Thys du Toit, one of the founders of Coronation Fund Managers and the chairman of Rootstock Asset Management, has made an impassioned appeal to President Cyril Ramaphosa to urgently open the economy to avoid a massive economic and social catastrophe after the Covid -19 pandemic. In this hard-hitting interview with Biznews editor-in-chief Alec Hogg, he among others singles takes a swipe at corruption that’s still eating at our economic table, with state capture and Steinhoff perpetrators still not brought to book. He believes we’ll win the war on Covid-19 and the real heroes will be those who create jobs. – Stanley Karombo
Thys du Toit is well known in South Africa as an asset manager, the man who was for a long time the head of Coronation Fund Managers, in fact, built it up primarily into a leading money manager in South Africa. You left there a little while ago and now have a business called Rootstock Investments?
We should give that credit to a lot more people rather than just myself. You know them all: David Barnes, Gavin Ryan, Leon Campher and Tony Gibson. I was fortunate to have been part of a success story. I then stepped down some 10 years ago and wanted to paddle my own canoe. But as you may know you attract youngsters that have ambitions to grow the business. So Rootstock has now outgrown a family asset manager and that was actually part of the reason why there was a webcast or webinar because the youngsters would like to attract outside clients, and I’ve taken a step back and I’m a non-executive so that’s where Rootstock Asset Management comes from.
You mentioned a webinar which is, well, I was listening to it, listening to the end of it anyway and the summary that you put together was incredibly powerful. And that’s really the purpose for this conversation is to try and unpack why you believe that South Africa’s economy should be reopened and reopened with some speed?
I should give you a bit of background. The Bureau for Economic Research in Stellenbosch has asked a number of people what to do once the economy is open. What are the sort of incentives that we should provide etc. And we as a team, thought of incentives. The focus was on, what do we do once the economy is open? The first two parts of the webinar was the futurist, Graham Coddington and then the second part was quite interesting. I then concluded with how we get the economy going again once its restrictions are lifted and it’s a very sensitive thing to call for the opening of the economy because it’s that balance between lives and livelihood. I’m not a medical practitioner and there’s so much information and we need to take our cue from the rest of the world. Our leadership initially was quite powerful and I was very impressed with what had been done. One cannot be blind to what is happening to the economy around us and we are a poor country and getting poorer by the day. We need to do extraordinary things to get the economy going once it’s opened up and that really was a number of suggestions to get the economy going once it’s opened up again. But also saying please let’s open it up as soon as we possibly can.
It was almost a plea to President Cyril Ramaphosa that he does do this. I guess it must be difficult to be sitting where he is – weighing up lives and the economic impact. I was talking today with one of the executives at Business for South Africa and their extrapolation now is that the economy is going to contract by 17% this year.
I was absolutely staggered to hear and see that motorcar sales in round numbers for the month of April is down from 36,000 to 600. I’m rounding those numbers down to the closest sort of hundred but a staggering number. Obviously once the economy is opened up again, I would like to think that that is going to recover. I’m very concerned and if you listen to the first but I’m about to become a grandfather soon, so what does South Africa can look like for our children. One of my daughters has a small business in events and catering. Obviously there is the likelihood that she will employ the 3, 4, 5 people once the economy is opened up, as unless they get a friendly loan. The damage to small and medium sized enterprises is huge. The fiscal hole that we find ourselves in is going to be big. That’s why I find the issue around tobacco sales so staggering because excise duty is a big part of government’s revenue. It really is about the hole in the fiscus and how do we mend that and how do we get the economy going. I believe ultimately small and medium sized businesses or entrepreneurs drive the economy because big companies and very few of our big companies are in growth phases are laying off people. We’ve got a very big civil service. The civil service as you know, tax comes in into one pocket and goes out the other pocket. The net contributors to tax is actually let’s call it business South Africa or small businesses in South Africa and what do we do to get them going – and hence my couple of suggestions that I conveyed or that I’ve put forward at the time.
Take us through those suggestions, about cutting salaries in the public servants and everyone in the private sector?
I’ve also got a daughter that’s a doctor. She’s a medical doctor and she’s obviously a civil servant and she’s quite secure of a job.
Most civil servants are secure in their jobs and they make up a very big percentage of our economy. If we don’t have revenue on the one side, we need to make sure that our expenses are kept as low as possible in the civil service. The civil service bill is a big one. The unions are lobbying on behalf of the workers and the likelihood that we are going to see salary cuts. I’d like to think that there is likely, but it’s quite small.
So that was one of the suggestions. The one that didn’t come across, I should have mentioned that at the time, is that sensitive one, but we would like to employ as many people as possible which means that the whole issue of minimum wage is an issue.
The bit that I haven’t added is that, in South Africa there’s corporate greed and that some CEOs are grossly overpaid. All of us, be at the bottom, be at the top, we need to come to the party. So, there are a number of things that we can do. Obviously, wastage throwing good money after bad, is one of the very obvious ones and it’s all about what’s happening to state-owned enterprises. I mean close them, fix them, sell them, but we cannot continue to throw money after those. And obviously there are strategic services that we need to keep afloat.
