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Tue,23May2017

Posted on Friday, 05 May 2017 10:11

Monopoly money

By Marcia Klein

 Waldo Swiegers/Bloomberg via Getty Images

Christoffel Wiese is a South African businessman and billionnaire who built Shoprite Holidings Ltd., a supermarket retailer, from the ground up. Waldo Swiegers/Bloomberg via Getty Images.

By: Marcia Klein

One of South Africa’s richest business leaders talks exclusively to The Africa Report about his commercial successes and failures, the debates about race and economics in South Africa and his criticism of the government

 

Christoffel ‘Christo’ Wiese is the man who bought Shoprite for R1m in 1979 and helped to turn it into a company now worth R110bn ($8.3bn) with 2,600 stores across 15 African countries. The deal is emblematic of the man. Wiese has stealthily emerged as the biggest individual player in the South African economy, which is still struggling to transform and democratise after the fall of apartheid in 1994. This brings with it a fair bit of weather, including accusations of representing the enduring hold of ‘white monopoly capital’.

My whole philosophy is that building a business group is not a sprint, it is a marathon.

Wiese was not always in the populist crosshairs. From the beginning of corporate development in South Africa until fairly recently, the Oppenheimer and Rupert families were the undisputed kings of the economy. Their groups – Anglo American and Rembrandt, respectively – held controlling stakes in nearly every industry, from mining to banks, cigarettes, chickens and paper. In the late 1960s, when they were already firmly entrenched, Wiese’s main business interest was in the low-price clothing retailer Pep Stores. At that time, you could have counted the number of its outlets on your fingers.

Today, Wiese is worth more than R100bn, with the companies he controls ranging from rural shops in small towns in Africa to stores selling high-street fashion in London. Shoprite is the largest grocery business in Africa. And in South Africa, his investments cover supermarkets, mining, real estate and engineering equipment. 

Basics of business

Compared with those of other startups of the past few decades, including Koos Bekker, who has invested in new technologies through the Naspers group, Wiese’s investments have been old-fashioned. They are heavily skewed towards retail, with Pep Stores and Shoprite. But he has also invested in furniture through Steinhoff, a rapidly growing group which has gone increasingly international. Brait, an investment company he controls, has also turned abroad, buying Virgin Active and New Look in Britain.

His focus on the basics of business is also evident in the location of his office in the Pepkor building in the industrial area of Parow, in the unfashionable northern suburbs of Cape Town. His office, however, while not lavish, does have all of the bells and whistles of a group head office.

Wiese, who works from a room that doubles up as a boardroom and an office, is dressed informally and looks tired, having just arrived from Johannesburg the previous day. But he seems much younger than his 75 years and acts as he always does – he is respectful and never haughty.

Asked if he is not interested in tapping into game-changing or innovative new companies, Wiese tells The Africa Report: “I don’t specifically steer away, but I have limited expertise in that field.” While he has looked at this type of investment from time to time, he points out that retail is now ­multichannel – employing the latest technologies – and that you do not necessarily have to acquire a high-tech company to be in high tech.

He says he looks at investments individually. “No, I don’t have love affairs with particular industries,” he adds. That non-sentimental strategy, reminiscent of US billionaire Warren Buffet, has paid off. 

But not everything he has touched has turned to gold, like Britain-focused Tradehold, a long-held offshore investment company that has languished for years. Not all of the companies he invests in are destined to become household names. Some relatively small companies like Trans Hex and Pallinghurst are unlikely to make their mark on the local or global mining industry.

‘hits and misses’

Wiese argues Tradehold has, in the past few years, undergone a transformation. “It is developing into an exciting company,” he says, adding that there was a long period of meagre growth due to exchange controls and other factors. “My whole philosophy is that building a business group is not a sprint, it is a marathon. You have to think 30, 40, 60 years [down the line].”

He adds: “Like any businessman over a decades-long career, there are hits and misses. I have had my fair share of both.” When Pep’s holding company Pepkor – which was invested in clothing – ventured into food, a lot of people said it was the right thing to do. In the end, he says, “it was a resounding success.” Pepkor bought Shoprite in 1979, and some two decades later, in a memorable deal, it bought the large and troubled OK Bazaars chain for just R1. Shoprite’s combined subsidiaries make it the largest fast-moving consumer goods company on the continent, recording R130bn in turnover in the 12 months to June 2016.

And while Wiese's ­dealmaking has been incredibly lucrative for himself and his shareholders and partners, not all of it has been welcomed by investors. His latest proposal, to merge Shoprite with Steinhoff, was scuppered this year when Wiese and other shareholders could not agree on the terms. Minority shareholders criticised the deal for being in the interests of the majority shareholders – and, notably, Wiese, the chairman and major shareholder of both – rather than beneficial to the companies or their customers.

I am not a politician, I am a business person, and I do not make pronouncements on political ideologies.

In a previous deal – the $5.7bn exchange of interests in Pepkor, Brait and Steinhoff – faced similar criticism for effectively seeing Wiese shuffling his assets around and being the major beneficiary of the deal. Much like the attacks levelled at South Africa's Black Economic Empowerment deals (see page 67), there are questions about whether these deals create value for anyone outside the beneficiary shareholders. Analysts said there were not any immediately apparent on-the-ground synergies between Steinhoff and Shoprite.

Company shuffle

Theo Botha, a well-known shareholder activist, explains that a few years ago Wiese moved Pepkor into Steinhoff. Just a few years down the line, he was aiming to move Pepkor into Shoprite. “I don’t think that would have been great for minority shareholders. All that happens is that the companies get a bigger owner – and he controls them all already. It would just dilute the minorities even more.” In these kinds of transactions, firms also spend a lot of money on lawyers and advisers, Botha says.

