saying about us as a country. For me the saddest part is we are sitting with 80% of the resources but there’s poverty problems in those provinces – we are looking at how best we can create the necessary jobs, but if there is no market out there that will not support the jobs that we are talking about.

Peter Bruce: Kevin Lings?

Kevin Lings: I think it’s the right question, Miriam, that needs to be tackled head on and probably should have been tackled head on 10 or 15 years ago. I don’t think upfront there is enough of a conversation with business and asking why they’re not investing? Ultimately that’s what we want to know. To ask academics why business is not investing – I’m not sure that’s helpful – or to ask economists why? I think you’ve got to engage directly with business and ask them why aren’t they investing? To me investment is a confidence game so this is telling us there isn’t enough confidence in South Africa by business - by the owners of capital. They don’t have enough confidence. When you break down that confidence you would say that there are some things that are in place - it’s not as if all the aspects are missing – so you would point to some

things like I think interest rates, inflation policy, taxes and tax rates. Tax policy is firmly in place, access to credit, available funds - all that is in place. You would say regulation and oversight is in place - so is that enough? The answer is no. The exercise needs to do is asks yourself if I gave you a 2% interest rate would you invest in Libya? If gave you a 5% tax rate would you invest in Afghanistan? The answer would be no. Those are sufficient but not necessary conditions for investment. I think there is a whole ambit that’s missing and that partly relates to infrastructure and a lack of port infrastructure, rail infrastructure, and partly relates to concerns about electricity and ongoing electricity supply. I met with a big French company a couple of weeks ago - they were looking at an investment in South Africa but in the end they decided not to go for it - one reason was given only and that is they can’t be sure there is going to be a constant electricity supply. You would have to say skills, crime and policy uncertainty - unfortunately the mix of these factors at the moment weigh against the investment decision - so we are sitting with the lowest interest rate since 1974 and corporate savings are at multi-decade highs - yet corporates are not investing. This is an environment in which corporates should invest - we’ve hosted the most successful sporting event in the world, we are part of the G20 and we’ve been invited to the Brics Summit, Africa is in focus and we talk about regional integration - yet corporates are not investing. Rather than developing an anti-corporate bias that we are developing in South Africa – I’m on the sidelines but the Massmart/Walmart thing is appalling – rather than develop an anti-corporate bias we need to engage more positively with business to understand given all the positives why are we still not investing?

Peter Bruce: Perhaps Leslie Maasdorp can answer that?

Leslie Maasdorp: A couple of points. I agree with most of what’s been said but let me take a different starting point and say there are no “silver bullets” or short term quick things one can

do to dramatically improve the investment climate in South Africa. I think by definition this is a long term game and we have to look at the long term and change and shift our lenses both as government, business and other stakeholders in society to look more at the long term. South African economic and political debates are all driven by the current and the next year or two or three - very few of our policy documents talk about the next 20 years or the next generation. Most very successful economies have become so over a very long time - especially economies without resources like South Korea or any other example you want to make. That’s the first point I wanted to make. Secondly, I think we have to look at long term trends - we shouldn’t just look at South Africa as it is today, but where might the potential opportunities might be? There is still space for the big ticket ideas, the big lever aspects of change - in other words could we develop capability in certain areas because there is a major trend globally in that space? Clean energy for example is a major focus in the New Growth Path which is a very positive element of the direction of government policy - so the first point I’d like to make is improving the investment climate is by definition a long term endeavour, and hopefully at some point the National Planning Commission or government would come out with a statement of where South Africa is going 30 years from now. There are however short term things we can do - several of the panellists have already mentioned them. To highlight a couple – major investment in the efficiency of our transport is critical, improving our rail networks, our ports, the electricity network - all the public infrastructure investment areas Itumeleng and others have already raised for me is the highest order priority. Mark already mentioned the issue around improving and smoothing the access with respect to bringing skilled labour into the country - where I sit in the financial sector companies are still experiencing extreme difficulties in securing work permits for skilled managers. As you know there is a very positive relationship between getting skilled labour in and the multiplier impact that has in terms of the employment of unskilled

workers. What I’m saying is there’s a few obvious things we need to do and I agree with Mark that we are moving into a polarised world again – there isn’t enough dialogue in my view between the various stakeholders, the glue is disappearing and we need to do something to resurrect that “1994 moment”. That’s not just an idealistic concept - I think we can do that but we have to do it around a long term vision…

Peter Bruce: Brian, Telkom is responding to these investment challenges how? Philosophically and physically…

Brian Armstrong: With regard to investment clearly our strategy over the past few years was expansion into other countries - I guess many of the risk factors we’ve spoken about in South Africa are those that we had to weigh up for the rest of Africa. Again the focus is shifting back again to South Africa to say let’s get a strong home base and make sure we are market leaders in South Africa and that will create a strong platform for growth. Coming back to the original question on what should South Africa do to create a growth environment from a very practical business perspective – as opposed to philosophical one - from our point of view there are really four areas. First as has been mentioned is regulatory predictability in the context of a stable policy framework, secondly skills. I used to be part of a multinational and one of the things that was a big concern to invest more business process outsourcing in South Africa was skills availability. Particularly as we seek to move up in the services industry skills is a significant limitation at the moment. Third is the whole issue of labour productivity and the productivity cost equation - I feel we have moved into an era of more and more adversarial relationships between business and labour which I don’t think is good. It does lead to polarisation - it has polarised - and I think you then end up with fairly extreme opening demands being made at 14%, 16% or 18%. Salary increases without a commitment to productivity increases is not a sensible discussion. Finally, infrastructure

investment in transport and energy. Those would be the four strategic areas. I think any businessman will tell you it’s one thing having a great strategy but it’s all about execution – South Africa has had good strategies in the past but execution is about detail, getting stuck in, about getting the right people in the right jobs – and it’s about measuring performance and putting remedial plans in place when you deviate. Sometimes I think it’s more focus on execution than strategy…

Peter Bruce: Minister Gordhan, clearly there is a feeling around the table the investment climate is not good – that relations between business and labour are not good – from your point of view the question is given all of that how do we raise levels of investment?

Pravin Gordhan: I agree with what lots of the colleagues have said. Let’s look at some of the qualitative as opposed to quantitative issues. Unless South Africans can both prepare for and execute to borrow from another country a “great leap forward” we are going to sit at these sessions every year and complain about the same things – we’ve been doing it for the last 10 years also – so we have to have a fundamental change in mindsets from all sides and not just government. We can point to government but if you had a couple of government people here they would point to business finding all sorts of faults that go back to 1860 or 1650. I don’t think that’s going to be helpful. What is this great leap forward about? Firstly it’s about developing a common intent - do we want this country to grow? Do we want to change its economic and social circumstances? Do we want to change those circumstances for all of its people - not just the elite, the old new elite - and how serious are we about this national project as opposed to individual business projects? If we are serious we would approach it with a different sense of urgency, and a different approach saying “let’s look for synergies…” Kevin was trying

that - let’s look for what works so that we can build on it - as opposed to talking about what doesn’t work. That’s a fundamental difference in approach depending on your mindset. Second is I think we need a narrowing of the “philosophical gap” where in South Africa in our newspaper writing we are still stuck in the ideology pre-2008. The world has changed fundamentally since then - the way we look at financial markets, the role of the banks, the role of regulation, indeed even the role of government has fundamentally changed - we don’t see that reflected adequately. All we have is still the old discourse about market versus government. If governments weren’t around in 2008 after Lehman Brothers what would this world be looking like? If taxpayers’ money wasn’t around what would this world be looking like? If the G20 didn’t get its act together in time – we don’t have that now – but then we would have had a disaster across the globe. We already have a disaster but that would have been a disaster multiplied many times over. So how do we get a more conscious effort at narrowing this gap? I think there is a pragmatic territory where all of us can find comfort if we have the will to get there – and where we can basically say forget some of the old language and the old mindset and try and find some common ground. The third which follows from that is why we don’t buy into the idea that we do require this social pact or contract – call it what you will – but ultimately whichever way you look at it unless labour, business, government and civil society all agree on this common intent and narrow the gap, and finally agree that we acquire a historical pact that will enable us to take this great leap forward we will still be sitting and moaning. Do we have the will, and do we have the leadership capabilities? Do we have the visionaries - not only in government to write up a plan for the next 20 years - what’s the business sector’s plan for the next 20 years? How does labour see its next 20 years? How do the poor see the next 20 years? I think that we need to make some tough choices and then finally we’ve got to make a commitment to making it work because as many of you pointed out ideas are one thing the

