Tips for you and Pravin in 2016

2016-01-20 11:02

The year has got off to a rough start. Global markets have finally checked into rehab after years of QE addiction and easy money flowing into stocks. The Rand is being obliterated as concerns around emerging markets grow, especially China. Commodity wise we are actually doing OK with our miners earning decent prices in Rands, especially for precious metals, although not so much for our bulk ores. Socially, we as a country are facing our biggest test yet since democracy as we are still struggling to overcome and accept our terrible past. In terms of the haves and the have-nots we remain one of the most unequal societies in the world and whilst this situation prevails we will probably never be able to move forward. This is therefore what I wanted to highlight today. There can be no more important issue for us, especially as the worst drought in decades ravages our people with food and water shortages in rural areas, away from the cushioned and artificial bubble of our cities.

Mergence Investment Managers' 2014 remuneration report stated that the largest pay gap between a South African CEO and his employees was 725. The average pay gap of the top 20 biggest pay gaps was around 190. Is it ever right that any CEO, no matter how good she may be, should be earning 190 times their lowest paid worker? Unfortunately shareholder's only seem to hold the CEO and board to account but the workers are just as responsible for the success (or not) of a company. I'm reminded of the joke about the cannibals who were hired at a company until the day they ate a PA, whence they were immediately fired. Up till that point they had been eating managers and no one had ever noticed. As a mining engineer I've worked underground and I can tell you just how difficult that work is. The shift boss is probably singularly more responsible for the success of that mine than the CEO. Sure, the CEO of a mining company might negotiate a great new investment opportunity with an IRR of 30% but who actually makes sure that IRR is achieved? The workers, that's who. That same CEO might also buy a company at the top of the cycle, overpaying massively and eroding millions in shareholder value. Anyway, I digress. So how do we go about addressing inequality in SA?

I submitted the following 2016 budget tip to Minister Gordhan. I really hope he sees it and maybe even acts on it. Perhaps we shall then see some change for the good. Here goes....

Every company should submit an audited annual pay differential i.e. the difference in base pay between the top earning CEO and his/her lowest paid worker. That figure (which should be widely reported on) is then used to levy an extra "inequality" corporate tax. So for instance, if the base corporate tax rate is 28% then the following tranches might apply.... For a pay differential of 10 to 50 the extra tax might be 2%. For a differential of 50 to 100 the extra tax could be 5% and for anything over 100 the culprits should be named and shamed and the extra tax should be 10% i.e. 38% in total.

I see this initiative as having both wide public and shareholder support. It gives shareholders ammunition to fight against board room largesse whilst the public appeal is obvious. It is levied on every SA corporate so domestic competition is not an issue. The only concern might be how competitive it leaves SA corporates in a global environment. In that regard I see it as the best of some pretty nasty options that would have to be levied at some point anyway. But of course it will also have the effect of increasing the wealth and spending power of the working class. That bottom of the pyramid wealth effect is far more multiplying and satisfying across the economy than a rich CEO ordering another Aston Martin, the profits of which no doubt leave our country as soon as its driven off the dealer's floor.

Improving the lot of the poorest amongst us improves our lot as well. I think The Arch, someone far wiser than me, explained this once as Ubuntu, the fact that "you can't exist as a human being in isolation. You can't be human all by yourself, and when you have Ubuntu you are known for your generosity. When you do well, it spreads out, it is for the whole of humanity." Einstein had a similar belief, "“A human being is a part of the whole called by us universe, a part limited in time and space. He experiences himself, his thoughts and feeling as something separated from the rest, a kind of optical delusion of his consciousness. This delusion is a kind of prison for us, restricting us to our personal desires and to affection for a few persons nearest to us. Our task must be to free ourselves from this prison by widening our circle of compassion to embrace all living creatures and the whole of nature in its beauty.”

In a world focused on saving costs and streamlining human effort through mechanisation, AI and robotics (the so-called 4th industrial revolution that the Davos elites are discussing) the only thing that will preserve and sanctify us, is our ability to exercise some Ubuntu amongst our fellow travellers in this journey we call life. That and the fact that Southern Africa is the warden and protector of the bulk of the planet's wildlife. We should not take that responsibility lightly and we should be hunting down poachers and their buyers vociferously. I've heard that powdered poacher's genitals fetch record prices in China! Anyway, onto my tips for you in 2016.

My financial tip for Pravin above is one mechanism we can employ to move away from the destructive, growth at all costs Capitalism model to a more inclusive Ubuntuism model. But what can we do? Firstly we need to understand that our people, especially those still living in rural areas, are suffering. Whilst government has done a great job of rolling out power & water, sanitation, education and other essential services to the poorer parts of the country, there are still many that don't have. They are also suffering due to the worst drought ever. Understand that people do not have water to drink, to bathe with or to water their animals and smallholdings which they need to survive. Understand that people are hungry as maize meal prices are skyrocketing due to the shortage of white maize. And they are angry that all of their past suffering seems to have been in vain because economic empowerment has not been forthcoming. We can blame apartheid, we can blame corruption, we can blame the Rand. Pessimists always blame something. Optimists see the vision whilst Realists go about achieving the opportunity. Thankfully there are still more optimists and realists in this country than pessimists. The spirit of SA Ubuntuism runs deep and wide across this land. Like those incredible folk who are gathering and distributing water to those in dire need. Thank you!

As white South African's we need to understand the pain of the past and not simply try to patch over it by saying, "move on". We avoided a revolution and breakdown of the economy in 1994 and for the sake of our country I would like to ensure that we don't have one now. Despite the beliefs of our more radical countrymen one cannot fix something that is broken. One then has to rebuild from scratch and by then all the pieces might be too damaged or lost to be of any use. The only way we can prevent a breakdown now is by getting involved with your fellow countrymen. Talk, understand, share. Educate where you can. Dedicate your time and money to assisting those communities less fortunate than you. Whilst we are doing this let's try to all survive on a little less so others might have a little more. The 1st degree in Freemasonry discusses Charity thus, "no doubt it has often been felt and practiced by you. Suffice it to say, it has the approbation of Heaven and Earth, and like its sister, Mercy, blesses him who gives as well as him who receives." Indeed. Only by lifting up others will we lift up ourselves. Because we are all in this together.

Finally, regarding the drought, you really need to get hold of some biochar and get it into your soil. Fertiliser companies around the world are finally realising that up to 5% carbon in your soil prevents it from drying out, rebalances the soil profile and holds other vital plant nutrients in place, instead of leaching away. Google biochar and get hold of me at Thebe if you can't find it in your nursery. Tell all your farmer friends and lobby government to provide funding for biochar for farmers. This is possibly the single biggest water saving initiative we can undertake. Activated carbon filters (a form of upgraded biochar) can also help sort out our water pollution issues as it can effectively remove mycosystin from our water. 2016 is the year of sorting out our water problems in SA. Help your countrymen, help yourselves. Happy 2016, let's get stuck in!

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