Moneyweb, August 27th 2010
By Alec Hogg
Interview with Dr Martyn Davies, Chief Executive Officer – Frontier Advisory
ALEC HOGG: Well, it's just after midnight in Beijing, where we link up with Martyn Davies, the chief executive of Frontier Advisory, but also our go-to man on matters of Asian interest. Well, Martyn, you were along with the President, and a group of people that went with him. Who exactly was in the delegation?
MARTYN DAVIES: Good evening, Alec. It's was, as had been reported, the largest delegation ever to accompany a head of state ... South Africa. So it's quite a sizeable crowd we had here in Beijing and Shanghai the last week. I think it had some of the usual suspects - Standard Bank, Sasol, Discovery, African Rainbow Minerals, more the sort of prominent companies accompanying the President ...
ALEC HOGG: Then how did you crack an invite to this one?
MARTYN DAVIES: [Laughs] China - certainly I get invited to most things. I'm here in Beijing almost every month or so these days. It's hard to keep up with the Chinese and the China interest in South Africa.
ALEC HOGG: But not just you - how did someone else? How did other people crack an invite to such a prestigious delegation to the most exciting market in the world?
MARTYN DAVIES: Well, it certainly is right now. The delegation was organised by Business Unity South Africa, so obviously the interest in China is unprecedented. China is their largest trading partner by some counts into Africa, the largest ... of capital, the largest lender to the continent, certainly the largest financier of infrastructure. So the positivism towards engaging with Chinese investors, Chinese capital, the Chinese government ultimately, is extremely strong.
ALEC HOGG: What is really interesting back here in South Africa - the news came through, I wouldn't say in dribs and drabs, but it wasn't quite a flood. There was quite a lot of information about prospective projects, and perhaps the highest profile one was the high-speed rail link between Johannesburg and Durban. From being on the ground, was that an area of focus?
MARTYN DAVIES: No really. There were about a dozen-odd deals, or more accurately generic MOU statements of intent perhaps to collaborate. I think a lot of the stories may be exaggerated, and the rail story, the high-speed rail between Johannesburg and Durban, is extreme early days, and you are premature to start to talk about this in detail. The only deal really that was a deal as opposed to a MOU was the Discovery Health investment into Pin An Insurance, China's second-largest health insurance company. So I think the visit was lacking somewhat in terms of substantive commercial interactions, commercial investments which had been planned a long term in advance that had been prepared for the state visit. I think a lot of these so-called deals announced were not quite that.
ALEC HOGG: More talks about talks... What was the purpose then, if it wasn't to announce a whole bunch of deals?
MARTYN DAVIES: I think just on that front we need to adopt, whether it's China, Russia or any other country recently visited, a far more focused SA Inc approach where government, business, parastatals are all on the same page, as to what are our key objectives in the markets we are targeting - and there's no country, no economy now that requires more preparation than China. I think we can do a lot more work toward that. I think the general intent toward a visit was leveraging off the goodwill and international focus on South Africa currently from the World Cup, and it's about elevating South Africa's position in the so-called first-tier ... emerging market economies. And we see President Jacob Zuma has been now in the last quarter to every BRIC economy - Brazil, India, Russia, China. And South Africa seems to want to be part of that emerging market club of leading first-tier dynamic emerging-market economies. So I think it was more strategically political than it was pragmatic commercial intent.
ALEC HOGG: Martyn, on that score, and I'm not sure how many of the pictures made their way over to China - pictures of the strikers in South Africa - I'm sure that would have been somewhat of a head-scratcher for the Chinese officials if they did see it.
MARTYN DAVIES: It is somewhat concerning this side. We have the President, Rob Davies of the dti, really emphasising in every single speech the last three, four days, the issue of seeking to attract Chinese capital investment into value-adding, beneficiating, manufacturing investment in South Africa. Now, these pronouncements are all very well and certainly very prudent, but at the same time we are having this very disruptive protracted strike back home in South Africa. I think the rhetoric often doesn't quite match the sort of maybe policy reality on the ground back in our home country.
ALEC HOGG: Indeed. There's a little town of Newcastle in KwaZulu-Natal where the factory owners decided to close up shop because of a disagreement with labour and the way it was handled by government. So a lot of work still to be done, perhaps, on the labour front.
MARTYN DAVIES: I think certainly. I mean, something we've been pushing for a while is liberalised investment zones - the East London IDZ, the Coega Development Corporation. CDC was here on this visit but I think there is phenomenal potential in the Chinese, and the standards around investing in so-called special economic zones, liberalised, dedicated zones to attract both foreign as well as national investment with tax holidays and perhaps liberalised labour regulatory environment in these zones. But fortunately it's all very well saying we want to encourage manufacturing investment into our country, but we need to offer those policies and centres and be able to implement effectively, give foreign investors, even national investors, some sort of incentive to put money into our economy. I think that certainly is what is required and that's what the Chinese require before we can start to see significant flows of manufacturing investment, at least, from China into South Africa.
ALEC HOGG: Martyn Davies is the chief executive of Frontier Advisory. And, incidentally, those factory owners in Newcastle who decided to close up shop have pointed out that our productivity is the second-worst in the world.
WAYNE McCURRIE: Look, Alec, there are different angles you can take on virtually everything when it comes to productivity, but whether we are the worst in the world or not I don't know, but we are certainly not competitive from a manufacturing base.
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