Examination of Witnesses (Questions 127-139)
27 JANUARY 2004
MR CHRISTOPHER
PATERSON AND
MR ASHLEY
ROE
Q127 Chairman: Mr Paterson and Mr Roe,
I welcome you on behalf of the Committee; the first shall be last.
Mr Paterson, we understand you had a problem with the train today.
Mr Roe, we thank you for being understanding and waiting on. To
introduce the both of you, Mr Christopher Paterson, you are the
Executive Director of Macmillan Publishers Ltd, the Oxford publishing
house, Chairman of Macmillan Education, Chairman of Macmillan's
southern Africa companies in South Africa, Botswana, Lesotho,
Mozambique, Namibia, Swaziland and Zimbabwe since 1983. You are
also Deputy Chairman of the South African Business Association
(SABA) and a member of the Royal African Society. Mr Ashley Roe,
you are the Business Development Director, Severn Trent Water
International Ltd. You are also Chairman of the British Water
Overseas Forum and a Director of British Water, the UK's water
industry trade association. You have worked in a number of relevant
fields. Gentlemen, we welcome you both. May I ask whether you
could state what involvement your respective companies have recently
had in South Africa and what particular obstacles, perhaps peculiar
to South Africa, you have met in your business operations?
Mr Paterson: Thank you very much
for this opportunity. As Macmillan we have been trading in southern
Africa for more than 25 years. During the Apartheid years we set
up a regional organisation based in Swaziland and set up curriculum
publishing organisations in all countries around South Africa.
We did publish English language teaching courses for South Africa
at that time, but did not enter into the general curriculum business.
Since change in 1994, we have invested very heavily in South Africa
and have become a major player in that South African educational
market. We have been developing books for the new curriculum over
ten years now and we are involved in all aspects of education
in every province in South Africa.
Q128 Chairman: Any particular obstacles
special to South Africa which you could draw to our attention?
Mr Paterson: There
were enormous obstacles at the beginning. I suppose historically
there was fierce competition in the market in any case and the
large Afrikaans press groups were dominant players in that market
with sometimes rather old-fashioned school books. With the new
curriculum, the market became open. Our biggest problems have
been gauging the pace of curriculum reform and educational funding.
Huge promises were made at the beginning and we, like other publishers,
made huge investments and then the funding collapsed for a while
and we slowed down. We probably got a better result in the end
but we had huge problems in those years and the educational publishing
industry as a whole had to lay off perhaps half its staff from
1996 through to 1998.Q129 Chairman: Are you back on track
and into profitability? Mr Paterson: Back on
track and the governance standards on which educational publishing
depends are improving. Although books are approved nationally,
the buying is a provincial business. Books are bought at provincial
levels so there are differences locally. Mr Roe:
Severn Trent have been involved in South Africa since about 1999.
We are involved in a very small way compared with Macmillan and
we have taken the view that we are going to continue to be small
until such time as the market opens up. We saw opportunities in
1999-2000 in the development of private sector involvement in
delivery of water supplies. They have not really come about. One
significant contract has been let.Q130 Chairman: Is this
a privatisation project? Mr Roe: No, not necessarily.
It is private sector involvement in the delivery; it is not privatisation
as we would know it here. It is more like an operating-type arrangement.
The contract we were looking at was for Johannesburg. We decided
not to bid for that but since that time we have stayed there undertaking
small consultancy work. We have managed to utilise that to fund
our office in South Africa and we will continue to do that until
we see the opportunities beginning to arise. In terms of the reasons
why those opportunities have not come about, there has been some
reluctance from the union side, in terms of getting large Western
businesses involved in service delivery. There has been a change
in the way in which service is being provided, from a centrally
directed arrangement through the Department for Water Affairs
down to the municipalities, who have become responsible for service
delivery. That has taken nearly two and a half years to work through.
They now have a serious lack of capacity at the municipal level
in terms of service delivery.Q131 Mr Illsley: The Foreign
Office have given evidence to the Committee to suggest that the
UK is one of South Africa's largest trade and investment partners
and that South Africa is one of the largest investors within the
UK. How large a market is South Africa for UK companies at the
present time and potentially and should some of the problems you
have just been outlining be removed? Mr Paterson:
For educational purposes, South Africa is a very large market.
Because a very large proportion of its population is of school
age—I forget the exact proportion under 18, but I think
it is about 40 per cent—it is a huge market. For a long
time it was under-funded because the history before 1994 was to
fund more pupils, but not to fund them to a very great amount.
The funding total has now caught up with the 1994 levels and that
makes it a market for publishers of perhaps £100 million,
compared with the UK which varies between £200 million and
£300 million. It is a substantial market for us.
