Terence Gregory

CEO of Ecsponent Limited

Unlocking Africa’s Entrepreneurial Potential

“If we’re able to bring the cost of capital and energy down in South Africa, it would stimulate the economy very significantly and address some of the key underlying drivers of instability in Africa such as poverty, crime, and unemployment.”

AfricaLive: Tell us a little about what Ecsponent does?

Terence Gregory: The business is a financial services business particularly focused on South Africa and Southern Africa. We believe in the opportunities of the continent in our focus areas. We look for a combination of high growth sectors and high growth businesses to give us sustainable returns. We take money both from the public, in terms of their investments, and institutional capital in order to roll that through the financial services sector.

Financial services can really unlock SMME opportunities in South Africa and Southern Africa. Although we’re more industrialised in South Africa than the other African countries the reality is to grow our economy and to grow any of the African economies we have to grow the middle class sector in terms of individuals and businesses. Today businesses are not able to attract the right levels of capital and the right level of development funding and that’s where we play a role.


AfricaLive: Are you seeing micro-lending coming in to fill a space that banks were ignoring?

Terence Gregory: Yes, I think that the banks have some serious challenges. The regulatory environment in which they operate is very restrictive. In terms of things like capital adequacy ratios and so on the reserve bank is quite onerous on banks. Notwithstanding that, South Africa is no different to the rest of Africa if you look at the stats of the bankable population or businesses, probably 80% or so of the businesses registered are not properly bankable. so there are different products or services needed in order to bank that 80%.

It’s no secret that that 80% is obviously is also a higher risk sector than the bankable sector, but if one wants to grow the economy you have to grow that sector and to grow that sector you have to provide finance. It is a sector that is highly sustainable, can provide better margins and is less regulated. The important part is to do it properly so your money doesn’t go south with the business.

Our business is very niche, we have a couple of very specific products. We have products for emerging entrepreneurs, we have products for well-established SMEs, we have our own securitisation-type models and because we’re agile we’re able to do a lot of transactions that the banks wouldn’t be able to consider. This is our unique platform.


AfricaLive: What are the obstacles to developing SMEs here, why do they have such a high rate of failure?

Terence Gregory: One of the key issues is problems related to skills. Purely providing capital doesn’t ensure the success of a business. Providing capital and skills to ensure the capital is well used is the start to the remedy. A further part to the remedy is be able to support the growth of an organisation without putting the onus on unskilled management to manage capital as well as do what they do well. I think the African continent produces really good traders, but traders are not necessarily good businessmen or good financiers and we try to fill those gaps with very specific, very niche products providing the right level of upskilling on the one hand but also a measurement of the success of that upskilling.


AfricaLive: Is there a difference in environment between South Africa and countries north of border?

Terence Gregory: There are significant regulatory differences. South Africa is one of the most regulated countries in the world so that creates its own dichotomy. One example is the National Credit Act precludes you from lending money to the individuals in the business who need it most. On the other hand, the BEE structures reward the development of this very sector in terms of supply chain development. So you want to develop supply chain development with emerging entrepreneurs from previously disadvantaged backgrounds but you may not lend money to them. It in itself is a self-fulfilling prophecy that it’s going to a point of conflict but we have a product that bridges that so we don’t fall foul of the National Credit Regulator but can also support the supply chain opportunities of large corporate businesses.


AfricaLive: Does the environment allow innovation and disruption?

Terence Gregory: The regulatory environment is very onerous, particularly for small business, in that the skills required to negotiate that regulatory environment is very difficult. The key element is that there are new financial services developments like block-chain that fall so far out of the perimeters that they’re actually not caught in the net of standard regulation. So, the regulators are having to rethink that bigger picture of how do you, with bitcoin, control forex movements. It is a dilemma for regulators. Hopefully, this will start a whole new debate and start a whole new focus on how we actually develop the financial services arena.

Clearly the innovation can come from participation between the regulators and industry because it’s very difficult for a regulator to understand a bitcoin environment and how to regulate it. So, hopefully, these two worlds can start meeting and can be innovative in the way we look forward, because if not the regulators will continue to play catch up because this environment is going to accelerate not slow down.


AfricaLive: What form should this debate, on regulation and financial technology, take and what should the result of that debate be?