next thing is execution. Mark goes to Harvard every year so he knows probably better than I do - and many of us, although Harald used to be a consultant so I’d better be careful - execution is one of the biggest challenges both in business and in government. It’s not unique to government - any number of companies have had brilliant plans that never get executed so we mustn’t make this a government thing only - it’s a question of leadership and putting the right people in the right jobs as some of you said. It’s about building the right kind of institutional resilience and doing so on a basis that is able to sustain itself for at least a 10 year period - one short burst won’t actually help in what we are trying to do. We are also talking about sustainability in where we need to go. All of that combined with what everyone else has said and what do you invest in and skills. One thing that is missing here is R&D. We are weak on that in the South African context if you want to really compete. There are opportunities that are multiplying every day which we are missing because we don’t have the cohesion and because we aren’t able to take those opportunities. Finally, we are going to require men and women of vision – men and women of extraordinary guts – to say that I am going to put behind the past and I am willing to take the risk that’s involved in finding the common ground that we need in order to move forward. It just doesn’t happen - it doesn’t happen because we write all sorts of articles, it doesn’t happen because one side criticises the other. Mandela demonstrated that in 1988 when he said “can we talk and take this country to a different space?” I think we are back to the Mandela moment. Who is going to write to whom to say can we take this country to a different space? The New Growth Path in some ways with all its weaknesses offers us the opportunity to do so. I still don’t see that leadership coming at this stage. I think we mustn’t bluff ourselves as South Africans - all of the things we’ve spoken about we have spoken about before. There’s nothing new on the table at this point. What is new is this new spirit that is required and a new element of courageous leadership that’s required to take us beyond our current point.

Peter Bruce: Mark, the Minister talks about common intent and the need to develop that and the need for somebody to put their hand up and “write the first letter.” Where are you on that? What would you write and who would you write it to? What would you want to say if you wanted to develop a pact like the Mexicans have?

Mark Lamberti: I think part of the polarisation is because we look at these things as if we are all at the extremes. Most of us aren’t. I speak personally but I’ve never worshiped at the altar of shareholder capitalism. I think the purpose of a business is to survive. We all know that the average age of a business in the world today is about 35 so we haven’t even got to the point where we’ve got businesses living longer than we do - so I believe the purpose of the business is survive, and I believe the way that you do that is by a trade-off of the interests of all stakeholders. At the risk of being naughty we all know that “shareholder value is “the value that the holder doesn’t want to share.” If we start from the point that you cannot live in South Africa today and think that unbridled capitalism is going to get us out of the hole then you have to say “what is the shift?” For me there are at least four areas where the South African businessperson has to be completely different from anyone anywhere else in the world - you can’t live in South Africa without recognising your responsibility to uphold ethics in an extraordinary fast changing society. Things are happening and changing so fast here I think in some respects we’ve thrown the baby out with the bath water. Business I think has to try and play its part in upholding those ethics. The second thing is to close the socio-economic divide and the third is the transformation imperative. The last one is the skills shortage. Unless business is playing a part on those four things and holding up those as things they are prepared to work on I don’t think that we are going to have a conversation because those

are such important South African issues that the other side – whoever that is – is going to want you to address those.

Peter Bruce: How do you start having this conversation? In South Africa the moment you have a thought or an idea and you open your mouth you get shot down - everybody is in the trenches and we’ve got periscopes up there looking at each other across the wasteland – but how does the conversation actually begin? The Mexicans I’m told force business and labour to come to an agreement once a year. If they don’t they both pay some sort of penalty. Itumeleng, you do a lot of thinking in public - how do you get business and labour – leave government out of it for the moment – how do you get those two actors to talk to each other constructively?

Itumeleng Mahabane: I don’t actually think you can leave government out of it. In my view what brings people together is policy - that’s one of the things that brings multiple stakeholders in society together around a common idea of where you are trying to get to, public policy. One of the things we have to do is think about how do we create more open government processes, and more open policy systems? You don’t want things to drag out as you design policy but I think you have to see the creation of policy as a process of getting various inputs and buy-in so you can tangibly create that common vision.

Peter Bruce: Leslie?

Leslie Maasdorp: I think the Minister has already answered that question – at the heart of it is leadership, and visionary leadership. Quite frankly I think leadership of organised formations now all speak from their constituency perspective and no one is stepping out of that mould to think outside of the box. A concrete example to build on Itumeleng’s point for business and labour if there was agreement on where the

industry is heading - if you look at the New Growth Path there is a huge focus on employment creation, and that’s at the heart of government policy – but a number of the industries we are trying to protect will go into a gradual and systematic decline over the long term, so at some point the clothing and textile and leather industries bosses together with labour need to sit down and come to terms with the fact that we are not competitive in that particular sector. We then have to grasp that reality and look at which other areas of manufacturing – which has been in steady decline – we could be competitive in as South Africa. We could then look at which are the new sectors we could potentially develop and build industrial capability in with more R&D investment in new industries. We need those kinds of leaders. It’s not happening at the level of Nedlac or business and labour, nor is it happening between business and government in my view. Most of our dialogue is about competition, about policies, about crime, specific regulations and so on. I wanted to return to the point of stretching our planning horizons a bit longer.

Peter Bruce: Daphne Mashile-Nkosi has stretched her planning horizons about as far as one could imagine – you’re making a 20 to 30 year investment?

Daphne Mashile-Nkosi: We are not only making a 20 to 30 year investment in the Eastern Cape, we are also putting R7billion into the Northern Cape where there was no electricity and water…

Peter Bruce: How do you feel doing that in this environment where there is such hostility between business and labour?

Daphne Mashile-Nkosi: It’s actually a very difficult question to answer simply because looking at Nedlac are we re-inventing the wheel? We do have these institutions that are there and we

are hoping against hope that they will give us the necessary answers that we are looking for. We have to invest in those provinces that we think are the poorest because we want to eat well and sleep well at the same time - because for as long as we do not take the first step no-one else will. In our case we’ve looked at what is it we can do in terms of taking the extra step and not complaining about the creation of jobs but actually creating jobs and therefore we can safely say that in the Northern Cape for instance we are creating about 1,800 jobs - as we speak during the project development phase we have actually created 800 jobs that are direct and indirectly about 10 000 jobs. In the Eastern Cape we will break ground in June and we will be creating about 400 permanent jobs in the smelter. It’s a long shot and it’s difficult but I think it’s achievable.