We need to make sure that it’s done so without corruption. That brings me to one of the other points is that we need to see prosecution if we have corruption, be it in the state sector or in the private sector it needs to be prosecuted. We’ve seen probably the two biggest corruption fraud cases in South Africa. The one we all familiar with, that State Capture, there seems to be some movement and then the other one is the biggest corporate fraud that we saw in South Africa which is Steinhoff and you may ask me but how does that all stack up. Ultimately, it’s about the savings in the country because if you have savings you can deploy that to get yourself out of the hole, but if your savings base is eroded then you have less savings to get yourself out of that.
In your summary, referring to Steinhoff in particular, you said there are people who perpetrated the fraud and they’re walking around bold as brass and haven’t been arrested and in fact haven’t even been charged?
We all are familiar with the content of the PwC report. The PwC report is very clear. I mean firstly when you talk about R300bn that’s been lost that’s obviously the market cap. How do you create a market cap? You have earnings, plus a multiple and the earnings were inflated which basically means it’s fraudulent and you were in charge at the time? It’s commonly known. And those must be the perpetrators, and they have been fingered, and nothing has been proven in a court of law. They haven’t been charged. I find it staggering.
That there has been no investigation or or no charge?
I’m sure that an investigation is taking place and I’m sure it’s complex but soon it’ll be three years. Two and a half years after the fraud and nothing seems to have happened. That again is an issue in terms of investor confidence. If we don’t sort of prosecute and we can’t sort of get the culprits then you’ve created an environment that’s prone to corruption and that’s unfortunate.
We understand that the wheels of justice do grind slowly but they apparently grind very finely. Is this not just a timing issue?
Let’s hope so. I think that resources have been put towards the National Prosecuting Authority and I’ve got the highest regard for the two people that are in the senior positions. I’m sure that they’ve got a lot to do, so let’s hope that ultimately the perpetrators or the arm of the law that we’ll get to them and that we will see prosecutions.
And as far as the State Capture project is concerned we’ve had progress there. But, I guess the Zondo Commission is now in recess because of Covid-19?
And again I think the amount of money that has been wasted there and then again there are various estimates. And when you listen to the Zondo Commission, when you read what had happened there, the way that people had been bribed with cash that’s been paid out. That’s just the tip of the iceberg, tender process, the beneficiaries. It’s just staggering.
If you had half an hour with President Cyril Ramaphosa on a Zoom call, what would be the thrust of your meeting?
I would say to him, Mr. President you’ve done a tremendous job. You’ve got the support of all South Africans, ultimately we need to build a South Africa that’s good for all of us. I’d like to say to him that we need to create an environment where business can prosper because ultimately they employ the people we want people to be employed, we want to see economic growth, we want to gather taxes, and we want to try to build a prosperous South Africa. One of the things that is not my idea, but it’s quite an interesting one, a friend of mine that said, we need to find new heroes and maybe we should try and determine who those new heroes are going to be. And his suggestion was that those that employ people are going to be the new heroes. Maybe, we should have a medal parade after three or five years and give a bronze medal to someone that employed 100 people or business employing quite a number of people then a silver medal for those that employ 1,000 people and a gold medal for those that employ 10,000 people. Let’s actually acknowledge those individuals going forward as the heroes of the post Covid -19 war and those are the people that have actually assisted us in getting back on the economic track. I thought it was quite an interesting way of putting it. We need to make examples of those that are going to help us to dig us out of this hole.
Two years ago that’s exactly what the president said at one of his investment conferences that entrepreneurs are the heroes. But we seem to have forgotten that.
I hope that the business environment will become more conducive towards entrepreneurs.
If you look ahead to the impact or the consequences of this Covid- 19 shakeup that the world has had and South Africa amongst it. Are you seeing that there would be much good coming out of it?
I’m going to repeat what’s so often been said, but I think it’s a reset not a pause. It’s the biggest event in our lifetime. I think that people will never forget that people that are born in the 1930s always refer to themselves as the children of the Depression and they couldn’t get themselves to spend money and they had to save everything and reuse everything. This is such a shock. People will reconsider the way that they approach life, be a lot more frugal and a lot more conservative. It’s just staggering that we have two or three airlines that have gone into business rescue. We’ve taken air travel for granted. How long will it be before that recovers? We’ve had a huge win for South Africa, a big tourism industry that’s been decimated. Ultimately, Covid will be won, find medicines and remedies and a vaccine. But it’s a huge shock. I’m absolutely surprised that the financial markets particularly the American market has bounced back the way that it did. Obviously, lots of money is being thrown at it. But we will see company results and we saw well business results coming out and obviously all of the parks are closed. We’re going to see that financial results coming out and that’s perhaps going to be a second wave. But at the moment it looks like a V shaped recovery in America. Strange as it is.