Terence Gregory: I think it’s already started. If you were the Reserve Bank and you were debating how to regulate blockchain in general, that’s a very different debate to what they would be having generally in terms of pursuing criminals who are transferring money across borders. It’s a very different environment and I would imagine that the skillset required to start regulating that environment requires a whole different animal to be employed by regulators, which already starts that transfer of skills and a different view of the world.

I don’t believe this is all revolutionary, it’s evolutionary. We’re moving in a direction where your traditional bank is archaic, it has practically disappeared. The situation of having a Standard Bank account has all but disappeared in terms of necessity as people can have wallets on their smartphones and they don’t actually need banking any longer, they’re getting the same facilities in a less regulated environment. It’s clear the environment still needs to be regulated, we will have problems and people won’t be looked after. I think that bigger picture certainly exists and that debate is being had at some of those fora that are trying to control something they don’t even fully understand.


AfricaLive: What impact can this more dynamic SA financial services sector have on wider society, in terms of jobs creation?

Terence Gregory: It’s similar to the debate around Eskom. Is it better for Eskom to employ another 30,000 people or to provide cost-effective electricity? Depending on whether you’re a trade union or an entrepreneur would have a very different perspective. In South Africa money is very expensive, interest rates are high, the return on investments need to be high in order to match interest rates and all of that drives inflation. We have some very critical inflation drivers right now, one of them is energy, fuel price, Eskom are driving inherit underlying inflation very hard.

The key to this is to lower the cost of capital because if you don’t all you do is drive those inflationary pressures further. Government has that dilemma because the South African environment is not a culture of saving and that’s partly because savings have always run behind the cost of capital. The credit culture is driven by highly inflationary rates in the fiscal sector. If we’re able to bring the cost of capital and energy down in South Africa, it would stimulate the economy very significantly and address some of the key underlying drivers of instability in Africa i.e poverty, crime, unemployment.

If you look at things like transportation and logistics costs in Africa it makes African produce and commodities uncompetitive in international markets. That’s driven by the cost of energy, which is driven, to an extent, by the cost of capital because without the cost of capital the more effectively you could put energy closer to populations and so on.

It’s a complex question but if we don’t deal with it holistically and those key components like the cost of capital, the ability to drive down unemployment and inflation is negated. it doesn’t matter what we do at a political or economic level, we have to get those key fundamentals down.


AfricaLive: Do you see a solution to poorly performing State Ownerd Enterprisess? With the right leadership can they be turned around in the short term?

Terence Gregory: Without question. I think it does all come back to leadership and part of that is what drives a State Owner Enterprise? Is Eskom a provider of energy to the country at the lowest possible cost, is that it’s mandate or is its mandate as an organ of state and the ability to try to balance the employment of individuals?

If tomorrow you handed Eskom over to private enterprise for nothing, what would that save the state annually? Strategically, you can say you have to have energy so that’s fine. If you provided an open commercial opportunity for business to provide energy to South Africa on a competitive basis I have no doubt you’ll drop the cost of energy in the country by 50% at least. What does that do to the economy, how does that drive things going forward? That requires a completely different definition in what Eskom’s role is and what the government’s role is in the provision of energy versus state owned enterprise that you retain for strategic or political reasons.

Should the state carrier remain a state carrier or is it an airline that must provide commercial resources to South Africa in terms of travel. How do you define the organisation? Can leadership change that? Absolutely, but the mandate for the leadership is also very important.


AfricaLive: How do you see the state capture response playing out?

Terence Gregory: I believe perspective is important. Ramaphosa’s taken over a business which firstly has a number of different stakeholder investments in it, both political and commercial, that he needs to balance. He’s taken over the titanic six inches from the iceberg, it’s something that takes time to change. Simply changing the leader doesn’t change the underlying dynamics of the business.

The invested corruption is still there and is obviously being dealt with now, but needs to be dealt with aggressively and visibly to create confidence. The situation of state looting of the country and its enterprises will take time to turn around. That’s created liabilities on the balance sheet of the country that are not overcome in seconds.

If you consider the different implications, particularly in the run up to the elections, Ramaphosa has to remain in power to head up this greater business fo our country down the line and make those changes. He can’t make too many radical changes and put too many people off side on day one.

