The deep structural problems in the education system, the rise of black graduates and employment. The Zuma years will be a good read one day.

The deep structural problems in the education system, the rise of black graduates and unemployment. The Zuma years will be a good read one day.

During apartheid, most of our parents either became teachers or nurses because it was literally the only thing available to them. They had no desire or love for teaching or nursing and all this frustration is finally coming out years later.  They hate teaching. They not equipped to teach the syllabus of today, they not equipped to handle the attitude of children today. Most of them just come to class, read what must read and leave. Because we always need someone to blame, we blame the Minister of Education, but blaming or changing ministers does not change problems, there are far deeper structural problems in the system than a minister’s incompetence.

Once upon a time, South Africa had teachers colleges which Mandela and Trevor Manuel shutdown. You see, we have this problem, Universities receive 20 000 application for a teachers degree and there’s space for 5030 only. Teacher colleges taught teachers how to educate. But anyway…

Our seasonal interest in education is problematic. Which was recently sparked by the Minister of Education’s plan to lower the pass rate again. Ey kunzima eSouth Africa, we should consult Zimbabwe on how are they doing it, but are we as disciplined as the citizens of Zimbabwe? Seasonal Interest? Nam’ angazi nje ngizwe ngento nje ithi gqi…Skrr skrr uthini lo? 1. We care more on educational issues when the middle is affected. 2. We care more on educational issues when sparked by the media. 3. Those that can, are doing nothing to educate a black child. How many kids in your hood are struggling with math, Science and Accounting and you just happen to be good at those! But we come on social media and bleed out our ignorance, start cursing the Education Minister and the President’s lack of education, forgetting that that man is self taught, is a president, a brilliant strategist and a historian (etc)

But anyway, are we ever going to blame lack of parent involvement as another major cause to the decline of our education? How many parents today check the progress of their child at school, check homework, go to school to find out why their child is failing, would that not also motivate teachers to do better if parents were more involved? Because it seems like the attitude of parents not caring enough also would affect the child, me thinks.

The education department again wants to lower the pass rate? Why is that? Is the minister wanting to keep these kids at school so that they can at least get a matric certificate and at least get into FET Colleges or have some sort of training? Honestly I have no idea but ima blog away anyway, I’ve actually never listened long enough to the minister to get to the part where she explains the lowering of the pass rate. But let’s look at the stats, close to 60% of the unemployed have not completed secondary education. In 2015 General Household survey showed that 50.5% of those between 20-24 years of age had less than grade 11. The age group between 24-34 was 49.9%. The study further shows that 36% of males between 7 – 18 years of age are not in school because they don’t see value in education. Thixo was Johannesburg. How can we keep these kids at school? Do we blame the government? Our community leaders? Our parents? We can blame whoever but this poor education system still requires an individual’s effort to excel for it to progress. A large number of you are products of this poor education system.

Oh ya one last point on the lowering of the pass to 30%. Just over 1% of high school learners passed with 30% and 30.6% passed with university entry and none of them will ever protest against their SRC for bringing them bashes and concerts. The day when students protest against campus bashes, I’ll know we are serious about education as a youth. You have 2 supplementary exams but you the head of organizing bashes and concerts.

Also, there’s needs to be a serious intervention of school kids being in towns and malls during school hours. I remember back in our schooling years, being in town during school hours, strangers would stop and ask you why aren’t you at school. Mall security guards did not allow you in during school hours unless you with an elder. What went wrong with this generation?

There was a time when the middle class was screaming for a President with a University degree, well, the name Kgalema Montlante doesn’t even have such yet people insist on two things, English and a Degree are a measure of intelligence but that’s a story for another day

Having about 30% of the matrics passing with a University entry, 90% of Technical College graduates are guaranteed jobs. How? Well, let’s have a look, there’s an Adopt-a-TVET College campaign to promote co-operation between industry and TVET colleges. Of the 50 TVET colleges, 24 of these had been adopted by companies as of 2016.

The country needs skilled people. The skills shortage in the country doesn’t imply that only university degrees can plug the gap.

Before I exit, the unpopular fact is:

The graduate unemployment is not in crisis.

In 2015, the black graduate unemployment was at 9% And at 3% for whites. Yes there are unemployed youths with diplomas and degrees and in 2017 it has barely changed, the graduate unemployment is still very low. 

Universities are producing huge numbers of graduates in arts and social sciences, which are not needed in the workplace. South Africa lacks artisan skills and had to import 1000 artisans from Thailand due to shortages locally.

According to Human Resource industry reports, approximately half a million jobs in SA cannot be filled due to a lack of necessary skills. Besides the skills, asikwazi ukukhuluma isingisi kuma interview.

Finish ke dankie.

About cartels, price fixers and radical transformation…

About cartels, price fixers and radical transformation…

By Khaya S Sithole
@coruscakhaya
www.finequitytrading.com

Never mind a state bank Jacob Zuma, how about we apply your radicalism to the current structure first?

On the 9th of February 2017, President Jacob Zuma – in full possession of his newfound commitment to all things radical – pronounced in the annual State of the Nation Address that the ANC would now be more radical in pursuing all matters of social justice. Very few people believed him or even understood what he meant.

On the 15th of February, the Competition Commission announced that 17 local and international banks, had been engaging in collusion aimed at manipulating the currency. Included in the list – were ABSA, Investec and Standard Bank. Everybody was shocked but yet again, very few people understood what exactly happened.

On the 24th of February – the rather stoic premier of the North West province – Supra Mahumapelo – announced that he had been in contact with Maria Ramos who is the CEO of ABSA (and former salesperson of strategic state assets to random foreigners). It appears that Supra plans on moving R20 billion of the province’s money away from ABSA to VBS (they of the obscure corporate profile). VBS is very famous for its infamous loan to the president. Very few people know what else it can do. So naturally, when Supra threatened to move R20 billion to VBS, very few people took him seriously.

On the 27th of February 2017 – Nedbank announced that it had been awarded – for the third consecutive time – the right to be the primary bankers for the Western Cape Government for the next 5 years. Because it is Nedbank and the Western Cape has tendencies of being a self-governing colony, very few people noticed.

In other words, during the course of one month, South Africa was thrown back to the colonial age. We have a president making bold pronouncements regarding plans he has no intention of ever executing (wake up Paul Kruger). We have discovered that the banks have yet again been in collusion to screw us all (ever heard of ROCO?). And the Cape government is banking with the green bank (flashbacks to the Cape of Good Hope Bank).

What was different this time was the fact that a lot of people – hysterical over the collusion saga – then started calling for the development of a state bank to solve all our problems. Included in the list of people who seem to believe that a state bank is what we need are the president and the ANC Youth League. What they seem to share in common is a complete lack of context regarding the desirability of a state bank. We have been here before – and it didn’t end well. Thanks to an entity now called Nedbank.

In the winter of 1793, the governing Commissioners of the Cape Colony set up the Loan Bank – which was a government-owned bank aimed at creating stability in the economy. This was essentially South Africa’s first bank and changed its name to the Lombard Bank in 1795. The profits made by the bank were regarded as an important source of funds for the state. Back then – unlike today – the government seemed to know exactly what the desired economic structure needed to look like. So when a certain JB Ebden attempted to open up his own private bank in 1826, this was blocked by the government.