Pravin Gordhan: That’s the key - taking the first step. If each one waits for the other to take the first step we will never quite consummate any “marriage” we contemplate in this regard. Also, there’s what some economists call the “demonstration effect” where looking at the corporate surplus at this point in time – and let’s assume the confidence issues have been mentioned are troublesome, but I don’t think they are paralytic – can somebody start taking the first steps demonstrating that it is possible to create 100, 200, 400 or 1 000 jobs? Can we actually demonstrate that investment? It’s a question that’s been raised before - if South African business people are not willing to invest in the country why must foreigners come in? If you love this country and you want it to work leaving behind a country that future generations can live in a lot more comfortably than we might be living in then we have to take the first step – as Daphne says – and balance out the risks. None of these risks are of such an order as Afghanistan or Iraq or in fact many other parts of the world as well. Perhaps there again there is a mindset that we need to get beyond and there’s a social distance that’s the other thing that we forget by the way - that we also don’t talk about too openly – we do

come from different backgrounds and different cultural histories if you like. Let’s talk about it more openly and find a way of transacting around that which would enable us to repeat Daphne’s point to take the first step. This is not a clinical rational exercise where unless you can tick all of the boxes you can’t move. Some of these things – and like many things Mark will tell you in business – sometimes you go with your gut and you ignore some of the boxes as well. There are times when your gut doesn’t pay off but we have to take some of those bets and take some of those risks so that we can actually go. Itumeleng’s point about open policy processes I think we have some of the most open policy processes in the world - but you can have the process, we have papers that are out there for discussion and Treasury spends half its life meeting stakeholders of all sorts many of them with vested interests so they’re hard to transact sometimes. Again, having the process is one thing going beyond the policy process to actually planning and executing those plans is quite another. I think there again we have a deficit in our country both in government and elsewhere as well - it’s well known that Transnet could do better on rail, it’s well known that we could do better in the schooling system, it’s also well known although not taken too seriously until more recently that the skills gap in South Africa is a serious one - but we collectively 10 to 15 years ago gave up the apprentice system. Now we are collectively trying to rebuild it. South Africans have a habit of shooting themselves in the foot as well – we make decisions which ultimately turn out to be costly and you have to now reverse everything you have done – but interestingly we are not unique. Go elsewhere in the world – the UK is talking about apprentices, the US is talking about apprentices and revitalising their skills systems as well. There is something happening which is not just South Africa - it’s also a global set of phenomena where capitalism, particularly economic growth paths have taken things in a particular direction and the deficits of that direction are now becoming more apparent particularly arising from the crisis. You have to revisit those things. Everyone is talking about how do you

reduce inequality? Everyone is talking about how do you grow? Everyone is talking about how do you build manufacturing? Everyone is talking about where do you actually export? Everyone is talking about re-balancing different sectors of the economy. Fascinating. Those questions are not unique to us but we’d better find our answers quickly if we are going to compete in that world.

Peter Bruce: Harald Harvey, does the work make the love? How do you build trust? Do you build trust by making the investment and making it work, or do you tick all the boxes first?

Harald Harvey: Before I was a consultant I was a government bureaucrat and before that I was in Cosatu - one of the things that I’ll say is you’ve got to address the social distance issue. That only comes through being in the trenches together and trying to solve the problem together. The thing that I find deeply frustrating about parts of the history of this country is when business and government – or labour and government are meeting – it’s always on a lobby issue and it’s always about “what can I get from you?” or we are sitting in these large forums where we have to have opening statements and protocol. When I first went into government one of the things that I learnt to my surprise was that many of the old guard bureaucrats didn’t haven’t horns and forked tails - very quickly you discover that 99.9% of South Africans don’t wake up in the morning with the intent of getting one over on the next guy. For me that’s been fascinating – sitting inside a business like the one that I’m in now and every time you raise the prospect of maybe we can do something in a way that it might not be the highest shareholder return, but it creates three times the number of job opportunities – and people without fault will always choose the slightly lower return in exchange for the greater ability to share in the value in some way or other. Everyone is actually South African first and foremost in many ways. Going back to this demonstration effect issue if you go

and look back at some of the success stories of the last 12 to 16 years invariably they were driven by the fact that two or three people decided to forget about entrenched or narrow interests and got into a room and tried to solve the problem together. At the same time I think there is a need on all sides to do away with one or two of the entrenched things – we talk about the vested interests in the lobbying process so government must just get comfortable and exploit the fact that capitalists want to make a return, and figure out how we can leverage that to the best social advantage. Equally, I think business quite often gets overly anxious at the fact that a regulator actually wants to have a look at you and figure out whether what you’re doing is in the best interest of the country – take the Walmart hearing in most countries in the world that’s a completely normal process, nobody ever questions someone’s patriotism or their commitment to a country for wanting to do it in a particular way. Yes, we could have executed that – there was clumsiness and a whole bunch of things, but that process could have been expedited a lot more quickly had people got into a room and said “this is actually a good investment. We want it - how do we make it happen?” I avoid these positional forums like the plague – I’d much rather go and have a conversation with a minister “here’s an idea – I’ve got a project how do we execute?” How do we do it in a way where you’re not seen to be in my pocket and we do it in a way where it’s not just about narrow interests but we still drive value for society, shareholders, etcetera.

Peter Bruce: Kevin Lings, if the demonstration effect is so powerful why is there not more demonstrating going on?

Kevin Lings: Because we don’t celebrate entrepreneurship in this country the way we should - we celebrate politicians. The celebrities in this country are politicians where in other countries celebrities are entrepreneurs. If you look at the dialogue between Zuckerberg and Obama in the US the press focus is

not on Obama but on Zuckerberg because he is celebrated. I don’t think we do that enough. Where we do have people demonstrating a interest in taking the first step or undertaking that investment or employing people that needs to be much celebrated – much more well known, much more understood. What was the intention? Why was this investment decision taken? What were the thought processes so that message gets across more? I do think that you will get a tipping point - it won’t be one investment. It’s hard to know how many investments it would require - and I agree what the Minister is saying, that while confidence is I don’t think at a sufficiently high level to create the tipping point, I don’t think it’s appalling low that we will struggle to get to that tipping point – we could actually move fairly quickly to that. There probably are one or two easy gains that one can make. In our analysis and scenarios we thought the World Cup would be that tipping point to be honest – we thought that would create a demonstration effect or a catalyst. That obviously didn’t come about I think partly because of global circumstances – I don’t think anything domestically really changed – but it’s there, you can feel it, it’s tangible that you can get there. If you just start to put on the plus side all the factors working for us we have some of the most positive factors that should have encouraged business anywhere in the world – that other countries would really love to have in place. We’ve got a number of those and I think you can easily articulate them but right now we probably need something that creates just enough of a catalyst. My sense is that it probably needs something that inspires people – probably leadership, something that captures people’s imagination – that business then feels if we don’t invest we are missing out. You need that effect. The vast majority will adopt a wait and see approach – and I think coming back to what your question was which I could answer in two minutes – I think it’s possible but I don’t think we’ve had enough investment being highlighted that’s taking place to get that catalyst going.

Peter Bruce: Brian Armstrong, do you find as well that at Telkom as Harald Harvey does at his company that when the question is do we maximise shareholder value here – or do we maximise the wider stakeholder benefit – what sort of decisions are Telkom making?

Brian Armstrong: Certainly from a Telkom perspective the overall social obligation that we have we take very seriously and it does inform our decisions quite fundamentally. We recognise that we have got to deliver shareholder returns but as the incumbent telco in the country we’ve got an obligation to provide world class ITC services to the majority of the population – that fundamentally influences our investment decisions. To come to Kevin’s point about the tipping point or how do we get an avalanche effect I think there are two issues that cause friction and stop the avalanche. I think the first is cynicism to an extent. I think that can be overcome quite easily. If I compare South Africa to European countries for instance we do have more of a frontier sort of mindset and we are more “can do” sort of people but sometimes I think we get locked down in cynicism. Frankly the way out of cynicism is leadership and it is incumbent on leadership across the spectrum to actually start breaking down this cynicism. The second area is lack of aspiration – the shine has been taken off some of the Middle Eastern economies recently – but they boomed on oil providing very cheap capital and access to very cheap labour from the East, but one thing they weren’t short on was aspiration. They wanted to be the best in everything in a relevant way - they didn’t want the second tallest building in the world, they wanted the tallest building in the world. They didn’t want the second biggest shopping centre in the world they wanted the biggest shopping centre in the world. I think that level of aspiration is very important. It doesn’t have to be the best in the world but it has to be the best relevant to what we want to be. Sometimes I think we set our sights too low in this country. I was also optimistic that the World Cup would be a tipping point – we set our sights high

and we delivered. I think the elections two weeks ago – we almost take that in our stride now, we don’t celebrate it enough – but that aspiration that we should be setting ourselves up to be world leaders in particular areas at an appropriate level is something we should focus a bit more on.