So a lot of what’s happening is positioning for the election and that would mitigate some of the real change that one is expecting to see. In terms of a big business, when you look to change that business, even very significant dramatic changes on day one don’t role out to the bottom line in the short time, it’s a longer term investment of getting it right.

I think that in terms of where we’re going to there are very significant in the right direction, in terms of recognising key areas of importance. If one goes back to the rhetoric of land grabs and all the rest of it that was very focused in the agricultural sector previously. That rhetoric has practically died, it’s moved more into a metro type situation now so things like food security, which is very important, is less impacted by that rhetoric than it was before. So there’s some key underlying subtleties that are changing, which I think are important in terms of our economy.

The realisation that individuals of any level, be they the Minister of Finance, if they are tainted they need to be dealt with and the fact that that needs to be done visibly and there might be some turbulent waters to negotiate in order to do that in the greater worldwide community it’s quite important.

If one considers some of the decisions that have been made in the face of the potential downgrade and a sovereign debt downgrade, which is just an inch away all the time, to take those tough decisions under those circumstances should be applauded. I think there’s definitely the right focus and leadership. Can they negotiate all of these different dynamics at one time? That’s a juggling act. Appeasing Cosatu, the other alliance partners and business in one go is quite difficult when you then have this morality issue over it and you want to see moral retribution for what’s happened.

Are we putting the right level of governance in to state owned enterprises, are we putting the right individuals in or are they purely political appointments in those positions, are we prepared to deal with some of these tough questions, irrespective of whether it would make the sovereign downgrade more likely or less likely to happen? If we’re dealing with fundamentals then we’re going in the right direction, because it means that the morality of those decisions is starting to find the right base, rather just purely being outcomes based. I’m definitely more confident.


AfricaLive: Where do these failures in ethics come from in both government and business? What’s the root of the problem, how can we remove unethical behaviour from South African government and business?

Terence Gregory: I think to an extent our DNA has been corrupted. When you have a president who has 170 odd charges based on corruption levelled against him, the DNA of the country starts becoming questionable and I think we need to get back to the DNA that we as a country have always believed that we are the highlight, not the lowlight, of African morality and Africa’s ethical behaviour. The fact is that regulatory imposition does not prevent fraudulent behaviour or even criminal behaviour. All it does is hopefully highlights it and brings it to account as early as possible and that’s very key.

From our country’s point of view we have a morality and we have a history of sound morality. We must be seen to be dealing, as a country, firmly and solidly with all deviant behaviour because if it’s not tolerated then it will be highlighted and dealt with. I don’t think that society has felt sufficiently responsible for changing that behaviour in the past and I think that groundswell has started to pick up which is based on confidence in people like Ramaphosa to deal with things properly even if they are tough. As long as the looters are dealt with visibly and acceptably then I think our moral compass will come back to where it needs to be.


AfricaLive: Will we see more impact investing? Are investors here more interested in having a wider societal impact?

Terence Gregory: I think so. I think there’s always been impact investing, maybe it’s become a bit more fashionable as interest rates in other territories drop so we’re seen as a better destination.

There is a significant role for impact finance. In terms of our business, we’re very focused on financial inclusion and we’ve also been able to develop products that fit within the regulatory framework without exposing us to the traditional exposure. I think there’s a huge opportunity for business at large but also large investors to invest in those specific channels and develop them in South Africa.

The key to it though is if you don’t manage that properly, you’ll lose your money so your impact becomes risk finance entirely and you lose the opportunity to replicate that over and over. But we do see a significant role for impact finance both here and across Africa.

The traditional channels always give a very low return because of that there will always be an appetite for higher risk higher reward investments. If those investments can be coupled with a social conscience then that helps a great deal. But if you don’t have the right management, doesn’t matter what country you go in, you’re likely to be parted with your money, and that’s where the balance is.


AfricaLive: What impact would you like to have on wider South African or African development?

Terence Gregory: Our key reason for existing is financial inclusion, it’s where we deploy most of our funding. It’s where we see the greatest return and we will continue to grow those areas. We are very niche and we have very specific products where we deploy. What I would like to see is greater investment in businesses like ours so that we can make that difference. We are very definitely looking to attract more foreign investment as the cost of capital when you take in retail capital in South Africa from South Africans is expensive capital.


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