Patrice Motsepe: Mining magnate

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1:24I'm Asma Khalid in Washington, D.C. I'm Tristan Redman in London. And this is The Global Story. Every weekday, we'll bring you a story from this intersection, where the world and America meet. Listen on BBC.com or wherever you get your podcasts.

1:52Welcome to Good Bad Billionaire from the BBC World Service. Every episode, we pick a billionaire and we find out how they made their money. Then we judge them. Are they good, bad or just another billionaire? My name is Zing Sing and I'm a journalist, author and podcaster. And I'm Simon Jack. I'm the BBC's business editor. And on this episode, we have South Africa's first ever black billionaire. And he remains the country's only black billionaire, in fact. His father was the chief of a royal clan within the Tswana tribe. So as well as being a king of business, he's also a prince. And he's also married to one of South Africa's most fashionable women.

2:27His sister is the current first lady of South Africa. And besides being incredibly well-connected, he has also made a few customary billionaire purchases, which includes a wine farm, a$200 ,000 Bentley, and of course, a football team. Always got to have a sports team. And in fact, he's the president of the Confederation of African Football himself. All of this means that in South Africa, he's become a celebrity and the poster child for wealth and success. We are talking about Patrice Motspe, a man for whom his name has become a byword for money. So after payday in South Africa, people will apparently say, I'm Motspe's son or daughter, or parents will tell their kids, presumably after they request a new PlayStation, I am not Motspe.

3:11Who do you think I am? Yeah, I love that. Forbes, the American business magazine, named him one of the 100 greatest living business minds in the world. Quite an accolade. But for some critics, Patrice Mazzepi has become an oligarch who symbolises the inequality in post-apartheid South Africa, which is, by the way, still one of the world's most unequal societies. And you know, in this podcast series, we've often looked at people who've been in the middle of economic, cultural, technological change. And in a way, he represents at least two of those in cultural and economic terms in South Africa.

3:44So is Patrice Motsappe good, bad or just another billionaire? We'll find out.

3:53Let's go back to the beginning. Patrice Motsappe was born in 1962 in apartheid South Africa. So South Africa had been under apartheid since 1948, a system of institutionalised racial segregation. His father had been a high school teacher, his mother was a nurse, and he was the second of seven kids. And importantly, his father was also a critic of the apartheid regime. Patrice had actually been named after Patrice Lumumba, one of the first black African postcolonial leaders of the Democratic Republic of the Congo. Now, because of this, the apartheid government forced the family to move to a rural area north of Pretoria, where his father's criticisms wouldn't attract so much attention and cause trouble.

4:33And his dad left teaching. He opened up a grocery shop and soon expanded the business to include a restaurant and a beer hall. Yeah. And Patrice actually said, people don't know that there were very successful black businessmen in the years of apartheid. Whenever my father made a profit, he always ploughed it back into the store. And he did something that is quite common among our billionaires. So he actually worked in the family business. On school holidays, Patrice would help out in the shop. And his dad actually joked that they made so much money when Patrice was behind the counter, he should just take over.

5:05Yeah. Like you say, in common with some of our other billionaires, he had a very hard work ethic. He said it was hard work from 6am to 8pm. I soon realised I needed to choose a career that would keep me away from that shop. So that's how I came to decide when I was only eight that I would become a lawyer. It's quite a thing to decide at the age of eight to become a lawyer. I'm not sure I even knew what a lawyer did when I was eight. I wanted to be a stockbroker when I was nine. Well, I have nothing to say about that. Where did you learn about the job of a stockbroker? Well, it was because there were all these share prices in the newspapers and I didn't know what they were.

5:43And basically, I watched them go up and down. I was just fascinated by just the numbers of it, to be honest. So I'm really outing myself as a sort of capitalist freak. I kind of like that, though. I think we'd need at least one capitalist freak on the podcast. So Patrice's parents were determined that their children would receive the best education possible. Now, living under apartheid, they were supposed to send their children to a government school which specified black children only be trained for manual labour and menial jobs, a horrible regime. And this is a real fork in the road for Patrice because his future would have probably turned out quite differently if he'd gone to that school.

6:16But instead, Patrice's parents sent their children to an Afrikaans language Catholic boarding school some 700 kilometres away. Yeah, it was officially designated for South Africans of mixed race who were then known under the apartheid regime as coloureds, which Patrice was not categorised as, but his parents managed to pull some strings and get him an exemption. And it was at the school Patrice showed a talent for football. He played for local youth teams. Some thought he actually might become a football star, but he always concentrated on school. He said, even at school, I had to be first. For me, it was always about hard work, blood and sweat, and coming out on top.