Peter Bruce: I’m going to ask Miriam Altman to look again at the issue of building a high trust society - why is it proving so difficult? Miriam Altman: Yes, I wanted us to reflect – we want to come to a clear vision and even the word social compact keeps getting thrown around – we have to remember that the stakeholder groupings have fragmented over the past say 15 years. They used to have I think they were called pyramids the way Anglo American was structured where 80% of the JSE was owned by five companies – that’s now down to about 15% if I am not wrong. That’s a great thing having more competition but what it also means is that the groupings are fragmented. In the trade unions the big ones were the metal and mine workers and then SACTU formed to become the big three. Now the biggest trade unions are the public sector workers – women are the most important growth in trade unions. Even the trade unions haven’t kept up with that – they go home after work and take care of children very often and don’t have the same kind of involvement – but the people and the groupings we are talking about have changed so when we say business and labour are coming together who do we mean? Can you come up with a deal in retail for example? You’ve got a few large retailers and lots of small retailers – could you come up with the deal in a sector like that? That’s actually the biggest employer in the country – more than the public sector – so when we talk about the party we’ve got to start thinking differently about it. I am not saying it’s not possible but it requires a lot more work. The point of saying “we’re going to meet with business” or “we’re going to meet with labour” is a

meaningless statement now. It’s not hard work because it can be interesting but it means that much more serious and deep face-to-face engagements are required with different sections of industry with different investors – not these big jamboree meetings where we go in with formal agendas and presentations, but real face-to-face human engagement is required now.

Part 2 (second hour)

Peter Bruce: For the second part of this Business Day Dialogue I’d prefer it if you would all just talk to each other - feel free to stop people in mid-conversation and interrupt, no protocols observed. I wanted to ask Minister Gordhan to start the second part of this discussion with the following question – it seems unfair and the Walmart hearings are a case in point, when one talks about the tripartite approach to decision-making where government, business and labour are there to thrash out these difficult points to create consensus and a common vision – that business is really alone in that and that government and its political allies the unions are two voices in the forum versus one? If you were to ask business honestly why they’re not investing, they’re not investing because they feel that the dice are loaded against them…

Pravin Gordhan: I thought we’d covered some of this ground. To be completely irreverent I think that’s the wrong perception. Sometimes perceptions are good and sometimes they’re not - if we have the right levels of maturity on all sides we all know that everyone has to say certain things for public consumption, and if you start talking in other fora you will get other sorts of approaches to questions. I can say to business the President

and his team of about 10 Ministers met with business – taking account of Miriam’s point about who is business – but that’s for them to sort out not for us to sort out. One of the things that business around the world I should imagine is infamous for is it’s incapacity to find cohesion amongst itself – because business itself is fragmented in so many different directions depending on what it’s involved in. I don’t want to refer to Walmart specifically because that’s part of a legal process – but enough of us know each other in order to find the space if it’s necessary and we’ve all found it in one way or another to canvas some of these concerns. Secondly, there are institutions like Nedlac that’s not just there for one sector to take its issues to that structure - other constituencies can bring their issues to that table as well and say “can we talk? I have trouble about these things…” Business and labour for example have the Millennium Council - I’m not privy to what goes on there - but that’s a forum created for labour and business to have their own conversations as well. Again, I think that if we continue this siege mentality – that we are now besieged by these forces – if we don’t recognise the plusses that Kevin was talking about earlier, and if we don’t take the approach that Harald was talking about with his “getting into the trenches and doing things together” where we can, and constantly looking for opportunities to work together – rather than the things that might hold us apart on an issue by issue basis – then as I said earlier on we will be missing an historical opportunity. We are always going to have one issue or another where we would differ – we would argue and so on – but that’s where Leslie’s point about long-term vision and long-term commitment comes in. I think it was Harald who said “we are South Africans” and Daphne said “who’s going to take the first step forward” and Brian talked about taking both social and business considerations into account as we look at some of the propositions that we are assembling here today. My appeal would be, don’t feel besieged, two let’s focus on the things that we can do, three let’s go beyond the traditional way of looking at things and find the two or three projects that can

deliver jobs that show additional investment that defies if you like the common logic around confidence and begins to set another kind of path. I think those things are do-able. We can decide to either be half-full or half-empty as a group of people - many of us survived the apartheid years by being half-full people. If we switch now and become half-empty we will have a gloomy perspective on life all the time. There’s a lot of possibilities and we are missing them every single day that we take to sort out what are not unimportant issues – they are important – but I think we need to travel on different tracks and sort out some of the issues on track A while on track B we get down to the things we can in fact cooperate on and work together with.

Mark Lamberti: Minister, obviously we take your points but let’s get down to some real specific issues - on the night that I phoned you to advise you of the Walmart transaction before it was published in the newspaper I phone Minister Manuel, yourself, the Governor of the Reserve Bank and Zwelinzima Vavi. I sat in the Millennium Labour Council with Zweli for two-and-a-half years – I’m still waiting for him to return that call. The issue in my view what I don’t quite understand at the moment really is whether labour is acting in the interests of its constituency, or whether it’s got a secondary political agenda that’s informing what it does. However that’s playing out what we are seeing as you are very well aware is a long-term deterioration in the labour productivity of this country – over five-year periods labour productivity growth has been getting ever more towards zero – so we’ve got a situation now where our cumulative labour productivity growth over say a 20-year period - only Mexico is lower than us. You’ve got us growing at something like 20% with India, Poland and China growing at 120% over that same period so to the outside world as an investment destination the issue of labour productivity is becoming a major issue. I’m asking the question - is this being coloured by a political agenda rather than an agenda of

unionists being interested in their constituencies? The other thing that I’m seeing – which is quite disturbing at times – is that members of the union within our own companies are saying different things to what their representatives in the centralised unions are saying. These are the kind of mismatches, or disconnects that I find difficult to understand and I think it’s at the moment at a level which is to the detriment of our country. To be blunt I think two million people are having too much influence over the other 48 million.

Pravin Gordhan: I think it’s good that we can sit in a forum like this in a democratic South Africa and say so - let’s say so more loudly and more broadly and let that view either be digested or contested and take it from there. There is a well known phenomenon now – it’s crept to the top in the last year or so – both in South Africa and elsewhere in the world and that’s the insider outsider problem both within the labour movement and outside it’s becoming a serious issue. In other words if you’re inside as a business person or if you’re outside makes a huge difference because you serve your interests on the inside – you come up with propositions which would enable you to benefit and exclude others. On the labour side equally if you have a job you’ve got to be very careful about what propositions you put forward and what policy positions you take and be aware that you could well be serving your own constituency rather than serving the broader unemployed constituency as well. We are coming to a point in South Africa where we have to discuss that a lot more frankly now and ask ourselves from a government point of view how do we balance all of these considerations? In some more recent interactions on a different constituency and a different set of issues some of my colleagues have been talking about the guardian role of government – in other words if you’re dealing with a whole lot of self-interested parties government’s job is to try and stand above that and try and balance the considerations of each of those constituencies in some way. I think we are getting to a

position where on some issues government’s guardianship role needs to come to the fore so that it is seen to be palpably acting in the interests of society at large rather than narrow interest groups whomever they might be.