But this state bank had this habit of well – running out of money. Not because the bank was a problem but because the demands made by the Cape business elite often exceeded the available funds. The government then had a monopoly on banking from 1793 to 1837 and this monopoly extended to other sectors including conveyancing, surveying and of course – slavery. The monopoly was only broken in 1837, precisely 180 years before Jacob Zuma’s radical speech – when the first private bank was established in Cape Town. The bank was known as the Cape of Good Hope Bank it set out to compete with the state bank and was immediately followed – in 1838 – by the creation of the Board of Executors (the BoE Bank).

The growth of the private banking system continued throughout the 1800s and was highlighted by the founding of Standard Bank in 1862 and the arrival – in 1888 – of the Nederlandsche Bank (the modern-day Nedbank). Nedbank was incorporated in Amsterdam and originally had desires to take over the whole banking system in the country. Having been intimately associated with the Dutch East India Company that had delivered Jan van Riebeck in 1652, Nedbank had strong intercontinental connections, and actually pioneered commercial banking in South Africa which distinguished it from the state bank that had a rather narrow focus.

What also made Nedbank different from the other smaller banks is that they had all been created essentially to fund the farmers in their jurisdictions. Therefore the sustainability of the smaller banks was linked to the fortunes of the dominant crops in that area. Whenever a drought or a plague hit the area, the farmers and indeed the banks that funded them, would go bankrupt. The banks that survived then had a more diverse client base that didn’t depend only on the agriculture sector. By the time the 1920s arrived, Nedbank alongside the Standard Bank and the ambitiously-named National Bank, were the dominant players in the market with a national rather than regional footprint. In an attempt to be the market leader, the National Bank engaged in reckless lending and essentially collapsed in 1925.

However, a saviour was found in the form of Barclays which bought out the National Bank in 1926. The 3 dominant banks at that stage formed a banking cartel known as the ‘Register of Co-operation’ (ROCO) which simply means that they would decide amongst themselves what interest rates and commissions they needed to charge. This killed off all competition and restricted market access to just these banks. In this era, regulation was non-existent as the Reserve Bank was only created in 1921 and wasn’t even ready to intervene when National Bank collapsed and had to be bailed out by Barclays in 1925/6. So thoroughly spineless was the Reserve Bank its first Deputy Governor was a man named Jorrison. He was an executive from Nedbank who had been completely opposed to the creation of the Reserve Bank. So in order to silence him – he was made a Deputy Governor of the bank and was now in a prime position to actually influence the policy of the Reserve Bank.

This cartel operated with impunity throughout the 1900s and was only disrupted by that great drama that was witnessed when Jan Smuts lost the 1948 general election to the National Party. Adamant that the 3 banks in existence were inherently biased towards the English and Jewish business elite, the National Party promptly created Volkskas Bank and – in a stroke of genius – immediately transferred all government accounts to Volkskas (long before Supra thought about such things). Still, the 3 big banks thought this was a temporary problem and only became aware that they were in trouble when the National Party won re-election in the 1952 elections. At that stage, Nedbank realised that Volkskas was growing larger each day and then decided to betray its own brothers in the cartel by quoting lower prices than Standard and Barclays. In addition to screwing over the 2 cartel members, Nedbank also targeted the much smaller building societies by offering interest rates for deposits that were higher than what the building societies could offer. This protected Nedbank temporarily from losing market share until the National Party struck again by opening another bank – the Trust Bank.

What distinguished Trust Bank from Volkskas was that Volkskas focused on the Afrikaans clientele and Trust Bank positioned itself as more cosmopolitan with the intention of appealing to the Jewish and English business sector. In its attempts to drag customers away from the big 3, Trust Bank became the first bank to offer overdrafts which came in the form of notes that indicated how much the bank was owed. Trust Bank aggressively marketed this product to the English community and new Afrikaans middle class – newly elevated into economic participation by the National Party having won the elections (remember the promise of BEE?). This included offering credit at lower rates so that the Afrikaner middle class could at least get a foot in the door. Inevitably, such a business model turned out to be flawed and Trust Bank collapsed at the end of the 1960s. It was then bailed out by the National Party. The interesting part of this approach is that Trust Bank was essentially allowed to run rogue and give a chance to the Afrikaner middle class for them to access the economy. By the time it failed – the National Party was happy to bail it out; but more importantly, a lot more Afrikaner citizens had been integrated into the economy. And that Baba Zuma – is the definition of radical.

Through all these years, there were various building societies in operation. As part of its strategy of undermining the fellow members in the big 3 cartel, Nedbank also targeted the clients of the building societies by offering higher interest rates and essentially killed off building societies. The big 3 banks had traditionally avoided unusual transactions like car and furniture credit. One of the entities that exploited this gap, was the Schlesinger Organisation (using the Colonial Banking and Trust Company) which collaborated with the Sanger family and Western Credit Bank to create an entity called Wesbank. Wesbank turned out to be less profitable than expected and John Schlesinger sold the business to Anglo American which also then sold it to Barclays in 1975. What Wesbank did very well was introduce credit cards to the mass market – which the cartel of the big banks initially refused to do.

Through this time, Volkskas kept growing and in order to fight off this threat, the cartel members went on a path of consolidation through buying smaller banks; then acquiring the consumer finance banks like Wesbank and finally buying out the building societies. By the end of the 1980s, Volkskas and Bankorp had acquired most of the Afrikaans banks; Barclays had changed its name to First National Bank. Nedbank and Standard Bank made up the remainder of the big 4.

Through all these developments in banking history, an alternative form of banking remained in force. Building societies had been common across the world and were created primarily to assist members buy homes. They were community-based and had the focus of creating a funding base for the community to borrow and build properties without relying on the big banks which were actively manipulating interest rates. Once the Nedbank strategy of undercutting building societies became more effective the building societies then either sold themselves off to a traditional bank or allowed institutional investors to put money into the society. In light of these changes, building societies were then allowed to convert themselves into traditional banks if they wished to do so. The problem with this approach is that banks are required to keep large capital reserves – much higher than building societies. Another difference is that – due to their predominantly social mandate – building societies were granted tax privileges which enabled them to keep the cost of lending to their members lower than traditional banks. And then the Reserve Bank went into bed with the cartel.

Since its creation in 1921, the Reserve Bank enjoyed a disturbingly cosy relationship with the big 3 banks. After the National Party’s election in 1948, the Reserve Bank was then captured by the Broederbond with an explicit agenda of advancing the cause of the National Party’s banks (specifically Volkskas). The Reserve Bank engaged in a series of policy shifts that reinforced the stifling of competition in the banking sector. The cartel arrangement (ROCO) had worked as the formal arrangement between the banks that allowed them to set interest rates and prices that they wanted. The Reserve Bank was always are of this collusion, tolerated it and failed to intervene. This arrangement was only abandoned in 1983 after the De Kock Commission had been asked to investigate the money markets and interest rate policies in South Africa. De Kock recommended a clear separation between the banks and the Reserve Bank.
Unfortunately the Reserve Bank then decided that it would replace the commercial banks as the primary instrument of market manipulation.

Firstly the Reserve Bank designated the (now) big 4 banks as ‘too big to fail’. In other words if such banks screw up, the Reserve Bank is ready to intervene and help them out. Then the Reserve Bank decided that it would support the profit motive of the commercial banks through the repo rate system. In terms of this system, if the banks borrow money from the Reserve Bank they are charged a particular interest rate. They are then allowed to add a margin on that number and refer to it as the prime rate. So if the Reserve Bank lends money to the banks at the rate of 10%; then the rate the banks can charge at prime is 13,5% – this is the rate they give to their best clients. But – to pause for a moment – the rate of 3,5% is not a scientific number, it is simply what the banks and the Reserve Bank agreed should be the spread.