6:53The coming out on top is an interesting thing to add. Yeah, and also a common denominator with many of our billionaires. And so he studied that law degree that he wanted to study. In 1983, he attended the University of the Witwatersand in Johannesburg to get a further degree that would allow him to practice law. And this still being under the apartheid regime, the university was designated as being whites only. And so Patrice had to get a special permit to attend, meaning he was one of the very few black graduates on this course. And he shares that with a very famous former pupil there, Nelson Mandela, had been one of the first black students on that course way back in the 1940s.

7:32And it seemed then that Patrice was on track to become what he always wanted to be, a lawyer. After graduating in 1988, Patrice joined Bowman Gilfillan, one of South Africa's largest corporate law firms. And this is where he first comes into contact with what will make him his fortune, because that company, that firm, dealt with mining company contracts. So Patrice was gaining inside knowledge of South Africa's mining industry. And it was while he was practising law at that firm that he actually tried to buy a small-scale mining operation, but no one would lend him the money. This, however, would not be the end of it.

8:06He was a very smart guy in 1991. He got a prestigious two-year exchange programme in Virginia in the United States after being recommended as a superstar. And when he finally returned to South Africa to his law firm, it was at the point of a huge moment for the country. The African National Congress, or ANC for short, the political party opposed to apartheid, had been banned by the South African government since 1960, and ANC leader Nelson Mandela famously had been in prison since 1962. But all this was changing when Patrice went home. In 1990, the ANC was unbanned, Mandela was freed, and in 1994, the ANC won South Africa's first fully democratic election, the first time in history that black South Africans had been able to vote in a national election.

8:54So he's becoming an influential lawyer at a huge moment for the country. And he's got intimate knowledge of what is South Africa's biggest industry. He said at the time, I suddenly got restless and had to find a new goal. My shop work from my childhood came back to haunt me. So I decided now I have to become an entrepreneur and tackle something on my own. Yeah. And that, again, is a hallmark of our billionaires that no one's ever going to pay you enough to be on our list. You've got to build something yourself. So he left the law firm to join the mining trade. He founded a company he called Future Mining and he asked mining bosses, what was the worst job on the mine?

9:31And then he asks if he can do it. Quite an interesting way to eventually build your way to the top. It reminds me a bit of that show Undercover Boss. Yeah. It's sort of like, I literally want to start at the bottom. So it turns out that Future Mining provided contract services to clean gold dust from inside the mine shafts. I have to say, this does not sound glamorous at all. Well, when you say gold dust, you usually think that does sound quite glamorous, but I've got a feeling this was not. No, I get a feeling it's very hard on the lungs. So apparently it used low-level labour. You were literally just sweeping up this gold dust with brooms after the industrial mining crews got in there and did what they did.

10:07Yeah. So he struggled to make money initially. For nine months, he said, I couldn't even afford an office. They used to call me the suitcase man, because I worked out of my briefcase, literally. But remember we talked about how some of our billionaires come up during these pivotal moments in history. Well, the tide of South African history was on Patrice's side because mining was set to change under the new ANC government. And as a mining lawyer, Patrice would have been aware that changes were coming. Yeah, he would have seen which way the wind was blowing and where to position himself. So once in power, the ANC introduced something called Black Economic Empowerment, BEE or B, and it was a sort of affirmative action to redress decades of discrimination and the inequalities of apartheid.

10:48BEE provided incentives to businesses which contributed to black economic empowerment. So for instance, they would get preferential treatment when it came to government procurement processes. And it didn't come into legal force until 2003. But in the 90s, you started seeing a bunch of voluntary initiatives. And the Financial Times at the time said BEE represents one of the largest voluntary shifts of assets in modern history on a par with the massive privatisations that follow the demise of communism in Eastern Europe. Interesting parallel. So this is the context in which future mining Patrice's business grows and becomes more successful.

11:25But by 1997, he wants to expand into owning, not just sweeping, mines. Yeah. So he found something called African Rainbow Minerals Arm with venture capital off the back of future mining. And he sees an opportunity, the price of gold was falling, tanking, really plummeting. So a big mining company, Anglo Gold, was looking to dispose of some of its loss-making mine shafts, including one in Orkney, a mining town in South Africa. The seller, however, which was Anglo's chairman, Harry Oppenheimer, then one of the richest people in the world and South Africa's foremost industrialist, didn't actually think Patrice was up to it.

12:01Patrice says, Harry Oppenheimer was very polite, but he said to me, what makes you think you are going to make money where Anglo has not? Yeah, but fortunately, an important person in this story, the chief executive of gold and uranium for Anglo, Bobby Godsell, knew Patrice from his contracting work and had been impressed by his doggedness and resolution. So all that sweeping, contract sweeping, proved to be something that helped him in the long run. Clearly paid off. However, there was this small issue, which was the price of all these shafts. Bidding started at$8.2 million,$16 million in today's money, which was actually more money than Patrice had.