Itumeleng Mahabane: Let’s take a practical example around how I think we are failing with leadership across all sectors - the issue of wage restraint is a major one at the moment, and we are all concerned about wage demands – but one of the problems with this issue of wage demands is in as much as the wage demands of public sector and all unions have an economic implication they therefore have to be curtailed. I’m not sure that the private sector has necessarily thought about the political economy of the situation. I think there is an aspect, for example, where all we’re looking at is the economics of it – but of course you can’t in a country like South Africa take something like that and look at it in isolation. It is a political economy. I’d like to see a situation where business says to itself if you take this issue of inflation and all that goes with it – and the wage situation – and if you take what Miriam was talking about in terms of the need to move to be an investment-focused as opposed to a consumptive society you’d expect private sector leaders to start coming up with different remuneration structures, bonus structures, that symbolically not in terms of actually lowering compensation in a fundamental way but starting to look at how do you delay aspects of structuring compensations so that you can send a message? It’s not about what real impact it has on the economy but how do you send a message to unions that says “we’ll come to the party because we understand the levels of inequality in society, we understand the message that comes across when somebody who only earns a certain amount of money is getting a cash bonus of 60% but don’t understand when unions want an increase of 10%.” How do we think cleverly around the way in which we can send a message that says we are sensitive to the political economy of the situation. I think we

need much more of that kind of combined leadership and the symbolism is as important as the tangibles. I don’t think we’re seeing enough of that – I think this leadership failure is across the board to be honest.

Pravin Gordhan: That’s where my earlier point about raising our game and looking for philosophical conversions comes in – the concept of political economy is extremely well put. The numbers will say something – the political and social context will then interpret it in different ways – and perhaps that’s the increased sensitivity that we’re going to need firstly. Secondly the issue of workers’ wages versus executive pay post the 2008 crisis came very much to the fore but one year later on the banking front we’ve lost that completely and today the kind of regulations that are coming out even from the G20 perspective are very watered down compared to what politicians were saying. The capacity for lobbying on that side is massive to actually win favour. To come back to the signalling if we are serious about moving forward and the intent we described earlier of growing the economy and moving our society differently then maybe there is a new set of sciences and skills and arts that we’ve got to learn about how do we signal in a particular way, how do we communicate in a particular way and how do we grow confidence on all sides? The confidence factor is not a business issue – it’s a political issue as well. Can we have confidence in our business sector, can we have confidence in the labour sector? Equally, can you have confidence in the government sector? It’s a mutual thing that we need to build upon...

Miriam Altman: I think we are also going to have to be careful - when you’re in an upturn everybody is happy and when you’re in a downturn everybody is sad. It’s very hard for people somehow to imagine that it’s going to be any other way – so when prices are going up people think housing prices are

going to continue going up. Then they crash. It’s inevitable but for some reason people always forget that. Maybe part of our problem right now is that we have a little bit of political uncertainty on some levels – although again we just went through a great election very smoothly. We just went through a very bad downturn – a million people lost their jobs so there’s psychological deflation that arises. We’ve also got to be careful that doesn’t bring us down – to think we are not going anywhere. In fact the economy is bouncing back. I just wanted to say something else – there’s a thing about animal spirits, funny for me to say that – but we can talk about the savings rate and maybe we need to come back to some practical things like economists will talk about how we need higher savings and there is no doubt about that. A whole range of macroeconomic issues that have to be sorted out. At the end of the day firms have to want to invest and there has to be a selling proposition and there has to be somebody selling it – I sometimes wonder if we’re missing forcefully both of those sides. Some of the core issues were raised earlier around transport infrastructure and the cost of doing business and all of those things but also equally I was raising the point of South Africa’s position in the region – it’s such an obvious one, and one that companies are taking advantage of - I don’t think the state is coming to the party in the way that it could be. We see these development funds coming in place – but for example if we wanted to take advantage of all the construction projects that we often talk about, and the mining projects in the region – we’re going to have to start getting behind those deals and helping firms with the development finance so they can capture the deals and that we can be selling products on an ongoing basis into those deals. That’s how Korea expanded its construction industry, it’s how China expands its construction industry. It’s an obvious thing for South Africa to be doing – we’re just not doing it with force. I’m not saying we are not doing it but we are not doing it so that it’s absolutely 100% obvious to anyone in that industry that’s where we are going. The flip side is having people in major markets who are selling in

China, in certain African countries where the opportunities lie – who are situated there and promoting South Africa in a very obvious and clear way – getting South African companies in and facilitating those relationships.

Itumeleng Mahabane: This issue of infrastructure which we’ve all been dancing around – let’s be honest South Africa is not really going to get far until we deal with that. We talked about business not investing but the fact of the matter is there’s about 13 million employed South Africans – it’s not a huge market – so one of the things we have to ask is what are you expanding for? There aren’t people to buy your products. In the meantime we’ve got somebody who’s found an outside market where there are buyers and is investing – but her biggest concern is that she’s not going to get her goods to market. The infrastructure also affects production because we’ve got issues of electricity. Let’s just talk about that one practical aspect. We’ve got a major infrastructure issue, which as far as I can see we’re not really dealing with comprehensively. We’ve got a situation where people are talking about building refineries while there’s critical infrastructure that’s needed in the country where we don’t have an endless source of capital. I don’t see leadership coming out saying “maybe it would be a good idea to have a refinery – but on the balance of things we have to build we need electricity, we need ports, we need roads, we need rail. Come back to us in five years’ time about the oil refinery. I think we’re not actually grappling the serious challenges in a serious way. That is part of leadership. It’s a practical thing.

Pravin Gordhan: Agreed.

Leslie Maasdorp: A real challenge lies in making those difficult decisions – talking about the Massmart situation again let’s say

conditions were imposed on the deal that leads to Walmart pulling out and the country losing the R17billion investment, something that’s been in the public domain around that transaction, for example, was the recommendation by the Competition Commission that 500 workers who were retrenched before ought to be reinstated now. That was nothing to do with the deal, it’s something that happened months before. Finding the optimal balancing point at the one level to attack investment, at another level we’ve got to protect domestic industry – so it seems we have great difficulty in making those judgement calls. The Newcastle situation which I think you’re very familiar with around the clothing industry there – finding the balance between keeping some workers employed and the importance of sticking to minimum wages – I think there’s a real challenge in making those calls. I don’t know whether our institutions are not functioning optimally to do that but I think there is a real challenge to be addressed there.

Pravin Gordhan: You’re being diplomatic - why don’t tell us what you think we should do?

Leslie Maasdorp: I think the idea that we would elevate job retention or reinstatement of 500 workers above attracting R17billion investment into the country is a false choice – the obvious choice is for us to take in the R17billion. Obviously this investment will have a huge multiplier economic impact with more stores being opened, more workers being employed. Maybe a fund could be established to retrain the workers to productively re-engage in other sectors – there’s all kinds of more innovative things that can be done other than a sole focus on job retention.

Pravin Gordhan: Hopefully the Tribunal will apply its mind to all those issues. I think it’s unfair to talk about that issue when it’s in front of a legal tribunal. Respectfully, it would be useful if you could avoid that issue. Let’s talk about investment and the trade-offs and the challenges that we have. Everything you say sounds reasonable to me – but there is a thing called competition law, there is an institution called the Tribunal. Everybody who is interested has had an opportunity to put their case there – hopefully that’s the kind of balance that they come out with. Looking at the issue of investment in South Africa at Budget time we came out with a document which is called “A Review Framework for Cross-Border Direct Investment in South Africa” the purpose was precisely to ensure that we can get certainty for business both local and overseas to ensure that the principles are fairly clear upon which we are founding a future policy and legislation to encourage new inflows of foreign capital with benefits for employment growth, competition, etcetera, to support consistency in policy amongst the different government departments and I can go on. The intent there was very clear – that we don’t have such a piece of legislation or policy framework. Other countries like Canada, Australia and so on, do. The second thing is that we must also be careful – and this has nothing to do with the Walmart issue again – many countries exercise the prerogative of national interest Canada in terms of the takeover of Potash, Australia in terms of the Chinese taking over some of their mineral assets. You can go anywhere in the world you’re going to find one thing or another with regard to “strategic assets”. The idea in this policy framework is to identify those transparently and say these are areas where you can expect government to raise its hand and say because of national interests we want to handle things in a particular way. Hopefully within the next 18 months or so we will have that clarity as we go forward. Some of us are trying to ensure that we create an environment where that certainty is actually provided. While we do that others must get on with the job of investing.

