Much has been said, over the years, about policy makers in the government being dry of ideas capable of giving pace to our business sector. This applies across the board to any government having been in power over the past 25 years. The common belief is that it is the private sector which presides over this country’s economic future according to its own ideas and strategy of development.
No doubt, the private sector is the less amorphous of the two, but is still a long way from being a real vector of growth and development. For the past 15 years, the bulk of private sector funds have been invested in real estate. In this age where economic activity is growing global and all producing countries are competing with the rest of the world, isn’t it incongruous and almost shocking that the bulk of our investment is in brick and mortar and yielding a return on capital employed of some 3% per annum? What makes matters worse is that these developments have been made on probably undervalued land. Who knows, if the land is correctly valued, at market prices, that all these ventures could be loss-making? From a macroeconomic point of view, who can argue that investing in shopping malls, besides not creating anything, in terms of employment and growth, only ends up in more and more expensive shopping for our citizens, because of the hefty rental paid by shops in these new eye-washes? Growth by consumption can certainly work in producing countries, but has anybody realised the effects of more and more shopping for imported goods on our trade deficit which is already alarming?
Yes, our private sector has seemingly run out of ideas and is not a risk taker anymore. The José Poncini, the Michel de Spéville and the Roland Maurel, risk takers par excellence, belong to another age. Fortunately, people who have ideas and are prepared to take risk in business have not disappeared altogether, but they belong to a lower stratum in the financial ladder. Because of their modest start, they had to fight very hard to source the finance required to make of their dreams a reality, but have made it to the top.
I am referring to people like Suren Surat, who has built an empire from exporting vegetables and Mauritian made pickles and condiments, Hassen Taher, who has grown from a “banian” into the largest distributor, retailer and exporter of fish, Mrs Peeroo who has spread the “mehendi” (henna application) culture to all ethnic groups, has trained an armada of girls in henna application and who has single-handedly taken control of the whole market of henna supply in Mauritius, and Jean Michel Pitot who has created and successfully sold the truly Mauritian touch in the hotel trade under the “Attitude” brand name and added variety and breadth to the hotel industry’s product offering. From a modest start, he currently owns or manages 10 hotels, after having created a team of employees totally dedicated to work in the direction of innovation and whom he has prompted to grow with his organisation. These are worthy people whom the sacrosanct private sector should inspire itself from.
Assassination of business ideas
If precious business ideas remain in the realm of unfulfilled dreams for lack of financing, our banks carry the greatest part of the responsibility. It is a fact that start-ups are not welcome in our financial institutions. Their business plans and their ideas are so ruthlessly challenged by financiers that they give up. This assassination of business ideas is carried out by a host of professionals, ranging from accountants, compliance officers, financial analysts, bank relationship managers and lawyers who do “virtual business” sitting behind a desk and have never had any experience in business as hands-on operators. They feel comfortable in demolishing business plans of starters and small and medium enterprises, while at the same time having no clue on what basis to challenge that of a big company. The bigger the company, the easier is its request for financing accepted. Otherwise, how do we explain the horrendous sums of money lost by banks through debt write-off in spite of the number of professionals they hire to become relationship managers? These days, in the press, the case of a bank who is likely to lose more than Rs 4 billion with a single Kenyan customer. What sort of convincing business plan has this customer submitted to pass through the screening of relationship managers, credit committees, CEO and Board of Directors, because it is highly unlikely that a loan of such a magnitude did not go through the Board?
It has probably not occurred to the bank under reference that it could have, with this sum, given one-million-rupee loans to 4,000 individual companies. It has not occurred to it that there is something in business called “averaging of risks”. Wouldn’t it have been more sensible to go along this way, and allow enterprising people to produce, to create employment and to reward innovation while at the same time dampening its risks over a large number of borrowing customers? The very philosophy of the banking industry is a barrier to business. While an entrepreneur having a bright business idea will be looking forward to make of his business acumen a profit making initiative and accept the risks inherent therein, his banker will be working in the opposite direction, taking all precautions and covering himself with the maximum of collaterals in order not to lose money. How can such a business partnership, with the two partners having opposite goals, lead to anything positive? It is symptomatic that the bulk of bank employees do not know how and where the bank’s profit is made, because they are not groomed to become profit hunters, but to be alive to risks and to take every precaution to avoid them. But business is about making money, not about the endeavour to avoid losing money.
One last thing is about private sector recruitment. Today there is a bonanza for professionals related to the finance sector. They command hefty salaries and fringe benefits, but they all operate on the periphery of businesses, not at the heart of it. They excel in manipulating computer spread sheets, procedures, checks and balances, compliance, legal matters, accounting standards and corporate governance which are all collateral to business, and end up eternally putting barriers to business and producing tonnes of reports which increase bureaucracy. These reports tell their CEO what the precautions to be taken are, but they never have anything to say about a business opportunity and the prospect of earning profits in a new product launch, a diversification, a merger or an acquisition. The worst thing that could happen is professionals taking to ransom a forward looking CEO who wants a greater share of the pie in his sector of activity, by too often opposing his ideas as being too risky.
Business is created by business acumen, and this can never become a collective virtue. A business is often the fruit of the thinking of one man, the CEO, and he must not be unduly harassed with risk adverse reactions from his subordinates. And the private sector will be well advised to recruit innovators with business acumen, who can spot a business idea and turn it into reality, analyse a situation and make a diagnosis, whether he hails from a big university or not, rather than report writers, however loud ringing may be their university degrees.
By Mubarak Sooltangos
Author of a forthcoming book entitled Business Inside Out, inspired by his 40 years hands-on experience in business in a variety of sectors, and which talks about what promotes business and what stifles it.