In its radical days, the National Party actively intervened in this margin in order to facilitate life into the economy. Now we need to remember that this margin is an important instrument of controlling the economy. If the margin is wide it really means that the cost of borrowing for the consumers is excessive and this impacts on economic growth. If the margin is reduced then the cost of economic participation is significantly lowered. And the National Party understood this quite well. So the margin from 1946 to 1958 was only 1,5% (less than half of what the ANC allows the rate to be). From 1958, the margin was adjusted to 2% and was maintained for the majority of the remainder of the National Party’s time in office. And yet, when the ANC came into power, it then decided that the margin should actually increase to 3,5%. So we had a National Party that decided that 1,5% was an acceptable margin; and an ANC decides that 3,5% is the answer. The banking cartel are the chief beneficiaries of this as they simply increase their profits.

Even more disturbingly, the ability of the banks to charge a margin of 3,5% means that they can validly tell anyone who needs to borrow that they have to charge prime as a minimum. However, in their assessments, the banks will look at particular factors before deciding on an interest rate. So if you have high disposable income, you are good. And if you have other assets already – then you are even better. This is referred to as an assessment of one’s risk profile. If your risk profile is low – in other words, high disposable income and old assets – the banks can even offer you a rate below prime. Disturbingly, in light of the fact that white households have at least 5 times the average earnings of black households, you can guess who is likely to end up with a rate below prime in South Africa.

Then it gets worse, because if I want to build a house in Soweto then my risk profile is actually worse than the one trying to build in Sandton – so then I end up being charged prime plus. And that Jacob Zuma – is the crux of the South African problem. The interest differential the banks generate from the black, ‘high risk’ clients is the backbone of the banking industry. And it starts off by the Reserve Bank insisting that 3,5% is the margin. This is the type of nonsense you should be talking about if you want to be radical. And until the Reserve Bank can prove that a margin lower than 3,5% is a problem – I remain convinced that you are likely to implement your newfound radicalism if you actually start by interrogating this.

In 1997, Fitch (yep, that ratings agency that you hate so much) published a report that indicated that the South African big 4 banks’ net interest margins (the difference between the interest paid by the banks – primarily to the Reserve Bank – and the interest they charge to you and I) – was amongst the highest in the world. This is facilitated by the fact that the Reserve Bank gives the banks such great flexibility in setting interest rates. So when I hear that the President is trying to be radical I would think he would firstly advocate for the reduction in this spread so that the cost of funding is cheaper for his own constituency. Apparently I would be wrong.

Given that you are in a radical mood these days – I would recommend that next time you head out to Parliament, please obtain a sample of bank loans for houses in Soweto, Soshanguve, Midrand, Sandton and Clifton and simply check who gets interest rates below prime. Then we can actually take your radicalism seriously.

The fact that the Reserve Bank maintains such an incestuous relationship with the banks is just one problem. It is how the Reserve Bank decided to facilitate the death of the Building societies that should really be the centrepiece of your economic radicalism debate.

Since 1986, the building societies were regulated by the Building Societies Act. The Act understood the role of the building societies in facilitating credit for communities. Given the profile of their business and the low risk attached to it, the capital requirements for building societies were much lower than the traditional banks. When the very Broederbond Reserve Bank governor Chris Stals intervened however, the building societies were now required to hold the same capital reserves as the traditional banks. This made no sense. In addition to this, the one remaining advantage for building societies – the tax privileges – were rapidly dismantled by the finance minister of that age – Derek Keys. Unfortunately Codesa decided that Chris Stals had to remain in his position after democracy and Derek Keys had to be the Finance Minister – even though he had no connection to the ANC. Eventually he ditched Nelson Mandela’s cabinet in 1996 and was replaced by Chris Liebenberg – who then became the chairman of Nedbank. Remember that Jacob?

And when it couldn’t get worse; the Reserve Bank then issued the new Mutual Banks Act in 1993 to regulate building societies. The Act then said that mutual banks had to be registered twice. The first registration would result in a provisional licence which would be confirmed as a permanent licence 5 years later. The result of all these activities simply meant that mutual banks were locked out of the market and the primary beneficiaries of this process were the banks which had now taken over the role played by the building societies. That should have been the end of building societies as we know it – thank you Nedbank and Chris Stals. Except there was one problem.

Throughout all these interventions, Nedbank and the other members of the banking cartel had failed to penetrate one particular market – the black homelands. Three in particular – Bophuthatswana, Ciskei and Venda – remained untouched by the Nedbank march. But of course it went wrong. Albert Vermaas – a senior manager at Volkskas Bank – headed off to Ciskei with the simple mandate of destroying the Ciskei Community Bank and drive it to bankruptcy. The Harms Commission appointed by PW Botha investigated this episode and concluded that the Reserve Bank; the Banking Regulator and indeed SARS had actually assisted Vermaas in defrauding the Ciskei Bank. Which – when you look at the individuals that ran those institutions at that point – should not be surprising at all. The Bophuthatswana Building Society did not survive the siege – and merged with 2 other banks to form the now defunct Future Bank Corporation. And remarkably – just one building society from the homelands survived – the Venda Building Society.

After 1994 the Venda homeland was incorporated into South Africa and suddenly the Nedbank brigade had access to the Venda market. It would have been easy to understand if VBS had been competing on equal terms with the banks – but it wasn’t. Because VBS maintained its identity as a building society now regulated by the Mutual Banks Act; it was firstly subjected to provisional registration. This means that if you and I had walked into VBS immediately after 1994 we would hear of a provisional registration whilst the Nedbank across the road would have a permanent registration as a bank. Naturally, human instinct dictates that Nedbank is a safer option. Immediately the innocent customer who is unaware of the distinction between the provisional and final registration would prefer Nedbank. And that is how the Reserve Bank facilitated the death of mutual banks in South Africa. The Reserve Bank only finalised the VBS licence in 2000. Somehow, VBS Mutual Bank survived.

Nedbank’s fortunes took a turn for the worse after liberation. Having been the trailblazer in the industry since 1888, the bank discovered that its approach to banking was outdated in the new South Africa. Then it went on a drive to acquire other banks. In order to be black, it came up with People’s Bank. In order to increase its high-end footprint, it acquired the original private banks – Cape of Good Hope and BoE. And then it went a bit wrong. Nedbank then decided to use loans to fund the purchase of BoE – which turned out to be a disaster. In addition, Nedbank had decided that the Rand was heading for a collapse and bought all sorts of fancy instruments that would make them billions if the Rand collapsed. Unfortunately for Nedbank, the Rand recovered from R13 against the US dollar to R6 – which was a catastrophe for Nedbank. It reported a loss or R1,6 billion in 2002. Nedbank didn’t just sit out the current collusion saga because of their superior ethics – they have a R1,6 billion scar to explain why they need to avoid currency speculation! Luckily for its CEO – Richard Laubscher – the scar was made better by the fact that Nedbank fired him; but gave him R37 million for his efforts.

Last month, Nedbank won the right to be the primary banker for the government of the Western Cape – and this will make them a lot of money. Supra’s wishes are subject to a different set of circumstances. VBS does not have a branch network throughout the country – and they don’t need it. What is important about Supra’s wishes however is the fact that state departments and provinces have a primary and a secondary account. As far as distributions from national treasury to provinces are concerned, there is simply one transfer from treasury to a primary bank account. A province then needs to distribute such funds to its own departments – this can be through the secondary account. So on the question of whether VBS or any other small bank needs to invest in a branch network in order to participate in the state banking process – there is no such need.