Wiese has not taken kindly to the criticism, saying at the Shoprite’s results presentation the day after the deal was shelved that “the moment there is corporate action, every man and his dog becomes a corporate finance expert.” He says if the deal benefits him as a shareholder, it benefits all shareholders. Wiese asks: “If I do not strive to create value for all of my stakeholders, what is the raison d’être for all stakeholders? Where has there been any evidence of value destruction? We employ over 300,000 people. Is that a good thing or a bad thing?”

In South Africa and the rest of Africa, Shoprite and Pep sell food and clothing at low prices, help the South African government pay social grants, offer food kitchens and bursaries, provide employment and are among the few companies adding rather than shedding jobs.

Yet this does not preclude these companies from being dominant players that use this dominance to squeeze suppliers and consumers.

For some, the issue is not so much the ‘white capital’ aspect that is disturbing so much as the ‘monopoly capital’ side of things. South Africa's Competition Commission has, since 2015, been conducting an inquiry into the grocery retail sector. It has said it has “reason to believe that there exist features or a combination of features in this sector that may prevent, distort or restrict competition”. In March, it recommended Unilever pay a fine of 10% of local turnover for price-fixing on edible oils and margarine.

The inquiry was prompted largely by increased complaints from market participants. One practice the Competition Commission is examining is the use of long-term exclusive lease agreements between property developers and national supermarket chains, and the role of financiers in these exclusive lease agreements. According to Sipho ­Ngwema, head of communications at the Competition Commission, these deals act as a barrier to entry and expansion.

While Wiese has a dominant presence in some sectors in South Africa, like most South African investors, many of his recent acquisitions are offshore. But this is not a sign of wanting to move investments away from South Africa, nor is it a strategy to hedge against the South African rand, he says.

“When businesses get to a certain size and are in a small economy, they need to grow. It is very simple and has nothing to do with a negative perception. I am excited by South Africa and the continent, but if you want to grow you have to look at wider markets.”

Fighting his corner

Wiese is often in the spotlight because there is a growing popular mobilisation against the concentration of wealth and businesses’ reluctance to transform, not to mention their growing tendency to invest elsewhere. ­Economic Freedom Fighters (EFF) party leader ­Julius Malema said last year: “Wiese’s wealth is bigger than that of the poorest 10 million South Africans, and [...] his wealth is [made at] the expense of poor, and predominantly black communities.” EFF spokesman Mbuyiseni Ndlozi tells The Africa Report: “Wiese [...] is sustained by the buying power of black people and this has restricted the capacity to build anything in the sector. That [retail] empire rests on historic interest that has prioritised white people.”

Wiese is not the only target. President Jacob Zuma’s son Edward has singled out Richemont and Remgro’s Johann Rupert. This conflict turned so hostile that Zuma opened corruption charges against Rupert, who in turn threatened legal action.

Wiese too has had to fight his corner on a number of occasions and is one of only a few people in business who has raised their voice. “I am not a politician, I am a business person, and I do not make pronouncements on political ideologies. But I do think there are certain aspects in the economic life of a country that are perfectly clear and one ignores that at one's peril,” he says.

He says he does not understand what ‘white monopoly capital’ means. “I am a shopkeeper. Every man and his dog can open a shop. We are a case in point. We opened a store in Upington and now we are where we are. Someone must explain to me how we are accused of being a monopoly.”

He says the black middle class, according to a variety of research, is larger than the size of the entire white, black and Indian population. He adds that wealth in the black community is growing: “If you analyse the statistics, the majority of people buying freehold homes are black.”

In a country like ours, the harsh truth is that poverty is the problem. But the narrative suggests that wealth is the problem.

Many comments on the subjects of land distribution and ownership of stock shares, he says, are not ­evidence-based, and are ill-­informed and full of political jargon. They are “comments to serve their own purposes, and it’s time we should have that debate in the open,” he argues. “Look, we may disagree on ideology and policy, but let’s agree on the facts.” 

Many critics on the left suggest that South African business has not done enough to embrace the post-apartheid era. A report by recruitment firm Jack Hammer shows that black people accounted for just 10% of chief executives of Johannesburg Stock Exchange-listed companies in 2015, and that this percentage has been on the decline. The report also says black people made up only 21% of top executive teams. Wiese’s companies are no exception to this rule, with predominantly white and male boards and top management teams. There are also huge disparities between high and low earners. For example, Shoprite’s Whitey Basson was paid R100m in his last year as chief executive.

Wiese says: “Everybody who runs a business, and government, through the mismanagement of state-owned enterprises, should by now realise how scarce top management is.”

Old boys’ club

There is no getting away from the fact that the companies under Wiese’s control are run by white males, many of them Afrikaans, as they were 20 years ago. This is part of the reason why companies are criticised for maintaining the ‘old boys’ club’ and why there is also talk of a ‘Stellenbosch mafia’, referring to Afrikaners business elites living in the winelands near Cape Town (see TAR 88).

For Wiese, obsessing over wealth and skin colour is a red herring. “In a country like ours, the harsh truth is that poverty is the problem. But the narrative suggests that wealth is the problem.”

Wiese also points out anomalies in government’s criticism of business. “The strong anti-business narrative uses slogans like ‘white monopoly capital’, but on the other hand government ­continually plans to bring blacks into the mainstream economy and promote black industrialists.”

Wiese says members of the business community have time and again made suggestions to government and offered help. Wiese himself chaired the Industrial Development Corporation, a state-owned funding organisation, as well as Mango, a state-owned airline.

However, he says these issues should not mask his positive views on South Africa and he dislikes it when people bad-mouth the country. “Look at what has happened in the UK and America. The difficulty with South Africans is that we always think we are unique. These problems are all over the world.”

By Marcia Klein in Cape Town



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