'There is no money!” has become the popular refrain, the final judgment, the refuge. Nothing could be further from the truth. The world has probably never been more awash with money than it is today. Estimates of global money supply vary according to the narrowness or broadness of definition, but all of them run into tens of trillions of dollars, or hundreds of trillions of rands.
Money is in such abundance that it is chasing fewer and fewer investment opportunities, ultimately leading to significant concentrations of wealth, in ever fewer countries, among ever fewer people. However, inequality is alive and well and flourishing, and ignored in this flush environment.
Maybe there aren’t enough convincing, properly priced, sustainable investment opportunities, but there’s plenty of money.
Capital goes where it is made to feel most welcome. The criterion for attracting capital is pretty straightforward: get the risk-return equation in balance and you’ll get the cash. SA is short of investible propositions, not money.
In simple terms, money comes only when certain questions can be satisfactorily answered. Is the underlying economic model understood, probable, provable and resilient? Are there capable people in charge? Is there sufficient established demand for the output and sufficiently reliable supply of the inputs required? Are there capable people in charge? Is the downside understood and manageable? Are there capable people in charge? Will the project generate sufficient risk-adjusted returns? Are there capable people in charge?
SA cannot budget-allocate itself back into prosperity. We won’t make any real progress unless and until we invest seriously, deeply, in the neglected sectors and people in our economy.
We will need escape-velocity capital to avoid our steady trajectory towards a failed state.
SA’s balance sheet (and those of its state-owned entities) has deteriorated beyond any further bankability. We cannot responsibly borrow any more. We need to raise equity capital.
In private-sector speak, we need to have a renounceable rights issue. We need to look beyond our own resources and borders for new, long-term risk capital. We need to get to terms with the possibility of diluting state shareholdings below control, for the right partners.
We can mitigate, limit, plan and defer such dilutions using capital instruments, like convertible debentures. A low-yielding (CPI) debt instrument able to convert into equity at fair market value in three years’ time, say, would do it. This is not privatisation, although it could end up looking like that — it’s up to how well we perform.
We’ll have to construct vested interest — upside participation equity capital — far from the downside-only debt which requires a government guarantee to persuade reluctant capital to come to the party. We need partners, not creditors.
The money will have to come from outside our ecosystem, if for no other reason than to validate the arms-length pricing that must be in place, but also because “there is no money” locally, right? Foreign direct investors will need to be persuaded — nothing less will do it.
There are lots of plans, no doubt some of them good, but pitifully few of them are happening.
It’s about execution capacity, not money.
Let’s take the top 1,000 people of proven business acumen, across every sector, from whatever origin, and deploy them into our projects. Get the right people in the right places and the capital will come, in abundance. Don’t and you’d better get used to begging.
It’ll only take three years to establish foundations and transfer the capacity necessary for sustained future prosperity; it may take less to reach a failed state.
• Barnes is a business leader and experienced all-rounder in financial markets and corporate strategy
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