The case would be different for a municipality however as it then transacts with thousands of ratepayers who might need to access a physical branch. And it is not just VBS that should be part of this conversation; all small banks should be given an opportunity to participate in meaningful state activities. Supra may well be able to move the province’s banking away from ABSA; but this is a small step in what ought to be a giant leap towards radical transformation of the banking sector. It is quite rare that opportunity arrives at the same time that political rhetoric needs it to do so. This is one such opportunity. Unfortunately I suspect that in spite of the radical economic transformation talk; our provincial governments are still likely to give banking contracts to the big 4 cartel. It is especially ironic that Nedbank – which facilitated the destruction of the state bank in the 1800s in its capacity as the Cape of Good Hope and BoE – remains at the forefront of banking for the state.

So Jacob Zuma, the idea of a state bank is not really about opening up a new bank but rather what such a step seeks to achieve. If your target is the de-racialisation of the banks and the break-up of the monopoly – you know exactly what you need to do. Instruct your Treasury to bring in the smaller banks – African Bank; Capitec; Ithala, VBS and even the Post Office in to the conversation.

If you want the banks to facilitate greater economic participation for black people, then you need to chat to the Reserve Bank about the 3,5% margin. Be radical. Tell them that the maximum margin to be charged on anyone buying a first property should be capped at 1%, 2% – anything that makes sense, just bloody well do something! �And if you want us to remember you as the guy that threatened to be radical and completely failed to do so – well, go ask Nedbank for a bond for a property in the township and tell me what interest rate they quote you.
Sadly VBS suffers from its tragedy of association with your loan – but then again you have been banking with the big 4 cartel since your return from exile and no one seems to find that problematic. So screw that problem.

Just go ahead and be radical Baba.

Just one last hint Jacob - remember when Nedbank lost R1,6 billion and fired its CEO? Well he wasn't the only executive that left Nedbank after that loss. The managing director for strategic business development also left Nedbank after Richard Laubscher.

That director's name was Sipho Pityana. Ever heard of him?

[Article references available on request from info@finequitytrading.com]

#RadicalTransformation #Nedbank #ScrewCodesa

Lack of diversity in Marketing and Advertising industries!

"In the advertising industry, English is the first language of business, but it’s not the mother tongue of 91 percent of the population. To employ teams with little or no experience of the target audience they are marketing to is exceptionally shortsighted as clients will seek out agency partners that better represent and instinctively understand their consumers"

Marketers should demand their agencies introduce diversity quotas. Hire more women and Black people and pay them well.

It’s 2016, and while many things have changed in the advertising industry, the sorry state of diversity isn’t among them! Hiring, of course, is only part of the problem. The failure to retain young black talent due to lack of encouragement or opportunities and hire more women, is the other issue amongst other issues.

The industry refuses to transform, if you’re black and you happen to make it to top management or senior something the industry is perpetuating the stigma that black appointees are merely the beneficiaries of preferential treatment through fronting. They even have BEE partners there for show!

Some go as far as subconsciously blaming Black people for the diversity problem. They say blacks are both unaware of careers in advertising and unprepared.

Please.

Someone once changed careers because he was told  “I’m sorry Amandla, but I don’t think our client is ready for a black copy writer”.

The advertising industry refuses to diversify. The advertising agencies continues to push racist agendas of their clients. The industry continues to discriminate against black hair because the client thinks it’s too dirty. We have all heard the likes of celebrities like Claire Mawisa being sidelined because she has dreadlocks, they even went as far as asking her to cut them off to get the job.

We have woken up to the uncomfortable fact that while 80% of consumer spending is directly influenced by women, only a small % of creative directors are female.  Indulging in a box-ticking exercise in work and employment practices, so you can win awards, or beat your peers – instead you must reflect the population as it is, not only for society’s good, but for the good of your businesses.

Having a truly diverse workplace is the societal equivalent of a meaningful brainstorm. Brainstorming is, after all, getting a group of diverse people together to share different views to arrive at the best ideas.

Diversity brings diversity of ideas, which is what the industry is crying out for at the moment. Take a look at the current crop of marketing from some of the biggest brands and you would be forgiven for thinking that we live in a white, middle class.

The advertising industry has to put on its big boys’ and big girls’ panties and face the glaring truth: that the racial diversity issue has little to do with awareness or availability of qualified black talent but everything to do with prejudice and racism inside advertising.

Yes, I’m calling a lot of people in advertising either prejudiced or racist, but I firmly believe it’s a prejudice issue more than a racist thing. Please, the two terms are not the same. Before you pull out the pitchforks and torches, allow me to explain the difference. No. Let’s allow Merriam-Webster to give the definition of the two words:

Prejudice:

“Preconceived judgment or opinion (2): an adverse opinion or leaning formed without just grounds or before sufficient knowledge

.”

Racism:

“A belief that race is the primary determinant of human traits and capacities and that racial differences produce an inherent superiority of a particular race
.”

It is important to understand the differences and variances between the two words. I believe most of the issues concerning diversity are tied to a form of prejudice, rather than racism, although there is a bit of that going on as well.

I cringe every time I hear advertising professionals throw out words like “culture” and “fit” when talking about hiring people. Both terms reflect a degree of prejudice. What is it about the person that doesn’t “fit?” What “culture” doesn’t a person have that he/she can’t do the job?

The ambiguity of these words makes their use as a tool for excluding a group of people an act of pure genius. An interviewer can have a feeling that the person will not be a good “fit” or match in the “culture” without having to explain why. It is the perfect cloak for prejudice.

Until advertising acknowledges and moves to deal with this prejudice —instead of promoting and perpetuating the idea that Blacks are either unaware or do not possess the skill set to work in advertising — very little will change.

Ah, but here is the catch: Advertising cannot and will not face its racial diversity issues alone. And the industry shouldn’t have to. This is partially the fault of clients.

Clients know their agencies. They know the people who work on their accounts. And they are keenly aware that it has been a white men’s club for years.  All too often, the only people of color in the room during meetings are on the client side. This should make clients uncomfortable, and give them pause.

The racist ones clients who don’t like black hair and think black people should dance in adverts, those ones, we see you!

The issue of racial diversity is so much more than political correctness, it is good business. Having a diverse staff allows an agency to have a wider range of experiences and views to pull from when creating messages to reach an audience that is becoming more diverse every day. Clients are screaming for more effective work. Well, how effective is it to always approach assignments from a singular cultural point of view? It isn’t.

So what can clients do? (The not so racist ones) Simply asking about and encouraging the agency to look into its diversity issue will have a huge impact.

For more than 20 years, we have watched and waited for advertising to mature and develop a conscience on this subject.

Shame on advertising.

“Advertising is afraid of the dark.”

For far too long you have portrayed us like circus monkeys. For far too long you have portrayed us as people who dance to everything in your adverts. For far too long we have been dancing for white people’s amusement. For far too long you have portrayed our lives so wrong because you don’t even consult us but you want to talk about us to sell your clients product. Your obsession with making black people dance in your adverts is insulting and offensive.

In 2016 you still think that adverts with black people must involve dancing and running and screaming and so on! Is this the life of black people according to you?

