People only SEE the obvious and not the UNSEEN

  • By J.D. Koch
  • 03 Sep 2019

Written by our own Russell du Preez –

I start by anecdotally drawing your attention to the fact that “every observed activity or action has both visible or UNSEEN components”. One great economist once said people only SEE the obvious and not the UNSEEN.

About twelve years ago my partner and I, who owns seventy percent (70%) of a private business had the arduous task of convincing fellow shareholders who owned thirty (30%) of the business to take a bold decision to allow a new group of investors into our business in order to expand our investment in agriculture on the African continent. We ended up spending what became millions of South African Rand to get new players into this highly risky and sensitive sector. Needless to say, this is where our roller coaster journey began. We did manage to raise the money we sought to bring in, that amount was close to one point two billion South African Rand (ZAR1,200,000,000.00) in Foreign Direct Investment. We chose to deploy it in farming as originally intended but also added a related strategic investment area; agricultural processing. In the process of investing these funds we created close to one thousand (1,000) direct jobs. If one considers the standard upstream, downstream and related industry multipliers another thirty-thousand 30 000 other jobs were created (UNSEEN).

This multiplier effect alone is the subject of a standalone Doctoral Thesis, but I will keep it short for half my audience may already have stopped reading.

If you have an irrigated farm that grows grain the jobs on the farm you create are more or less 1 job per 100 hectare with a property value of R200 000 per hectare, Let’s say our turnover per hectare per annum is R60,000 with net profit before tax of R10,000. This may look unviable or marginal at first glance, however, if you start adding the total number of jobs emanating from the multiplier effect one may be surprised. Critical looking at the money flows of a farming business the farmer will spend R50 000 in input costs, expenditures and overheads from the turnover. Allow me to break this up and show you blow by blow where these jobs come from. Firstly, there are fertilizer compounds, these need to be either imported or manufactured by someone who employs staff, to facilitate importation a bank would get involved in the finance side the clearinghouse will be involved, the transporter at the harbour will get a part of the action and all his workers involved, then transport will be required to the fertiliser blending plant and from there to the farm consider the lorry drivers, loaders and forklift drivers. The vehicles carrying the fertiliser use tyres, the lorries will be attended to by mechanics and diesel attendants at the fuel station, shall we go backwards of that forecourt and understand that for diesel to get there you need refiners at SASOL to do their job well to get a low sulphur content product. I am sure you now see the string or chain of jobs behind just the fertiliser drivers, petrol attendants, blender plant operators, toll road staff, bank tellers, port authority workers. I am sure you get my point on job multipliers just looking at the fertiliser component.

My next stop would be chemicals or herbicides and I could go into that value chain and unveil another dozen of activities that employ people to deliver the commodity to the farmer.

If we look at the farm infrastructure we have irrigation systems where pumps, motors, gearboxes, electricians, pipes and many more mechanical components that either need to be imported or locally manufactured and all available from your friendly co-op branch that provides you with some other useful and critical tools, boots, overalls, cement, cattle feed and many other products used in ordinary farm life. The tractors, combine harvesters and other motorised farm equipment will need to be financed, insured, supported by information technology including but not limited to cellphones. See the invisible jobs created around what could be seen as dreary isolated farm life.

Dear friend, I trust your eyes have been opened to the UNSEEN side of farming, but wait…you still need to get the grain to a silo storage, the silo to a miller and from the miller to the distribution centre and from there to the shop with jobs all along the way.

Let me stop for by now your own mind is starting to see strands of jobs I have left out, and of course you get the point. The SEEN is a small part of agriculture and the UNSEEN the big part. Remember this equation when thinking about farms in relation to jobs: SEEN < UNSEEN. I’m sitting again on a plane and thinking about why I'm marketing Africa at my own risk and suddenly it dawns on me that governments do not SEE the UNSEEN side of business. The cost, the risk, the energy, the emotion, the time, the reputation, the family time that’s missed, for the country and its people. They undiscerningly see only the bad side, the low wages, bad working conditions, the long hours of the workers and the inequality of pay. They don't see that they have 28% of all the businesses without putting up the risk capital, not to mention the capital gain tax and the dividend tax and all the other taxes that bring you close to 50%. Yes, you get the rewards if it works out but this is the whole point if there were no rewards/incentives nobody will do it. And that’s for those in fortunate quartile for 70% of all new businesses including farms will fail within 3 years of being formed. A heart-attack prone businessman deserves his reward, take that incentive away and he wouldn’t be on a plane searching for markets in a Portuguese or French-speaking African country. The one thing governments need to remember is that capital can be moved and remains mobile. Capital in its purest form is a calculated belief that tomorrow will be better than today. If you take the hope of better tomorrow away you take capital away. The stark reality is that without capital you cannot build anything. So what should I tell investors about the possibility of land that would be taken? What would be their incentive to invest, when the prospect of a dark tomorrow is being discussed, dissected and inconclusively debated on social and international media platforms endlessly? They can move their capital to many other place where it is safe and where tomorrow looks a little more secure, clear and the prospects of wild political and policy shifts unlikely. Investors like returns but also love the stable predictable and boring. Let’s make it easy for people to invest and provide them a place to invest, after that their work can begin.