12:39And he was moving into gold, as we said, at a time when the price of gold was dropping, which looks business-wise insane. In fact, no one would lend to him and the bank said, are you mad? But Bobby wanted to help black South Africans get into business. He says, I was seeking to create capitalists out of people who had no capital. That is incredibly enlightened for someone who is the chief executive of gold and uranium for one of the world's biggest mining companies. And also at a time when South Africa was just coming out of the apartheid regime as well. Incredibly progressive. Yeah. So he gave the loss-making Orkney mining operations to Patrice, who agreed to pay the$8.2 million back with a percentage of future profits in the future.

13:21So, I mean, pretty big gamble for all parties. Bobby Godsell's taking a chance on Patrice. Patrice is taking a chance on being able to turn a profit in a market where the price of what he's getting out of the ground is falling, and he's going to have to pay back a chunk of any future profits in order to pay for it. So a real roll of the dice for many people concerned. But when people hear the word gold, people just think, well, that's always going to be valuable. So was it that much of a risk? Did they always know it was going to go back up? It depends on your cost base. Getting gold out of the ground is a pretty daunting undertaking in terms of equipment, labour, etc.

13:54It's dangerous, especially in those days. So if the price of the commodity you're trying to dig out does not cover the cost of you digging it out of the ground, you are almost guaranteed to go bust and lose money. Because gold is one of those really weird things. There's only so much of it. There's a finite supply of it in the world. I'm told that all the gold in the world and still in the ground would fill two Olympic swimming pools. And that's it. And for that reason, it's often seen as a store of value. And in some cases, a hedge against inflation because you can't make any more of it. You can print more money.

14:27You can't print any more gold. The digital version of that these days is Bitcoin. It's gold versus Bitcoin at the moment. I don't know. I'd rather put my money against gold, personally speaking. But then I am one of those people who thinks, oh, wouldn't it be nice to have a gold ingot underneath the bed just in case society collapses? I did a whole documentary about gold. Somebody came up and said, if you put it in your hand, it feels so heavy. It's like having a little piece of the sun in your hand is the way someone put it. Interesting. If gold wasn't shiny and golden, would we care so much about it?

14:58Would we care so much? Anyway, so gold prices continued to fall steeply in the first few months of his venture. So he set about cutting costs. He cut his management staff in half and he gave jobs to only 5 ,000 out of 7 ,500 employees at the mine, which did not go down well. No, it caused a backlash. And in fact, the then president of the Mine Workers Union said the deal was not black empowerment at all. What's empowering about a black owner coming in and cutting the workforce? Patrice's strategy, however, from a business perspective, worked. He actually made the shafts profitable in their first year.

15:31And partly this was due to a novel pay system he implemented for his workers, lower base salary, but a profit-sharing bonus that could double their pay. He said the only reason we survived was that our management style was fundamentally low cost. And he thought this model would help incentivise production, giving everyone a share in the profits makes them work that little bit harder, perhaps. And indeed, productivity rose by 39%. It's a model used in quite a lot of business, isn't it? Well, the one I can think of that jumps out at me weirdly is investment banking. Because actually, even though the base salaries are pretty high, the bonuses can be very, very high indeed.

16:09And so everyone is extremely incentivized to try and get in as much business and work on as many deals as possible. But all of this meant he turns a profit in the first year. So he's able to pay back the$8 million to Anglo through profits within just three years. And we know that by 2001, his company must have been making tens of millions. And so, just five years after founding African Rainbow Minerals Gold, it had become the fifth largest gold producer in South Africa, and he listed on the Johannesburg Stock Exchange. And in 2002, the newspaper All Africa ran a story headlined, bet your bottom dollar they're millionaires.

16:46In fact, South Africa now had$25 ,000 millionaires. And just to put that in some worldwide context, there were 7 million total dollar millionaires at the time. Half of all Africa's dollar millionaires were South African, thanks to its enormous mineral wealth. And Patrice was at the very top of the South African dollar millionaire list. So by 2002, age 40, Patrice is a millionaire. And he's done it all off that shiny commodity, gold.

17:28In business, they say you can have better, cheaper, or faster, but you only get to pick two. What if you could have all three at the same time? That's exactly what Cohere, Thomson Reuters, and Specialized Bikes have since they upgraded to the next generation of the cloud. Oracle Cloud Infrastructure. OCI is the blazing fast platform for your infrastructure, database, application development, and AI needs, where you can run any workload in a high availability, consistently high performance environment, and spend less than you would with other clouds. How is it faster? OCI's block storage gives you more operations per second.

18:05Cheaper? OCI costs up to 50 % less for computing, 70 % less for storage, and 80 % less for networking. Better? In test after test, OCI customers report lower latency and higher bandwidth versus other clouds. This is the cloud built for AI and all your biggest workloads. Right now, with zero commitment, try OCI for free. Head to oracle.com slash strategic. That's oracle.com slash strategic. America is changing. And so is the world. But what's happening in America isn't just a cause of global upheaval. It's also a symptom of disruption that's happening everywhere. I'm Asma Khalid in Washington, D.C.

