David Shapiro: Johann Rupert is spot on – business is voting with its feet

Alec Hogg

South Africa’s favourite stock broker, David Shapiro, joined Alec Hogg on CNBC Africa’s Power Lunch to discuss South Africa’s markets. On the agenda for the day were the trading conditions in South Africa; the class action suit being levelled against Standard Bank for alleged platinum price fixing, as well as Steinhoff’s history-making acquisition of Pepkor. Shapiro also adds insights to Eskom’s troubles and the reality of the challenges facing big business and entrepreneurs in South Africa. Shapiro’s perspective delivers a sobering and fascinating account of reality, reiterating the desperate need for accountable political leadership in SA. – LF

Shapiro of Sasfin is with us in the studio today. David, just picking up on something there that Tumisho mentioned about platinum… Did you see the story that’s come out from the US that there’s a Class Action against Standard Bank for manipulating the platinum price.

DAVID SHAPIRO: Our Standard Bank?

Read the full story

ALEC HOGG: Our Standard Bank. Goldman Sachs, HSBC, and Standard Bank. It was on Bloomberg last night.

DAVID SHAPIRO: Is there any depth to it? Is there any meat around the story – how they’re manipulating the price?

ALEC HOGG: It’s only a Class Action for now.

DAVID SHAPIRO: They haven’t done well. That’s all I can say, is that they haven’t done well because the platinum price has not been holding.

ALEC HOGG: Well, they manipulated it down, according to these people. It is an interesting point in that the Senate in America are currently having their hearings, into manipulation of commodity prices. It hasn’t hit South Africa yet, but it’s bubbling under all over the United States.

DAVID SHAPIRO: Well, we’ve seen how they manipulated exchange rates as well as some of the interest rates. What worries me is that some of these banks become a bit too powerful (and I’m not casting any aspersions on Standard Bank). Alec, when you understand the power of those big banks… There are a handful of them in America that really have the money, the flows, and the trade to actually move markets and you wonder whether they don’t do that for their own, personal gain. I’m trying to understand why anybody – certainly, Standard Bank – would love to manipulate the platinum price down. If anything, it causes more hardship here. If they were going to do if for South Africa, they would have manipulated it up.

ALEC HOGG: It’s the first time ever, that there’s been a Class Action in this field, and they seem to be picking up from the hearings in the American Government.

DAVID SHAPIRO: The one thing about America… If there’s a problem – straight to the Senate. They don’t wait two or three years down the line. Within a week or so, they’ll have them there, answering questions in front of, obviously, a committee or something like that.

ALEC HOGG: It’s interesting that Standard Bank has been named along with Goldman Sachs and HSBC in this Class Action. Watch this space, I guess. Watch another space with Johann Rupert. We got feedback from the Remgro AGM yesterday. He was very quiet over the whole HCI story, remember, with Marcel Golding talking about manipulation by politicians (or attempted manipulation of eTV), but he certainly hasn’t held back at his own Annual General Meeting.

DAVID SHAPIRO: He’s coming out, highly critical of the Government and I’m in support of that. I’m in support of… I’m very worried about where this country is going. Not the hardworking business class but really, how Government are actually running it and I think you have to look no further, than Eskom. It’s a disaster that’s unfolding and it looks as though it’s going to take even longer for us to repair this. How do businesses operate when you don’t have the most basic input, which is energy? Things are tough for businessmen, but I also like the comparison that he’s making with what’s happening in China where you have Naspers and Tencent. You’ve had the Alibaba issue where you just have these huge, burgeoning markets and we pale into insignificance. We have a lot to catch up and he speaks a lot about the skills catch up that we have to make in order to catch our competitors there.

Listen:


ALEC HOGG: It seems as though what Rupert is saying is that we have nice ideas, but we don’t execute and this is a theme that has been coming across for quite a few weeks now, from business leaders.

DAVID SHAPIRO: We always have committees that do Yellow Papers, Green Papers, and Blue Papers but nothing seems to go… Even the NDP – when’s that going to start taking place? When are we going to start to see even the very basic foundations of that happening? For businessmen, it’s frustrating. We’ve spoken about it a lot here. What businessmen do is they quietly emigrate. They quietly look outside. In every result that comes out now Alec, you’ll hear CEO’s talking about expansion into Africa and expansion elsewhere. Nampak, for example: one of the highlights of their presentation was what they’re doing in Africa and how far they’re going there. MTN today, is all Africa and wherever you look, businesses are looking there.

ALEC HOGG: What did you make of the big deal yesterday, with Steinhoff’s acquisition of Pepkor? R63bn. The biggest, ever.

DAVID SHAPIRO: You cannot second-guess Markus Jooste. You have no idea what the next move is. I was wondering whether it was you or if somewhere else, someone asked me. There must have been murmurings in the market because someone said to me ‘what do you think’. I said ‘not going to happen. Wiese is not a Boere Mafia. He’s not from the Stellenbosch Mafia. He’s a Diplomat’ and I think it was so far outside of my thoughts. It’s highly surprising.