Kevin Lings: Can I just take the conversation a bit away from Walmart and come to this execution thing because I think it’s quite critical. The sense of living in South Africa is that we go through lots of plans – we’ve had lots of plans on the table, we have lots of dialogue – but quite frankly plans are a dime a dozen. Execution is really what matters here. It worries me a bit that if we can’t execute we change the plan – then we hope somehow that plan is going to do something different. The core of what we want to execute on all of these plans actually remains the same - how do we get closer to this catalyst? Is there not something that can be initiated in terms of execution, delivery, that captures people’s imagination, that can be done fairly successfully and fairly effectively and very visibly, so people feel we’re moving forward with something? That here’s something tangible. I worry at the moment that government focuses on many different things – trying to executive on a whole range of things – and then runs the risk of not being able to execute convincingly on many things and is perceived as missing the boat on a number of these issues. It’s at a point where I’m not convinced more plans are going to make the difference – it’s about making something tangible that people can relate to and see. Is there anything like that being worked on?

Pravin Gordhan: What is being worked on is any number of plans. Now the question is where do you get the expertise, the will and sometimes the money to actually get the stuff done? Again if we go back to Itumeleng’s point about the economy some of that is clouded by the political economy – that’s a very nice euphemism for a whole number of factors that we have to take account of – but you have to think about practical things.

Kevin Lings: The youth wage subsidy was something you proposed a time ago – I thought it was a good idea, I think many people thought it was a good idea – it seems to have

been introduced but I’m not aware of any specific detail. It seems to have been introduced in a watered down version...

Pravin Gordhan: No, it’s going through the Nedlac process. There is and it’s no secret resistance to it from certain quarters. The sooner we take the conversation to a point where we might have to acknowledge in South Africa as we have in the past in different forms that government must provide better incentives for business to get involved in certain things – that again is a worldwide phenomenon. We have all sorts of investment incentives in our system and we might have to do that again. There’s a number of areas – look at Business Against Crime that Mark has been involved in, a 12 year thing that’s been going on and a perfect example of doing things together, making a difference, coming up with practical ideas that provides greater safety for the public. How do we take that into other areas? We are all fairly clear that there’s still a number of classrooms and schools that need to be built. We are looking at government doing things with scale as learned from the World Cup and hopefully sooner rather than later we'll be able to make some announcements in that area – and health and elsewhere as well. What would be good is if business can also come to the party and in a way in which we don’t have to refer certain types of conduct to the Competition Commission again – in other words on the one hand with projects like the World Cup and later you realise that pricing deals might have been made so having spent billions on that you actually say did you actually get value for money? That ethical foundation that we want government on is one all of us need to be on – then you get better value for money and better delivery at the end of the day as well. Itumeleng’s point about infrastructure for example – we spent billions on infrastructure. If you look at the fixed investment over the last few years public corporations and state owned enterprises led investment in our country for the last three or four years, as you know. The question can fairly be asked is where’s business? One of the challenges we have to resolve within government is

how we balance consumption expenditure with capital investment whether that’s at local government level or any other level. The other is – and that links to your point – more effective delivery of infrastructure. That’s got to be linked – while the plans are there they’re fragmented, so what you require is if you like a national infrastructure plan and that then answers Itumeleng’s question. Refinery first, ports second? Roads third or in a different order? In what kind of order are we talking about? Then we take the public into confidence and say this is the order that we’re going to do things and this is what you can expect – so you must also expect that if you put roads first you might have to pay toll fees as well.

Peter Bruce: Harald, the Minister was saying earlier government may be brining to the fore a guardianship role – in other words perhaps not necessarily being one of the equal three partners sitting in Nedlac – is there a need for the government to step back from these things and leave it up to business and labour to sort out their problems? Does it complicate matters – political economy or not – having it in the same room as everybody else?

Harald Harvey: It’s a complicated one because the answer is “it depends…” There is a role - government must govern – but I also think one of the things is the “judicialisation” of a lot of these issues. I won’t go back to the Walmart question but what I worry about is the situation in which …

Peter Bruce: SAB itself has spent a long time at the Tribunal…

Harald Harvey: Sure, but when you're dominant in your sector you expect to come under scrutiny – you expect some things to be contested. I don’t think we must make mountains out of molehills. For me the issue is that it should be the case - the Labour Relations Act provides a framework within which labour

goes and exercises its powers to go and try and get outcomes. Running off to court on bigger issues is somewhat problematic – but on the other hand you were raising a point about wage rates growing without the productivity gains. Business is also being guilty in my view of not putting productivity issues on the table – so the point you were making Itumeleng is so important around how do you bring your employees into a shareholders’ relationship so that somehow you're beginning to align shareholder value and the way in which value flows to employees? We’ve taken a view in our business – we’re actually in wage negotiations right now so I better be careful – but why is it that it’s always labour that comes to the table with the demands and business is always responding? We’re going with demands now saying “you want that kind of increase? Let’s have a very structured conversation around how you get to grow employee wealth in exchange for productivity gains or increased flexibility.” I’m always reminded of the time back a decade or so ago when government took the decision to partially privatise the Airports Company and in those days I was in the union that was representing those workers and very happily shouting from the treetops about how privatisation is a sin and will destroy South Africa – meanwhile we were running around the world on investor road shows trying to attract foreign airports operators to come and invest in the company, and actually active in selling it – so it is possible to do both. That’s the one side of it. I do worry sometimes that this cleavage in our society is leading to a response where we are becoming a bit of a nanny state - actually Cosatu does represent a very small minority of South African society, but an important one. The point that Miriam made earlier – my big issue at the moment is there’s still lots of growth possible in our domestic consumer market. The inefficiencies and the functioning of that market mean using our soft drink business as an example 80% of the time one of the more accessible brands by the time it reaches the consumer it has passed through four or five sets of hands and the mark-ups taking place along that chain are to the point that our volumes are probably half of

what they could be. There are middle men who because they have the assets and the infrastructure are able to attract all the value in that – or the majority of it – where if we flipped it on its head and said we want to serve every one of the 200,000 outlets that sell our products in our territory as opposed to the 20,000 we serve now we could actually create massive opportunity for jobs in the distribution channels and put the drink at a significantly lower price into the hands of the consumer. I think there is still a lot of value there. What I worry about is that as you go and do that the real problem comes in – it’s not the big stuff that sits at national level, local planning and regulation issues and the fact that there’s not a town planning scheme in a township in South Africa since 1994. It’s at that level that you get into these deep problem solving things. There’s an initiative coming out of the newly named Department of Local Government that’s talking about an “adoptive municipality programme” inviting the private sector to bring in skills and capabilities to help out. I just hope that doesn’t turn into a big process with structured agreements making it open saying to business “who wants to help this place run better – what can you offer? Put your planners in and can-doers in.” The problem is so much of this sits at local government including the infrastructure issue.

Peter Bruce: Brian, would Telkom go and run Flagstaff in the Transkei if it were asked?