18:49I'm Tristan Redman in London, and this is The Global Story. Every weekday, we'll bring you a story from this intersection, where the world and America meet. Listen on BBC.com or wherever you get your podcasts.

19:09So, how does he get from a million to a billion? Remember that until now, black economic empowerment legislation had been voluntary throughout the 90s. But at this point in 2003, it's coming into legal effect and that is about to turbo charge his riches. Because the mining charter required companies to have a minimum 26 % black ownership before a license would be granted. And this was something that Patrice immediately capitalised on as he began to diversify his mining portfolio. So moving out, not just doing gold. Yeah. So he is, like we said, on the cusp of a massive cultural and economic change in South Africa.

19:48And he is in exactly the right place. He expanded the gold mining business by joining forces with one of the world's biggest and white-run gold mining producers, Harmony. In fact, he actually merged with Harmony, one of the mining sector's biggest empowerment deals. So his company, African Rainbow Minerals, ends up controlling almost 20 % of this big, huge merge company, Harmony. and Patrice becomes the non-executive chairman. And he starts moving into other metals, right? So not just gold, nickel, chrome, iron, manganese and platinum. He partnered 50-50 with Anglo Platinum, the world's largest producer of platinum, to produce a new platinum mine.

20:25And interestingly, he gave a 17 % stake in the mine to two non-profit groups representing the surrounding communities. We may have discussed that when it comes to his philanthropic endeavours. Yeah, we should. And by 2004, Patrice was described in African Business Magazine as a shining beacon of the country's black economic empowerment. He'd become almost a symbol of this policy. And Patrice's success gave other companies confidence that he could be their first black partner so he could push into even more areas. And Patrice didn't stop with mining. He moved into financial services. he created Ubuntu Butu Investments, UBI, which then entered into a black empowerment deal with one of the largest insurance and financial services in Africa called Sanlam.

21:11Patrice became the majority shareholder and non-executive deputy chairman. So he's really kind of spreading those tentacles around, like snaffling up loads of new resources. Yeah. He was becoming known as this rich, powerful figure in post-apartheid South Africa, the poster child, if you like, for a change in regime, both socially and economically. And both the Financial Times and Time magazine ran features about the new B-Tycoons, noting how they were members of the once white-only elite gentleman's RAND Club, a club in central Johannesburg. So really a symbol of the kind of changeover of wealth in South Africa.

21:46I've never been to the gentleman's RAND Club, but I imagine it's kind of like the Oil Barons Club in Dallas. You're too young to remember Dallas, aren't you? Yes, sadly. But I sort of have an idea of what Dallas is. is that people kind of chomping on cigars, drinking whiskey on rocks. Exactly, exactly that kind of thing. Patrice was named one of the fab four black South African businessmen, along with Saki Maksoma, Tokio Seswali, and Cyril Ramaphosa. That name may ring a bell. Of course, he's the current South African president. But the BEE policies and those who capitalised and made enormous wealth off them were actually controversial.

22:26Critics argued that it enriched just a few black people rather than the many black South Africans. And in fact, that was supported by data from the IMF, which said that inequality actually increased in the early 2000s post-apartheid and has remained high ever since. Meanwhile, its peers in other emerging markets have been able to make inroads into reducing inequality. And the Archbishop Desmond Tutu himself said in his 2004 Nelson Mandela annual lecture, what is black empowerment when it seems to benefit not the vast majority, but a small elite that tends to be recycled, are we not building up much resentment that we may rule later?

23:02Yeah. So the criticism is you are simply replacing one elite with another elite without the spoils of this economic revolution being felt more equally. And that's a society where all black South Africans were marginalised and economically disempowered. But when the empowering came around, it only benefited a small minority. Yeah. And in fact, some critics felt that white businesses were rather cynically exploiting the political connections of the black tycoons. Have you seen Killers of the Flower Moon? Have you seen that movie? Yes. Reminds me of that in the sense that some white business people would hitch themselves to First Nation Americans who had been given particular land rights and they would basically piggyback on that in order to get what they were after.

23:45It's funny how this always seems to happen with minerals, doesn't it? Oil. Oil, things that you can get out of the ground. Yeah. Moiletsi Mbeki, brother of then-president Thabo Mbeki, was a vocal critic calling it anti-competitive and crony capitalism. He said the oligarchs are now trying to deracialise their club by buying black members into their oligarchies. Oligarchic control is not a road to development, it's a road to disaster. But those defending the BEE policy said it was not designed as a poverty relief scheme. Instead, the government was trying to tackle unemployment, hunger, poverty and unequal access to education under other programmes.