The R500bn lesson: What Kirsh’s success reveals about real investment vs pledges

“Cyril loves big numbers” was the remark some years back from a mandarin at National Treasury.

This week, Cyril Ramaphosa’s signature South African Investment Conference will confirm this fact with a raft of statistics, pledges and commitments. All in the target is, according to the president, “mobilising R2 trillion in new investment by 2028”.

Without raining on his parade, there are several caveats, or Ts & Cs, attached to this bling price tag.

To date, according to the conference website, R1.5 trillion in investment “pledges” have been announced. But a far smaller share has been realised “on the ground”. Converting promises into actual, realisable, and implemented investments is the key to unlocking the door for sustained growth and employment.

The real “big number” that matters is “gross fixed capital formation [GFCF]” or the investment in physical assets that will produce the goods, services and crucially in our job-starved country – employment in the future. That is the real and accurate measure of fixed investment.

Analyst Richard Calland writing for News24 described this measure as indicating “how much capital is being invested into fixed assets in the economy” – in everything from water infrastructure to new digital highways. And here the balance sheet is sobering and depressing.

From a relatively high-water mark of GFCF representing 20% of our GDP in 2008, today it constitutes just 14%, languishing at half the total government’s own National Development Plan insisted was needed to sustain proper +3% GDP growth. Unsurprisingly, and even before the energy shock from the ongoing Iran war is factored in, we are growing at barely one-third of that rate.

Calland advised that “very few people have heard of [GFCF], let alone developed any level of appreciation of how vital it is to the well-being of the country”.

On a related subject, likely few people here know the name of Natie Kirsh, perhaps the richest South African in the world other than Elon Musk, most of whose wealth – along with his profile – is in the private realm.

Yet publicly this week, the Wall Street Journal (WSJ) headlined his asset disposal with a front-page story, “The reclusive 94-year-old who just sold his food empire for $29 Billion.”

Talk about big numbers: In our declining rand, which is the equivalent of around R500 billion. And to place that into perspective, in 2022, Ramaphosa’s investment conference obtained R332 billion in pledges, considerably less than the sale price of Kirch’s US Jetro Restaurant Depot. (Kirsh holds the majority stake in the company just sold to Sysco, a US food distributor.)

Kirch will not be at this week’s investment summit, but there are some key lessons to learn from his extraordinary business career and how investments occur and the climate that encourages or repels investors in the real – not the paper – economy.

In essence, Kirsh applied his South African model of cash-and-carry wholesale distribution and applied it to the far larger US market, starting from one basement in Brooklyn in 1976.

As he told a business school audience in 2011, he studied the small retail sector in New York and “went to see how these little stores in New York got their supplies and I really thought it was very rudimentary and not very efficient”. Before the company’s sale, announced this week, it had grown into one of the largest cash-and-carry wholesalers in the US.

Note that Kirsh studied the market and finding that there was no entity that provided independent store owners with “low prices and immediate access to inventory” founded Jetro Cash and Carry and created his own market that – according to the WSJ – “echoed the cash and carry model he had refined in South Africa”.

Kirsh is not the only South African who pioneered in the world business lessons adapted from his home country. He is arguably, though, one of the most successful and richest.

His decision, he says, to explore opportunities in the US in 1976 was based on his pessimistic view of how the political outlook appeared in South Africa back then, entirely appropriate given the Soweto uprising that year.

However, going to America where investment was encouraged, the rule of law was predictable, and competition was the name of the game provided for any entrepreneur with smarts and some cash real investment possibilities. And political connectivity to the ruling elite was then irrelevant for founding an enterprise. The US administration back then did not pick winners and losers; the market did that.

Perhaps the lesson here is not just how America under the baleful influence and rule of Donald Trump with his self-dealing, whipsawing and whim-driven impulses has changed this environment. Though it is doubtful today whether an émigré with smart ideas and keen knowledge of a potential market could prosper in the same way as Kirsh did 50 years back.

The lesson for South Africa is that economic success and investment attraction happen when the home market encourages innovation, enterprise, flexibility and rewards entrepreneurs who add value, not just pigment, and not those who simply extract from value already created by others.

These are the benchmarks that will improve real investment and drive capital formation.

In his newsletter which trumpeted this week’s investment jamboree, Ramaphosa heralds his structural reform agenda, “sound policy and regulatory environment, offering certainty to investors”.

Beyond providing a cheering gallery for the president at the investment conference this week, business leaders can certainly acknowledge some of these achievements.

But the braver souls among them might wish to point out that South Africa’s “favourable proposition” as an investment destination to borrow from Ramaphosa’s script needs a lot more than that.

A far less intrusive Competition Commission (that actually worries about real barriers to competition not an ill-defined “public interest” mandate); less ideology and more competence at the sprawling Department of Trade, Industry and Competition; more proper governance in law enforcement and less government interference in private sector matters, a BEE review that actually cuts out cronyism and corruption.

It is a long list. But it is often ventilated in the company boardroom not at presidential conferences.

Many of our current “entrepreneurial class” have made a career and some profit by sitting on company boards. Checking out the fees paid to members of our failing provincial and municipal water boards is an exercise in depression.

Indeed, the relentless, ever-expanding compliance state with its thicket of regulations, box-ticking demands, and squadrons of enforcers (10 000 new labour inspectors are planned by the government to be unleashed on unsuspecting businesses soon) means ever more resources are needed to comply with state diktat.

Committees, though, do not create capital. Real investors do.

It’s unclear whether any of these investment curbs and the flywheels needed in their place will get an airing at the Sandton Convention Centre this week. But it is worth reprising the R500 billion view of Kirsh: “I don’t want to be on anyone’s board. I just want to have good investments.”