There is absolutely nothing wrong with dancing but we are sick and tired of you thinking that the only way to capture the black market is by dancing! We are not here for your amusement! It is high time that you stop with your lazy work of making black people just dance. Do your research, understand the market and sell us the product in a decent manner. By doing research, We not saying ask Sipho, the only black at yours braai, he understands nothing about black lives and struggles because he has always aspired to be like you, eat like you, speak like you and just be there as the only black guy at the braai, bruh!

By research, by no means do I mean that you go to the township and hang around Vilakazi  Street and now think you understand the black market. Hire more black creatives and use them. So they can help you “fit” into the “culture”

It is your understanding that black people have rhythm, by no means does this mean that this becomes your entertainment, we have come far as a nation, we are aware, we ARE educated, we know better than we did before, we love fun and dance but not for you to see that as your point of sale. Please stop annoying us with dancing black people in adverts. It is OFFENSIVE AND TIRING! Sikhathele inina nisenza ihlaya!

Not so long ago;  Chris Moerdyk wrote: “Is there racism is the advertising and media industries? Unquestionably there is. The obsession for continually wanting to define its target markets by skin colour is disgusting!

The industry is still extremely white, despite the fact that many of the larger agencies have development programmes. The process is simply not happening fast enough and apart from a few exceptions many of these attempts are nothing more than tokenism.

This somewhat half-hearted attempt to bring blacks into the industry is by no means the fault of white players in the industry. Black executives in the ad industry are mostly also paying lip service to development and transformation.

Statistics show that the advertising industry is still mainly white. A lot of people in the industry point at the number of young blacks attending advertising schools and suggest that “we all wait for this to filter through into the industry”.

But, the problem is that very few young blacks manage to get a foothold into the industry without having either lots of money backing them, university degrees or some other sort of training. Unlike a lot of whites.

The advertising industry needs to create far more ambitious programmes particularly to develop raw talent and to start putting this talent to work without insisting on years and years of expensive advertising education.

In a nutshell, while young whites are managing to get job interviews, young blacks aren’t able to have their telephone calls answered. What is that, other than racism?”

Icarus has fallen – politics and the tragedy of Brian Molefe

The below piece is the work of Khaya S Sithole (@CoruscaKhaya )
FB link: https://www.facebook.com/khaya.sithole/posts/10154656211142103

“It is a melancholy truth; that even great men have poor relations…” (C Dickens, 1812 – 1870)

Yesterday I witnessed the heart-breaking sight of the CEO of Eskom Brian Molefe breaking down in tears. At that stage, I had finally finished all 444 pages of the State of Capture report and had a couple of observations. Firstly, we need to talk about the name of the Gupta security guard. We really need to talk about this name. His name is Mjikijeli Kheswa and it essentially means ‘the thrower’. And in a society where the president is rapidly developing a reputation of throwing people under the bus – this is a delightful and ironic twist.

Secondly and rather unfortunately, the report is quite poorly written. By the time I landed on page 59, I had identified far too many errors that made me feel quite uncomfortable. After page 59, I stopped applying my metaphorical red pen – it was simply out of ink. Naturally one has to concede that the Public Protector does not actually type out the report herself but – just like Shaun Abrahams has the final say on prosecutions – Thuli had the final say on the report and its substandard editorial quality is rather disappointing. Substantively the report itself is not actually 444 pages but much shorter than that. There are bizarre repetitions of issues already ventilated that suddenly pop up again for no discernible reason. This is difficult to understand.

Another odd thing about the report is that it includes identity numbers of some affected persons. I think this is wrong. The Public Protector is fully aware that the CIPC allows anyone who is in possession of an ID number and a surname of someone else to scrutinise the directorships of that other individual. I do not understand why this was regarded as necessary. As a consequence of this, I have been able to ascertain that the following affected individuals – Anthony Wood, Litha Nyhonyha and Mr Pillay are directors in multiple companies. Wood is a current and past director in 62 different companies; Litha Nyhonyha is a current and past director of 113 different companies and Pillay is on 58 companies. I am not convinced that this was necessary at all. https://eservices.cipc.co.za/Disclosures_person.aspx

As a disclaimer, I first read the report in Melrose Arch the day it was released – and 2 of the affected individuals happened to be in the restaurant at the same time – plus the guy who currently runs the SABC. Furthermore, one of the mentioned individuals is a personal friend who actually sold me my first car 9 years ago. And another entity mentioned in the report – RBCT – funded my undergraduate studies at Howard College. So, there you go – all conflicts declared.

And then there is the report itself. The essence of it all is the question of whether the Republic as we know it has been captured by individuals who are advancing private interests using public resources. The scope of the investigation was limited to focus on one family and its influence on the state. The question of whether the scope should extend beyond this is worth considering. But nevertheless, we are stuck with this report so we need to talk about it – for now.

The report threatened to cover issues relating to multiple companies, but somehow we end up with a detailed focus on the Eskom contracts. Key to the problem is the history of the Optimum Coal Mine and how it ended up in the control of the Guptas. The short version of the story is as follows. Back in 1993, Eskom signed a contract with Optimum for the supply of coal from 1993 to 2018. The basis of this contract is the coal supply agreement (CSA) which has 2 interesting aspects. One refers to the hardships clause which means that the parties can engage within the 25-year period and renegotiate aspects of the deal if necessary. The other aspect relates to the penalty provisions – which allows Eskom to penalise Optimum in the event that the coal delivered is not useful to Eskom. In this penalty clause, Optimum is obliged to keep delivering coal but only gets paid a nominal amount of R1 per tonne until Eskom recovers its losses. Sometime in the late 2000s, the Optimum Coal entity fell into the hands of Glencore – who presumably conducted proper diligence before they decided to acquire the mine. And then things started going wrong.

At some point in time Optimum started supplying substandard coal to Eskom. In some consignments, up to 45% of the coal was useless to Eskom and had to be rejected. This means that Eskom was stuck with useless coal and had to adjust its electricity generation schedule to cater for the fact that it didn’t have enough useful coal. The 1993 agreement allowed for Eskom to actually penalise Optimum when this happened – but Eskom decided not to implement the penalty clause. Instead, South Africa suffered through load shedding. The nature of the agreement signed in 1993 had escalations – as expected. Due to its location, Optimum was responsible for supplying coal to the Hendrina Power Station which is based in Mpumalanga and has a capacity of 2 000 megawatts. The consequence of receiving useless coal means that the power generation is compromised and load shedding results. Rather than penalise the company and drive it to bankruptcy, Eskom decided it was in their interests to keep the mine operational by ignoring the penalty clause – and the penalty fee kept rising.

Somewhere along the line, Optimum became aware that Eskom had a deal with Exxaro for the supply of coal which was economically much better than the deal that Optimum had. In the Exxaro contract, Eskom paid R1 132 per tonne. In the Optimum contract, Eskom paid only R150 per tonne. The Exxaro contract expired on 31 December 2015; the Optimum contract was due to only expire in December 2018. In light of this information, Optimum then activated the hardship clause which simply means they went to Eskom and said ‘we can no longer keep supplying coal at R150 per tonne; we want to charge you R530 per tonne, can we negotiate?’. In this conversation, Optimum was asked to prove that their cost structure was indeed too high and they could only remain alive if Eskom paid them more. They struggled to prove this and kept insisting that they were losing R100 million per month from the Eskom contract. Eskom remained unconvinced.