ALEC HOGG: Well, Markus is from Pretoria. He’s hardly Boere Mafia.

DAVID SHAPIRO: I know, but he’s emigrated there. He’s part of the clique that meets there. I think there’s something bigger behind this as well, that will unfold.

ALEC HOGG: Well, it was interesting. Unfortunately, we weren’t able to get him onto this program yesterday because he was busy with his presentation. It started at the same time. I did have a good chat with him yesterday afternoon though, and he was saying that they would now (together) in the Top ten clothing retailers in Europe and of course, number two furniture retailer in Europe. There are many integration opportunities.

DAVID SHAPIRO: He knows it. What I like about Markus is that I think he’s more of an opportunist than a strategist. I think the deal comes, he puts a strategy in, and he’s the kind of person… Do you know what I mean?

ALEC HOGG: I think he’d argue that that’s not on the money.

DAVID SHAPIRO: I think he’s the kind of person who can carry it out and carry it off. The idea comes…I don’t think he sits down and speculates. I might be wrong but between the two of them, I’m sure they could make many things happen. You have two
ALEC HOGG: It’s interesting. In South Africa, we have many reasons to be concerned. Again, the headlines of the newspaper… Beeld’s headline was ‘Eskom baas kry R22m’. Brian Dames didn’t exactly cover himself in glory and he leaves with R22m as a going away present. Then you look internationally: we have Elon Musk. Johann Rupert’s doing wonderful work with Richemont. Now you have Markus and Christo Wiese together, taking on Europe.

DAVID SHAPIRO: You look at the brains that we have, whether it’s at Discovery who are taking Vitality international and this product is something that no one else has. You look at Brian Joffe and so many of our other businessmen here. SA Breweries is a prime example. Naspers: Koos Bekker stands alone. He saw Tencent 10/12 years ago.

ALEC HOGG: To be fair David, his strategy those days – and he will tell you this – was to throw a lot of mud on the wall, and hope that some of it sticks. He threw mud on the wall at Tencent – it stuck.

DAVID SHAPIRO: Okay,

ALEC HOGG: At the time (where I think you have to give him huge credit), was when he’d just written off – if you remember – about $18m…proper money, nearly R1bn (back then, it was over half-a-billion Rand anyway) on a similar investment. Yet, he continued throwing mud at the wall so he got it right. He identified a big trend.

DAVID SHAPIRO: To an extent, I think Markus is like that as well. Many of them have come right as well, but they can see it through and they’re not afraid to admit their mistakes. When Koos made a mistake in Greece, he cut it. When he made a mistake in Africa, I think he was even at one stage…

ALEC HOGG: The Chinese ISP – $80m.

DAVID SHAPIRO: Sure.

ALEC HOGG: He cut it. Clearly, these are world class operators and yet they’re not embraced in their own country. They’re not encouraged to invest here. Where’s the disconnect?

DAVID SHAPIRO: Political ideology. We’re on two different roads. I think that if we ran the country like a business… Yes, running a country is not a business but if we ran it with the same mindset, this could be an incredible country. We have so many positives here. It’s a beautiful country. It has so much going for it. The only problem is that ever since van Riebeeck landed, there’s been political discord so it’s been the people. If we can only get that right, I think we have a chance. We’re all going in different areas.

ALEC HOGG: We think it’s the most beautiful part of the country as well as where most of the battles have been – in KZN – because when it’s beautiful and when it’s a great place, human nature comes in (the lower, as against the higher part of human nature).

DAVID SHAPIRO: Everybody wants it. I think there are probably certain classes here – and I’m talking maybe this is where the political ideology splits – who believe that there’s abundant wealth just for the taking. You have to work for it and I think that’s the big difference. You actually have to work hard to create wealth.

ALEC HOGG: What are you making of Eskom? The results are out this morning.

DAVID SHAPIRO: It’s a disaster and what concerns me is that we have two (maybe even longer) ahead, before we actually stabilise. This Majuba has just added to the problems. Apparently, Majuba is only operating at 70 percent and is likely to operate at 70 percent for another two years.

ALEC HOGG: Gwede Mantashe from the ANC said yesterday, that Eskom would never be privatised. Maybe that’s an ideological statement. From a philosophical or an economic perspective, should Eskom now be privatised?

DAVID SHAPIRO:
Absolutely. I think every Government department should be privatised. SAA and SABC: all of those should be privatised, starting with Eskom.

ALEC HOGG: Why?

DAVID SHAPIRO: I think that if you put businessmen in, they would make sure that the problem is fixed. I think there’s just too much Government interference in these issues. We’re going back to the Wieses or to the Markus Joostes. Put them in charge of Eskom. They will find a solution and they will run it. Look at Eskom. They’re asking 46,000 people to give up their jobs, so you can imagine how much inefficiency there is that needs to be addressed. That’s just built up year after year, which needs to be sorted out. Put businessmen in and they’ll do it.

ALEC HOGG: At some point, the pain just becomes too much. David Shapiro is with Sasfin and as always, is giving us his very forthright opinion.
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