BRIAN ARMSTRONG: In a sense we’ve seen the reverse – in our industry we’ve seen municipalities trying to essentially set up their own operations that we are not convinced is an efficient way to go. I’m not suggesting we should do everything but there is a regulated but competitive industry in the country – we don’t believe it’s a municipality’s core business to go around running telecommunications infrastructure. What we’d very much like to speak to local authorities about is how can

we together work together to broaden access to the internet with a greater degree of universal access for broadband? We believe there should actually be an industry-wide dialogue as well, not just Telkom. If you think of the mobile operators they’re actually probably in a better positioned to provide universal access than we are in many ways so we believe that there needs to be an industry-wide response to universal access. If you think back to the World Cup one of the things that made it successful was a good public private partnership – we had a very clear role of what we had to do, the Department of Communications was very clear on what it had to do and what we had to do together. FIFA was very clear, and the Local Organising Committee on what it had to do – we all played our role and we got together and we did it. We made a success of it from a telecommunications infrastructure point of view so I do believe that dialogue is critical and I believe it can work if it’s done right.

Peter Bruce: Daphne, you made the point earlier on – Itumeleng picked up on it again – you’re going to make this investment and you’ve got the clients for the product. But you’ve got a transport problem - the Minister of Finance is sitting next to you and he’s not that easily accessible – what do you want from him to make your business succeed?

Daphne Mashile-Nkosi: What I want the Minister of Finance to do – I expect to actually every day have a train with 104 wagons and three locomotives from Hotazel to PE. If I lose that train I have to put 200 trucks on the road which will damage road infrastructure – it’s also very expensive and not competitive – so what I want from the Minister is to fast-track the process. If you look at Transnet the plans are there and for us every time there is execution I have allocation in terms of freight but it’s not enough for me – I’m looking at are you going to put in money and fast-track execution of the infrastructure

they’re talking about. There’s been feasibility after feasibility study but as a junior miner I’m expected to actually be part of a R76million feasibility study. I already have a smelter in Coega so I don’t have actually to participate in the feasibility study – but I want to be there because if I’m not part of that feasibility study I’m not sure whether I’ll be able to get the rest of the allocation that I still need to acquire.

Pravin Gordhan: The answer would be that Transnet is an independent business – it should be providing the rail facilities, it has the ability to raise the money that it actually needs to be able to do that. I would fully support the idea that rail is better than road because ultimately we have to find money to repair the roads and if we export our balance of payments is better. At some stage somebody is going to come to you and say “how are you going to beneficiate before you export?”

Daphne Mashile-Nkosi: I can actually answer that because we are building a mine and a sintering plant where the first level of beneficiation is taking the product from 37% to 48% and further beneficiating that at Coega to a 78% product. One of the challenges that we are actually looking at with all these projects if you look at the port of Coega where the government spent R12billion – that’s a 10 km wide by 11 km long port. We spent R12billion but we have a small container terminal that can take a million tons - why are we not actually increasing that to become a bulk terminal? It’s a deep sea port. Co-ordination and execution for me is actually critical – are we really co-ordinating some of the bigger projects that this government is involved in? Time is also very important. We’re looking at other countries in terms of fast-tracking the process – I just came back from a conference where I was told that in China they were able to build a 1000 kilometre road within six months. Are we prepared to do that – fast-track projects so that we can improve the infrastructure so we don’t miss out on

the boom in the mining sector that we think in terms of projections will be between now and 2016.

Pravin Gordhan: On the fast-tracking part I’d agree with you completely. I get shocked at the slow pace at which our infrastructure work happens. Of course when you talk to business people they will say China doesn’t have trade unions and doesn’t have labour regulations – and can pay people low wages and so on and so on – but that doesn’t detract from the fact that we don’t work with a greater sense of urgency as we need to at this time.

Kevin Lings: The World Cup demonstrated the ability to fast-track a lot of things very successfully. Why does that momentum stop? Here’s a situation where you need a railway line fast-tracked…

Pravin Gordhan: Because FIFA were looking over our heads…

Itumeleng Mahabane: I’d like to ask Miriam a question because she sits on a multiple stakeholder forum – the Planning Commission – what are they doing to deal with project delivery? Here’s a great opportunity for the private sector to contribute to improving project delivery. Are these conversations happening in that forum?

Miriam Altman: The first thing I should say is that we’re not a multi stakeholder forum just to be clear – we have 25 independent people and one minister sitting in the Presidency - so we aren’t representing sections of society although we come from sections of society. I think that’s an important

difference. Nor are we working on project planning, nor are we going to tell the Department of Water Affairs how it should deliver water – I think that would be inappropriate. Your example about the World Cup and the Minister’s answer was exactly what I was thinking – you had FIFA and that was a critical differentiator. When we talk about the local level one of the critical questions that arises is if train services are not available what will happen? Are there any consequences and are there any positive incentives for the managers and those responsible for delivering it? Similarly, electricity at a local level – who is now responsible for making sure that the distribution of electricity from municipal level is maintained and delivered, and how it’s priced as well? Right now that’s quite unclear. As long as it’s unclear nobody is responsible. Clearly those responsibilities are doled out – but it’s confusing and that means that nobody is responsible. When FIFA was around it was very clear who was responsible and who was watching over this thing. We’ve been running a range of focus groups with a range of sectors from the private sector – including the property development sector, and not just the Energy Intensive Users Group - and there is a very clear message that investments are not going ahead because municipalities are constrained so investments get put into a queue. That means we don’t even know what our potential growth rate might have been. Those are actually investments that are the job creating kinds of investments - those are the kinds of things that crowd activity in an urban area – so until we get that one thing fixed which is who is actually responsible, and what are the benefits or the sanctions that arise if it is delivered or if it isn’t delivered? Not all of it is about wielding a stick – some of it is about congratulations – until we get those incentive structures right I think we’re going to struggle. I think that’s a big part of what the Planning Commission should be doing now.

Peter Bruce: Isn’t the FIFA that we are looking for something called competition? If you were to introduce competition into

the supply of anything that’s taking its time it would be supplied more quickly – if Eskom had competition it would do its job better, if Transnet had competition it would do its job better. Daphne has competition, Harald has competition and that makes them do their job better that’s their FIFA…

Miriam Altman: There might be something to that but at the end of the day – particularly for services that are like natural monopolies – if you don’t have effective regulation it’s very hard to even start thinking about developing a market. I don’t think that FIFA is what you would call in a competitive market...

PETER BRUCE: It was breathing down people’s necks…

HARALD HARVEY: I think there is an issue about competition in the market versus competition for the market in these situations - we could have lost the World Cup to Australia or whoever was saying they’d take it if we didn’t deliver. I think in a lot of these infrastructure delivery roles the role for concessioning – you lose your licence if you don’t deliver – is a big issue. There are complications around the electricity question because the electricity tariff is the only serious revenue stream that most local authorities have. It’s not a surprise if you have an R27billion maintenance backlog when you’re using that to roll out sanitation programmes or other things. I do think at some level this thing about “nobody is responsible” is an issue. They tried with the EDI process, for example, to create something where someone was responsible in way that everybody was responsible. It’s unfortunate that process in some sense has come off the rails and we didn’t have the guts to take the really hard decision about saying “local authorities - you’re not going to keep the thing now. We are going to centralise it…” If you look at so many of the other success stories and the one

thing that I worry about in these comparisons is you often end up with Indonesia, Malaysia and Singapore – places with a spectacular absence of democracy – that are really successful and moving quite quickly. Actually, there’s a lot of vision - you were talking about the Middle Eastern states. In my past life I was involved with some work in some of these countries in the Middle East and it was very obvious – take a country like Saudi Arabia with 40million people oil revenue can only bribe the population to stay quiet for so long, and when you’ve got massive youth unemployment and no productive capacity in the economy to absorb them you’d better do something. They mobilised around a programme called 10 by 10 which was to be one of the 10 most competitive economies in the world within 10 years and very clearly mapped out. If you want to open a business in Saudi Arabia you must be able to clear every hurdle including local government planning commission permission and all that stuff within say three days – they use the benchmarks from the World Competitiveness rankings – now whether you ideologically agree with that approach or not is not the issue, the point is they’re mobilised around a set of outcomes and put capacity in place to do the one-stop-shop thing. Business comes in wants to start up – that’s what we are crying out for. I look at the opposite – you talked about Dubai with the tallest buildings and that sort of thing, I can’t remember the exact percentage but about 80% of the structural steel in those buildings is from South Africa.