Optimum came back with a revised offering saying they could suddenly survive if Eskom paid them R442 per tonne. Unfortunately, a certain Brian Molefe was now in the building. As part of his strategy to turn around the entity, poor old Brian engaged his mind in evaluating such contracts. And then – Wits University’s most successful graduate – Ivan Glasenberg who owns Glencore – indicated to Brian that if Eskom wasn’t willing to pay more than the current price then Optimum would stop supplying Eskom and load shedding would be a permanent problem. Brian then viewed this as a form of bullying and then decided to tell Glasenberg that he will activate the penalty clause on Optimum. At that stage, the money that Optimum owed Eskom in terms of the penalty clause was R2,15 billion. So we had a company that had a liability of R2,15 billion to Eskom threatening to cut coal supplies unless Eskom paid them R442 per tonne – even though the agreement said Eskom needed to pay R150 per tonne. This was a standoff of electric proportions.

The scary thing about this penalty clause is that it is actually part of a strategic move by Optimum. Power stations are very specific about the size and density of the coal they can burn. If a supplier brings the wrong coal it simply cannot be used without damaging the power station. So suddenly, Optimum started delivering coal that was wrong. Firstly, 20% of the delivery would be wrong. And then 30%. And then 40%. And this peaked at 45%. The problem here is that you cannot possibly know that the coal is unusable until it arrives at the power station. And when you need to generate 2 000 megawatts of power then you are in trouble. Eskom could have activated the penalty clause and refuse to pay Optimum – but this would have bankrupted Optimum immediately so Eskom didn’t levy the penalty – but kept calculating it. And this is how the penalty kept growing until it reached R2,15 billion.

Once Molefe refused to be bullied into paying this increased price and decided to activate the penalty clause, Optimum then put itself into business rescue. When it went to business rescue, it owed R2,9 billion to Investec, Nedbank and RMB. These were the secured creditors that needed to be paid first before any change of ownership could take place.

A key feature of the Optimum structure is that Eskom needs to approve any transaction that results in a change in ownership of Optimum. The Optimum Coal Mine is one of 3 entities that make up Optimum Coal Holdings – the others are Optimum Coal Terminal (OCT) and the Koornfontein Mine. OCT is part of the Richards Bay Coal Terminal (RBCT) which is a consortium of coal suppliers. Optimum Coal (OCT) is a 7,5% member of RBCT which means that they can provide up to 7,5% of RBCT’s annual exports. The value of this right is $360 million per year – that is R4,85 billion per year.

Once Optimum was under business rescue, Pembani attempted to make an offer to buy the mine. The deal collapsed because Eskom said they would still demand payment of the R2,15 billion penalty from the new owner. Pembani was informed that Eskom would not approve a deal unless Pembani agreed to pay the penalty. So Pembani walked away.

A key part of the deal is the question of whether only Optimum Coal Mine was for sale or if all 3 companies were for sale. The 2 other entities were still profitable – only Optimum Coal Mine was making losses due to the Eskom contract. Ideally, if one could buy all 3 then you could use the profits from the other 2 to balance out the losses on the Eskom contract. After Pembani walked away, our favourite audit firm – KPMG – then informed Optimum and Glencore that a new buyer had emerged – and this buyer wanted all 3 entities. This buyer was Tegeta which is owned by Oakbay and the Guptas.

What was curious about the Tegeta/Oakbay conversation is that Eskom suddenly changed 2 things. Firstly, Eskom was no longer insisting on charging the R2,15 billion penalty to the new owner – this is different to what Pembani had been told. Secondly Eskom was now happy to approve the sale of all 3 entities – this is not what Pembani had been told. In other words, once Tegeta joined the conversation, Eskom deleted the 2 clauses that had made the deal impossible for Pembani. This was curious.

The banks also got involved in the conversation. By the time Nhlanhla Nene was fired on 9 December, the banks were owed R2,95 billion. In reality, the company now belonged to the banks and Eskom which was owed R2,15 billion. You would therefore need over R5 billion to buy the company – unless Eskom wrote off its R2,15 billion claim – which it surprisingly did by deferring it. Once Eskom had indicated that the R2,15 billion could be deferred it meant that all one needed to do was to pay off the banks and Optimum could be transferred. For all practical purposes, this deal made economic sense. Only 1 leg of it was odd – the Optimum Coal Terminal (OCT) leg. As part of its drive to reduce costs, Optimum had stopped supplying coal to the export market. This is odd because the coal is sold on the export market for $65 (R875) per tonne – which is much higher than the R150 Eskom was paying and still higher than the R530 Optimum wanted Eskom to pay under a revised contract. Once all these issues had been sorted and Eskom was willing to ignore the R2,15 billion penalty, Tegeta made an offer that was acceptable to all parties (the banks and Glencore). The final purchase price was R2,55 billion. Glencore would pay R400 million and Tegeta – don’t laugh – would pay R2,15 billion. But there’s more…

In any mining operation, there is a legal requirement to set up an ‘environmental/rehabilitation fund’ which will deal with fixing the environment once the minerals have been successfully stolen by capitalists. Such funds are supposed to benefit the communities in the affected area and established in terms of the National Environmental Management Act. Naturally, Optimum Coal and Koornfontein had created such funds. The Optimum Fund had R1,47 billion and the Koornfontein Fund had R280 million. The funds are ring-fenced for community activities only and cannot be used for any other purpose. If an entity uses the funds for any other purpose then the owners of the fund are guilty in terms of the Income Tax Act (section 37) and need to pay taxes up to 2 times the value of the Fund.

The Guptas got clever here. As part of the purchase agreement, the control of the rehabilitation funds would pass on to the new owner. Tegeta then classified this as ‘cash available to them’ which would be transferable once the sale had been finalised. (Just like your fixed deposit which you plan on withdrawing after a specific date). The Bank of Baroda then treated the cash in the funds as money available to Tegeta and counted it as Tegeta’s asset. After April, South Africa’s ‘ethical’ banks – Standard Bank and Nedbank, transferred the funds to the Bank of Baroda branch in Durban. Apparently at that stage the 2 banks had not located their conscience and didn’t question why the money was being moved.

So you’d think these illegal transfers would have set alarm bells everywhere. But the Guptas are much smarter than we think. The Guptas have a friend called Mosebenzi Zwane – who sounds like a hard worker. He is the rather energetic Minister of Mineral Resources. The official custodian of the mining rehabilitation funds is the Department of Mineral Resources. Such funds that are created for community benefit purposes are only allowed to make transfers after obtaining approval from the Minister of Mineral Resources – and that would be Mosebenzi Zwane. Once such a transfer happens; SARS is responsible for charging taxes on this fund – unless the Commissioner decides not to charge the tax. That would be Mr Tom Moyane.

In order to facilitate this hoax, the Bank of Baroda prepared a letter to indicate that Tegeta had money. That made it easier for the South African banks to believe they would get their money. But this was not enough to cover the purchase price.

Tegeta then went on a drive to raise the money which involved multiple entities including Trillian Capital, Oakbay, Regiments and Shiva Uranium. Unfortunately, after all this was done, Tegeta was still short of R600 million in order to finalise the transaction – yes, that sounds like the R600 million offered to Mr Jonas. The period of 11 to 13 April is the biggest problem for Brian Molefe. I am tempted to say that Brian Molefe reacted to the bullying antics of Glasenberg in a way that he thought was prudent. I am also tempted to think that by the time Brian arrived at Eskom with the promise of ending load shedding his most important discovery was that load shedding is the type of thing that had been manufactured by entities like Glencore through their immoral actions. Somehow Brian inherited this superhero complex where he needed to defeat Glasenberg at this game and also fix a national crisis. Whether his steps in executing such a mandate were appropriate is the philosophical dilemma that led us to this point. It is quite possible that Brian stepped into a vortex where the steps towards resolving this fiasco had been set in place long before he arrived. Unfortunately, he decided to assimilate with what he believed was the lesser evil and that is the realisation that brought him to tears today.

