Investing in a world of change

Hendrik du Toit, Founder & CEO at Ninety One and Stephen Koseff, CEO at Investec Bank, reflect on interventions needed to help businesses through this crisis and get the South African economy growing again.

Jun 3, 2020

7 minutes

Hendrik du Toit, Founder & CEO at Ninety One and Stephen Koseff, CEO at Investec Bank, reflect on interventions needed to help businesses through this crisis and get the South African economy growing again.
Ninety One recently hosted a webinar with CEO Hendrik du Toit and Stephen Koseff, former CEO of the Investec Group. They shared their unique perspectives on the South African and global financial markets, how world leaders are responding to the impact of the coronavirus pandemic, and what interventions are needed to get the South African economy growing again. These are the key highlights from their conversation.
Supporting key stakeholders is crucial in these challenging times

Hendrik du Toit: We face a world which is far more uncertain and challenging than what we experienced during most of Ninety One’s financial year. That is why it is important in times like these to go back to purpose – what we are about as a business. At Ninety One, we have always said we are about investing for a better tomorrow and, if you don’t believe in a better tomorrow, you shouldn’t be investing. We do that by trying to build a better firm, finding better ways to invest and contributing to a better world. Firstly, the well-being of our employees has been a top priority. Providing employment security while we get through these tough times means that we have all hands on deck to look after our clients. We remain strongly focused on delivering investment performance for our clients. In terms of our shareholders – it is about the clarity of our proposition and well-articulated results. Looking at society at large, responsible citizenship remains a key focus for us.

What Ninety One is doing to help businesses

Hendrik du Toit: Now is the time to ensure that businesses are robust and can face these tough conditions. To this end, Ninety One has supported the South African Solidarity Fund and its counterparts in Botswana and Namibia to the tune of R50 million. Our staff members have also made generous contributions to charities of their choice, which Ninety One matched. As stewards of long-term capital, we are also excited to launch the Ninety One SA Recovery Fund, which will support businesses in need of capital. We are focusing on companies that we believe have a high probability of recovering, and we offer opportunities across the capital structure to long-terms savers. As we build up this fund, we hope our competitors will embark on similar initiatives. Long-term risk capital is crucial to support businesses, keep people employed and rebuild the South Africa economy.

Looking beyond bank finance to meet companies’ liquidity challenges

Hendrik du Toit: Stephen, you were one of the architects of the recently launched loan guarantee scheme to help small businesses. Please tell us more about this scheme and do you think we need more mechanisms to support businesses through this crisis?

Stephen Koseff: The scheme was put in place from start to finish in just more than two weeks. I must say that the banking sector got very good support from both the South African Reserve Bank and National Treasury, who were very collaborative in getting the scheme into shape. A large chunk of government’s R500 billion stimulus package consists of this loan guarantee scheme, which aims to assist small firms with liquidity challenges during COVID-19. While the funding will come from the banking sector, the risk of these loans will be shared by government and the commercial banks. Businesses with an annual turnover of less than R300 million can apply for a loan via their bank.

While this scheme is aimed at small businesses, we need more mechanisms to help larger businesses access capital more quickly. Funnily enough, South Africa has not used the stock market at all. We know that in the UK and other markets there have been significant amounts of capital raises over the past few weeks as companies shore up their balance sheets.

It would be very easy for the JSE to amend its listing rules to allow companies to issue shares without the consent of shareholders. This would enable them to raise funds quickly in times of crisis.

The ability to issue stock quickly need not come at the expense of smaller shareholders. Many of the developed markets have a rule that you can place 10%, 15% of stock overnight without seeking shareholder approval and some of them say you have to give the retail shareholders an opportunity to claw back.

During the 2008-2009 financial crisis, developed markets changed the rules to allow companies to raise capital quickly. They couldn’t readily turn to banks for assistance, as many banks had to raise funds to shore up their own balance sheets. There wasn’t the same kind of fiscal and monetary response during the financial crisis as we are seeing now. The response this time around has been much quicker and largely free from political obstacles, which wasn’t the case during 2008 and 2009.

Emerging markets need to stand up and be counted

Hendrik du Toit: Global debt restructuring is a huge issue, but the lack of global leadership is a concern. The rich countries have responded quite well to the crisis, but we’ve not seen a co-ordinated response from world leaders. US-China tensions and the American presidential election dynamics aren’t helping matters either.

Global coherence in terms of the eventual debt restructure, is particularly relevant to the future of emerging markets because, if you just leave the poor behind, this world is going to be unstable over the long term.

There is a crying need for one of the big emerging markets to stand up and do the right thing.

The Chinese have very clear priorities. Their focus isn’t specifically on growth but on keeping urban jobs. They need to create enough urban jobs and they have to deal with rural poverty.

The competition for capital will be fierce among emerging markets, but if South Africa acts in a sensible manner, capital should flow into the country. Besides attracting yield-hungry investors into our fixed-income market, our huge consumer base represents a material opportunity for business growth.

We need to encourage more risk-taking in business. Companies should be allowed to try new things and not be stifled by excessive regulations.

Stephen Koseff: If a society, a business or an individual wants to grow, they have to take risks. And if you stop the ability of people to take risks, they are just not going to obtain growth and development. A society – just like a business – needs to take calculated risks at the end of the day. As business owners, we have managed risk our whole lives. While you consider how you can protect your downside, you know you also have to take some risk to benefit from the upside.

The importance of social cohesion

Stephen Koseff: During the Zuma era, there was a big mistrust between business and government. After Nenegate, the gap has started to close, and there is a lot more dialogue and collaboration. The finance sector has always had good collaboration with the central bank and National Treasury. But when it comes to other departments and their relationship with business, I am not sure that it works as well. If you are going to build a well-functioning society, you need your social partners to work together as a team. Labour needs to change their philosophy from protecting jobs to supporting the creation of jobs.

Hendrik du Toit: Educational reform is also key to attract high-skilled jobs to South Africa. The country needs to urgently address communities’ lack of access to high-speed internet.

Stephen Koseff: Corporates and non-governmental organisations (NGOs) are working well together in helping to grow our country’s skills base. But government also needs to step up to the plate.

Hendrik du Toit: Co-operation and building solidarity between the different segments of society is going to be very important as we restore our economy over the coming months and years.

Survival of the fittest

Stephen Koseff: The economy is under immense pressure. Some businesses which don’t have healthy balance sheets are going to find themselves on the brink of collapse. Focusing on survival over the next year or two is going to be critical. I believe there should be big rewards when we come out of this crisis. Those companies that survive difficult times tend to have material opportunities when they emerge from such a period.

To move to economic health, we are going to have to create an enabling environment for growth. Entrepreneurs and the private sector have a huge role to play in driving economic activity and creating jobs. The government doesn’t have to do business; instead, it should create a business-friendly environment.

I think that there is going to be massive spend on infrastructure, and President Ramaphosa will have to use public-private partnerships to finance it. There are many initiatives we can undertake to get the economy moving. It is going to be tough. But if we do the right things, we will have access to markets, which will help us grow our economy and create jobs.

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This document is the copyright of Ninety One SA and its contents may not be re-used without Ninety One SA’s prior permission. Ninety One SA is an authorised financial services provider. Issued, June 2020