Harald Harvey: It was South African companies working together to be the most competitive and putting the structural steel in there - it was organised through something called an Export Advisory Council organised by the Department of Trade and Industry that slammed all the heads together and said “let’s get competitive and do it in a way which isn’t collusion and anti-competitive” because it’s an outside market. I think it’s about seizing these opportunities and then just putting the

money and crowding in the capabilities and clearing the bottlenecks.

Brian Armstrong: I certainly think we can learn a lot from the Middle East – but I think we need to be careful because as a Saudi colleague of mine used to tell me all the time: “We’re not a constitutional democracy – we are a monarchy.” If you took 1,000 people from South Africa and asked them to live in Saudi Arabia and asked them if they wanted to stay there after a year I think 999 would want to probably come back to South Africa with all the problems that we are talking about around the table. Yes, we definitely need more leadership from both business and government to clearly articulate goals and overcome that cynicism – and to actually get things moving forward – but I’m not sure that an overly assertive single-minded developmental agenda as we saw there is the only way to go. I just want to come back to the point of competition that’s been good for Telkom – it’s forced us to up our game and we have to keep upping our game – but there is a risk that unbridled competition is not necessarily the panacea for everything. For instance in Telkom’s case – I don’t want to give the exact numbers – but in excess of 80% of our revenue comes from less than 3% of the geography of the country. The danger is if you just leave that to open competition everybody will focus on that 3% of the country and sorry for the rest. Competition is good – it does promote the right behaviours – but it also has its limits.

Peter Bruce: I wanted to just ask with the permission of the panel if there are any questions from Tim Cohen or Mike Bleby or Andrew England? Now would be a good time as we’ve got a few minutes left…

Tim Cohen: Just an idea about this issue of communication and bringing people together and the gulf between the different sides – I was at the mining conference and one of the people involved in the coal industry came up with the idea of a “coal tsar” and I don’t if that’s a good name but I just got taken by the notion of someone being appointed by government to be the “go to” person for the planning process. The delegate said that the South African coal industry has a massive opportunity but in order for it to happen South Africa needs three more ports – in order to organise something that large was beyond the capacity of any government department – I just wondered whether that would be an idea Minister Gordhan?

Pravin Gordhan: Anything that would improve efficiencies and give business and other investors the right kind of coherence and turnaround time – and give them the kind of certainty that they’re dealing with people who know what they’re talking about who can clear the loops – I think is excellent. Tsars by the very choice of the word have their own problems if they stay in that position for too long – we can come back to some of those issues – but it’s useful to have these kinds of brainstorming sessions that say “here’s our set of collective problems – how do we cut through them?” If we go back to that old struggle slogan “unity in action” you don’t get unity by debating, and certainly not in those days. They were serious about doing things and doing things together and became a united force and actually got things done. Let’s come back to some of those themes – whether it’s in the trenches or whatever the case might be – do we have the will to be able to do that, can we have those demonstration effects? I think we from government need to tackle our own ghosts a lot more assertively than we have and stop making excuses for some of the things that we can in fact do better – I’m not going to defend things that are indefensible – but say hopefully I can also help to contribute to creating a climate where these sorts

of issues don’t recur and we get onto another phase in our conversations.

Mark Lamberti: I think all of us have probably come to this meeting with the same thought that drove Minister Patel to put his plan together – that is that we are facing a situation where something like 70% of the people in this country between 18 and 25 are not economically active. That cannot be comforting for anybody – I think it should be of major concern to all of us. Having been through the kind of processes you refer to – I was placing my demands on the table in Hillbrow at 4am 20 years ago, and engaging with organised labour on that basis – but there was a tone then that I think was a little different to now. I think through those kinds of engagements and through building businesses as we’ve all done in different ways and through sharing that wealth as we’ve all done in different ways – you and ourselves did the same thing with giving shares to our employees where 14,500 people got shares in the company – I think we can show our bona fides. The question at the end of the day is the one to the Minister - if there is a perception as I certainly hold now and I feel sad about it – that there’s a kind of a divide and meetings between business and the government at the moment are almost events for the sake of the event rather than the sake of the outcome, and that true engagement is being hindered to some extent by the intervention of labour with a different agenda. These are issues. To be honest outside this meeting if you can give me pointers as to how to break that impasse I’d be happy but I don’t see a clear path right now…

Pravin Gordhan: You are invited for a cup of tea and let’s talk about it.

Peter Bruce: Michael has a question.

Michael Bleby: At the beginning of this Business Day Dialogue Miriam Altman mentioned the idea of a trade off between consumption and production-led growth – perhaps you could talk more about how big a trade off you think that is, and if you could perhaps relate that to other topic that came along that the Minister referred to and a couple of others around wages? We seem to be in the stage where wage demands coming from labour are extremely high and perhaps there isn’t enough restraint shown by executives in structuring their own remuneration packages?

Peter Bruce: You’ve got 30 seconds…

Miriam Altman: I’m glad we’re coming back to that. Let me give an example – if you want to move from growth led by consumer spending to investment-led growth in a small economy what that means is people are buying a lot of stuff, very often cars, clothing – so we import a lot of that. The jobs that get created are in retail – I’m stylising but it’s something like that – so you experience a growth in employment with the growth that’s occurring but it’s not very sustainable. The reason it’s not very sustainable is that we have a small economy – if we were talking about a regional economy it would be a different story but we have a small economy. That means we’re not going to get many backward linkages – we are going to be importing. For argument’s sake we wanted to get to a more sustainable investment-led growth path what that would mean was we would have to reduce luxury imports and start saving more in the public sector to increase our savings rate – imports would have to be channelled into manufacturing and those kinds of industries as opposed to SUVs and cars. Regional

integration is a critical aspect, in fact it would be very difficult to do this without regional integration because that is the big market - but we can be a platform. If we had regional integration we’ve got to export but we also have to import. Some industries are going to lose and some industries are going to win and that means you’re going to have some unhappy people – consumers will feel unhappy. It’s good for them in the long run but today you’re not going to get the kind of cheese you wish you could buy and the car you wish you could buy and the clothes you wish you could buy – so you’re going to be feeling the country is going downhill when in fact it’s taking some really important decisions. That’s why you need people on board. If you had tighter fiscal policy people would feel it, they might feel unhappy about that. If we were trying to get people to save more and consume less we’d see the retail sector contracting a little bit or maybe not growing as fast. We might not see immediate job creation growing as fast but in the long run we would be more sustainable. Huge trade offs within that – in the short run people might be feeling quite negative about that unless they could see the forward trajectory.

Michael Bleby: The crucial bit about that then is – if one kept on going back to five years leadership – is there some way where we can see leadership in wage agreements on both sides of South Africa’s labour divide?

LESLIE MAASDORP: One of the central themes that came out of this conversation was the need to move far-sightedly. What we need on both sides of the table – not just labour but from business as Harald mentioned earlier – we need to look outside the box with new frameworks, new types of industrial agreements that are more forward-looking, looking at industrial restructuring, what could be the interest of unions down the road that in effect are declining and coming to terms with that and buying into a new longer-term vision.

PRAVIN GORDHAN: That’s the path for the next three to six months – either we find each other or we continue on the war path.

ends

Michael Ettershank 082 962 2772