On the 11th of April, Tegeta realised that they were R600 million short. As a first step, they tried to find out if the banks would accept a deal without the R600 million. The banks said no. Then they asked Glencore for help. Glencore said no. Then Eskom stepped into the fray. On the night of the 11th of April, the Board Tender Committee of Eskom met and approved a R659 million ‘pre-payment’ at 9:00 pm. The pre-payment was apparently made to Tegeta in order to enable Optimum Coal to continue operating and revive its export contract. The problem here is that at that stage Tegeta did not own Optimum as the purchase had not been finalised. It is also odd that the Eskom Committee did not question why a payment for Optimum was going through Tegeta who had no legal relationship with Eskom at that stage. This is really Brian’s problem. Had the transfer gone straight to Optimum instead of Tegeta, Brian’s explanation would make sense. But this did not happen. Another reason advanced by Eskom is that the pre-payment was necessary in order to fix prices that might increase – this is simple nonsense. Eskom employs an entire treasury division whose core expertise is hedging. A contract of 3-months that requires them to pay R659 million simply does not exist.

On the 13th of April, Eskom paid Tegeta and suddenly, Tegeta had enough money to buy Optimum and the deal was closed. Earlier yesterday, Brian was clear that the pre-payment has been settled already – but that is not the point. Brian’s key weakness is that he cannot explain why the payment went to Tegeta if the intention was to assist Optimum. It also doesn’t help that the administrators of Optimum found out from Carte Blanche that Eskom approved a payment of R659 million on 11 April – and they never saw a single cent. This is the fundamental problem with Brian’s version of events.

It also does not help Brian’s argument that the Guptas found a way to say that the deal would only be feasible if all 3 entities were sold – and then betrayed Brian. Remember that the R659 million pre-payment was apparently meant to assist in the revival of the coal exports through RBCT? Well it turns out the Guptas then decided they were not interested in exports after all – and sold their RBCT right. The selling price – $250 million (R3.6 billion) which means that after all these transactions, the Guptas have a profit of R1,5 billion already. So, you can imagine being a Brian Molefe being parachuted right into the heart of this fiasco and having to pick one devil over another… What would you have done?

Brian remains one of the most arrogant human beings I have ever encountered – and there is nothing wrong with that. He also gets paid ridiculously well for the job he does – so he can definitely defend himself. My point of convergence with Brian is that I see him as an interesting exhibit of the Icarus complex. Such a complex exists when an individual’s spiritual ambition exceeds their given limits – leading to a backlash.

In Brian’s view, his quest to end load shedding at all costs was the driving ambition. Unfortunately, it was limited by the reality of the economic structure that Eskom was stuck with. Brian’s main error was in seeking to bypass such a problem by engaging the Gupta contract – and he will regret this forever. The thing about the Icarus complex is that you are allowed to fly high and soar as close to the sun as you can. And those who need you will cheer you on. But as soon as you get close to the sun and start burning, your support base evaporates and you take the fall on your own. South Africans were very happy that Brian ended load shedding. It is the true mechanics of how he did it that we are now uncomfortable with – and we are letting him burn. I understand this phenomenon very well – ask anyone who has ever heard of the FNB Building in Wits University. They will let you fly and soar as high as you can – for as long as it makes them look good. And then when they have to acknowledge the sacrifices you need to make in order to get there and make them look good – they let you burn, just like Icarus. This is life.

My issue with this entire exercise is just how clumsy the Guptas have been in facilitating all of this. You would think that the involvement of Glasenberg and Glencore would have been enough for them to understand how states are supposed to be captured, right? Dololo strategy!

In corporate life, there is nothing more delightful than any transaction that screws over a certain Ivan Glasenberg. Trust me – there isn’t.

The roots of the story date back to 1974 – when a certain Marc Rich came into international prominence. Marc Rich is the godfather of the international commodities business – and actually mastered state capture long before the Guptas landed in South Africa. His modus operandi included ignoring all sorts of international sanctions and selling oil to the apartheid government – at remarkably inflated prices. The good thing for him is that he had the National Party in his pocket – just like the Guptas have parts of this current administration. Being an orthodox Jew, Marc Rich captured a young South African Wits graduate – Ivan Glasenberg, and added him to his empire in 1983. At that stage, the National Party was in trouble with the rest of the world – so Marc Rich found a way to help them out. His main task was to embezzle oil from obscure places like that discredited regime of Iran and ship it to South Africa. In order to achieve this, a company called Minoil was set up as a front. Its role was to bypass all forms of sanctions and transparency in exchange for a profit.

In exile, Frene Ginwala was in charge of the ANC’s energy team which was responsible for promoting an international embargo on oil exports to South Africa. Her role was to convince international oil producers to stop supplying oil to South Africa. A key part of hitting the apartheid government using oil was the 1980 attack on Sasol – which was masterminded by Joe Slovo and a man called Jacob Zuma. In September 1983, the International Herald Tribune (New York Times) carried an article which first exposed the fact that Marc Rich was secretly selling oil to the apartheid government. On 1 October 1983, Frene Ginwala wrote a note to the ANC operatives exposing that Marc Rich and Minoil were infact in breach of the international oil embargo. Nothing appears to have been done about this revelation.

Having positioned himself as the only man who could provide oil to South Africa, Marc Rich then went deep. Over a 10-year period, he delivered oil worth $2 billion – and charged $24 billion – which was paid by the government. This $22 billion that was stolen from the South African government has never been recovered – even though Marc Rich’s companies still exist and operate in South Africa. Surprisingly, Glasenberg – who was a South African citizen working for Marc Rich claimed that he was unaware that there was an international oil embargo on South Africa and therefore saw nothing wrong with selling oil to the apartheid government. One of the individuals who dedicated herself to exposing the real crimes of Marc Rich and his company was Dulcie September who was an ANC operative based in Paris. As soon as her research got her close to the truth – she was assassinated in Paris in March 1988. Her killers have never been found. http://opensecrets.org.za/marc-rich-open-secret/

By the time apartheid reached its overdue demise, Marc Rich was wanted for his crimes in the USA and had exiled himself to Switzerland. The FBI had a price tag of $750 000 on his head. He then decided to rebrand himself and split his company into Trafigura and Glencore in 1993 – the year Eskom signed the Optimum Coal contract. In that split, Marc Rich kept Trafigura and Ivan Glasenberg headed Glencore. In 1994, things took a twist when Marc Rich was kicked out of Trafigura after squandering a zinc deal. Glencore took over Trafigura and then operated as an obscure private entity run by Glasenberg and his Rich boys (they really actually call themselves that).

In 2005, Glencore embarked on a mission of consolidating the coal supply chain in South Africa through a series of mergers. This included the acquisition of Optimum in 2008. 25 coal mergers were completed from 2005 to 2012 – 14 of them were classified as large mergers. Of the 14, Glencore was the party in 10 of them with Xstrata featuring in the rest. In 2011/12, Glencore initiated a merger with Xstrata which was run by Mick Davis, another South African.

That 2008 transaction with Optimum had left Glasenberg in control of 31% of South Africa’s coal exports. However, Glasenberg had much larger ambitions for capturing the coal supply of South Africa. The Xstrata merger itself would be the last step in a journey that started in 2005 and was designed to give Glencore absolute control of the South African coal market. Eskom was the only witness that objected to the merger. In its submissions to the Competition Commission, Eskom indicated that the Glencore strategy would destroy South Africa’s ability to generate electricity. And Eskom had real reasons for fighting this deal.

From the period of 2000 to 2012, something disturbing had happened in the South African coal market. The coal produced in South Africa is graded according to density. So we produce export grade coal and the local coal that Eskom uses. Historically, most of the exported coal went to European markets which require low-density coal and pay a premium (it is priced in dollars). The Asian markets on the other hand, use coal that is similar to the Eskom coal (local variety). Up until 2007, Europe was our chief export market (80%), Asia was at 15% and the rest of the world was the remainder. Because the main export market (Europe) needed coal that Eskom didn’t use anyway it meant that we had no problems finding coal for our power stations. Around 2007 however, the exports to Asia suddenly spiked and the exports to Europe fell dramatically. Our export point – the Richards Bay Coal Terminal, increased its capacity from 66 million tonnes per year to 91 million tonnes per year. The problem with that is that the Asians were using the local version of the coal – which is what Eskom needs to keep the lights on. But then the mines did not change their capacity to produce local coal and hence Eskom started competing with the Asian market – and predictably started running out of coal. Welcome to the 2008 load shedding crisis South Africa – thank you Glencore.

In reality the Glencore strategy had been to create an Asian market for Eskom’s coal which could be billed at international prices. In relation to Eskom itself, Glencore figured out that once the prices were increased to international standards, Eskom would have to pay anyway as they had no alternative sources for coal. By the time Glencore applied for the merger with Xstrata, the export balance had completely switched to Asia and hence the pricing was different and local coal was now scarce – even for Eskom. The more expensive it became for Eskom to get the coal in its own market, the higher the tariffs they passed on to you and I. Eskom then objected to the merger and listed their reasons. Extracts from the hearings in 2012 included the following comments by Eskom:-

“the merger will add considerable critical mass to Glencore’s production activities and
access to the RBCT, which will enhance Glencore’s ability to influence the market in a way that is
detrimental to Eskom.”

The possible negative consequences were listed as follows –

“[3.1] possible shortages in coal supply to Eskom occasioned by the transaction;

[3.2] a reduction in the quality of coal supplied to Eskom (with resultant detrimental
effects on the stability of Eskom’s generation equipment and the increased possibility of
unplanned outages and load shedding); and,

[3.3] a likely increase in the exporting of coal with the concomitant consequences for
domestic prices of coal to Eskom (in order to prevent increased coal exports, Eskom
would be required to match the economic return gained from exporting the relevant
quality of coal by subjecting itself to export parity pricing.)”

Unfortunately, the Competition Commission ignored Eskom’s pleas and the merger was approved – with disastrous consequences for South Africa.

The great thing about Glasenberg is that he is very comfortable with being unpopular, and betraying friends and enemies does not stress him too much. In the merger with Xstrata, he and Mick Davis were supposed to be equal partners; and they were – for a day or 2. As soon as the merger was finalised, Glasenberg booted out Mick Davis during the first week of the merger. Davis swallowed his pride and walked away – but never forgot. Glencore became one of the biggest companies in the world and Glasenberg was one of the richest men in the world – until 2015.

Mick Davis himself is friends with that other icon of leadership – Stephen Koseff of Investec. On 13 May 2015, Mick Davis and Stephen Koseff shared a stage at Investec in Sandton and addressed a forum of young entrepreneurs. Davis did not dwell on his exit from Glencore but rather on the appropriateness of business leaders commenting on politics. A month later, Glencore – as part of its strategy of getting Eskom to pay higher prices – then threatened to dismiss 380 employees from Optimum as part of the process of shutting down the mine. In response, the Minister of Mineral Resources – Ngoako Ramathlodi – suspended Glencore’s operating licence. And then the king of state capture himself – Glasenberg – called the Minister directly and essentially told him to fuck off. The Minister lifted the suspension within moments of Glasenberg’s call. Glencore then carried on trying to bully Eskom into paying higher prices. President Jacob Zuma fired Ramathlodi 6 weeks after this scandalous incident. This was in September 2015.

And then it all started falling apart for Glasenberg.

In the same week that Zwane was appointed, a blow struck at the heart of the Glasenberg empire. On a Monday morning in September 28th – 5 days after President Zuma’s appointment of Zwane – a bank in London published a note indicating that the Glencore business was in trouble. In true Glasenberg style, Glencore responded by saying the note was rubbish. But the market thought otherwise. Glencore lost 22% of its value in 1 day. Glasenberg himself lost $500 million – that is R7 billion – in that one day, and kept losing more money which eventually led him to agree to selling off Optimum Coal. The issuer of the note that started all the drama – Stephen Koseff’s Investec Bank…

And if that wasn’t enough – the Guptas decided to sell off their export licence to another company. Glencore essentially had one competitor after swallowing Xstrata. That competitor is called Vitol. 2 months ago, Tegeta sold this right that once belonged to Glasenberg to – you guessed it – Vitol. And they gave them a discount of R1,25 billion on the sale…

The curious thing about this state capture saga is that Thuli’s report did not unpack the entire journey of the Glencore story – which is sad. Given the fact that the report is so centred around the Eskom-Glencore-Gupta alliance, I honestly expected it to unpack the true mechanics of the transaction; but it only focuses on the small window of shenanigans. This report is due to be given a second phase – which must be welcomed.

It is in this second phase that we can actually ask a simple question of how we ever allowed Glasenberg to hijack our coal supply and give us the idea of load shedding – and we said nothing about it. This next phase should allow us to interrogate how we could be aware of Marc Rich stealing $22 billion through tainted oil deals with the National Party – and we then allowed his company to take over the country’s coal supply chain. This next phase should really consider how the banks and KPMG saw nothing wrong with all these shenanigans – until the colour of the capturer became darker. This report should allow Brian Molefe to finally tell his version of the story. How he found himself swept into the tornado of a story that was so much bigger than himself. How he found himself having to answer to the Saxonwold mafia only because the Swiss mafia were the bigger bullies. Brian has a fatal flaw – the initiation of the pre-payment to Tegeta. Beyond that, his is a tragic tale of the man who set out to fix a national crisis – and found himself captured by a crisis of conscience, the politics of patronage and the tragic hysteria of his own ambition. Marc Rich got lucky – Bill Clinton’s last act in office was to issue a presidential pardon to the scoundrel. It appears that Presidents have an awkward habit of getting involved with such characters – everywhere you go.

According to Fin24, the cost of load shedding in South Africa – at its peak – was R80 billion per month. Apparently, the cost of Shaun Abrahams losing his mind 3 weeks ago was R50 billion to the economy. Molefe staked his reputation on saving South Africa R80 billion per month – and lost so much more. It is indeed a melancholy truth - that even great men have poor relations.

Perhaps ours is a country so damaged we have resorted to finding the bottom of the barrel when it comes to finding leaders – and we need to fix this. Brian will pay the price – as he should. Whether we have the moral authority to determine such a price is a mystery to me. I simply do not know.

The Gupta saga is not just that they are corrupt and arrogant – it is a tragedy of how they sought out to topple the king of state capture – and did such a shockingly bad job of it all. Somebody please get them the Johann Rupert manual next time.

#StateCapture