Q132 Mr Illsley: Would
you say that is the same not just for educational publishers,
but for other companies as well? Would the same advantages be
there for anybody who wished to sell any product which would appeal
to that population? Mr Paterson: I would think
so. It is a substantial economy and British companies, because
of history, the long establishment of British businesses and the
high level of British investment historically, can make it a very
large market in almost anything. Mr Roe: I would
concur with that, although we viewed it as more of a hub for our
business in southern Africa and we saw the fact that there was
a workforce there which we could tap into as something we could
use to go into other parts of Africa. In terms of a market for
water services, there are 50 million people and over the next
10 to 20 years there is going to be considerable investment. We
see that as a good opportunity for us.
Q133 Mr Illsley: What
sort of timescale are you looking at in terms of that? I know
you just said you were waiting and you have been there since 1999
waiting for the market conditions to be right for you to bid for
certain contracts. What is the timescale you are looking at before
you get into a system where you can take advantage of the opportunities
there? Mr Roe: We believe that the projects
are going to start moving in the next three or four years, something
like that. When I talked to the Minister for Water about this
time last year, he was saying that they needed to develop the
water sector, they could not do it all and the government needed
the private sector to be involved in that. The municipalities
were at a point where they should be looking to the private sector
to help them. That has not come about yet, but it will do in maybe
the next three or four years.
Q134 Mr Illsley: What
do you see as the biggest challenges or problems facing any inward
investment or training within South Africa? Mr Roe:
From my point of view, the thing which is taxing me most at the
moment is black economic empowerment. As an international business
with a brand, we clearly cannot have shareholders in a company
which is managing that brand who are not ours, if you see what
I mean, somebody in control. We have to find a structure we can
work within. We probably are slightly different from the companies
who are going into more of a consumer market in that we are bidding
for government and municipal contracts where that is an extremely
important element of our delivery mechanism. Mr Paterson:
Would you like me to say a few words?
Q135 Mr Illsley: Yes;
I am thinking in terms of the private sector as against the public
sector. Mr Paterson: We have overcome a lot
of obstacles in the last ten years and we feel that the thing
is plateauing out. We feel that there are huge challenges in the
educational system which have to be addressed; a lot of them have
been addressed under the very capable Minister of Education. I
think the challenge in future is going to be when the politicians
decide to gear up educational funding to a higher level, because
the standard is not as good as it should be, and I am sure everybody
is aware of that, despite very good expenditure on teachers' salaries
and on books. Can we rise to that challenge of the change which
will be needed? I think there will be a political challenge in
future, which will apply to all publishers. One thing to say is
that South Africa is, like many investment markets, a country
where we have to act local; it is particularly so in publishing
and school books are a political business in many ways. British
companies will succeed if they can embrace local employment and
local shareholding where possible, because there are so many capable
people around.
Q136 Chairman: One question
on distance learning. I seem to recall that the equivalent of
the Open University in South Africa had a very successful track
record. Is that still the case? To what extent are you able to
work with organisations like that? Mr Paterson:
The University of South Africa is a huge organisation which has
been going for many years and is not only a South African institution
in terms of its enrolment but people are taking UNISA degrees
throughout southern Africa and further afield. It has an extremely
good faculty. We supply UNISA, like other publishers do, on an
arm's-length basis, just as you would supply the Open University
or a big university in this country and occasionally we have published
textbooks for professors at that university. It is a normal arm's-length
relationship and a good opportunity with that number of students.
Q137 Mr Chidgey: I should
like to pursue with you both the supporting role of government
institutions in terms of your business in South Africa. You will
be aware that one of the duties of the FCO is to promote British
business overseas, usually through agencies such as British Trade
International (BTI). I am just wondering, bearing in mind that
one of the FCO's key objectives is to help enhance the competitiveness
of companies in the UK through overseas sales and investment,
to what extent you have found from your experience that the FCO
meets that key objective. Mr Roe: We are probably
both a bit too polite. From our point of view they have been very,
very supportive in South Africa. We had a lot of contact with
them; they have provided us with leads, with contacts and been
very supportive in terms of the British water trade association
with trade missions. Last year I was involved in a trade delegation:
very well put together by BTI and the people out in South Africa.
So I will say that they have been very, very good.
Q138 Mr Chidgey: Thank
you for the information about the specific help you have received
for your company. My question was: to what extent does the FCO
meet the key objective of helping to advance the competitiveness
of companies in the UK through overseas sales and investments?
Can you look a little broader than just your own experience with
your own company and take a mature view across the piece?
Mr Roe: Certainly.
I believe that they do create an environment which enables us
to get access to key decision makers within government, from my
business's point of view, which enables us to influence the way
in which those governments buy goods and services. They do play
a key role in that. Mr Paterson: For us—in
South Africa we have been able to plough our own furrow without
much help, because we decided, as we were incorporated in all
the countries round about by 1994, that we knew the South African
market pretty well from being regionally based. We were able to
go in quickly with local people helping us. When I have come across
DTI or Trade Partners UK or whatever, they have been extremely
helpful and in South Africa very knowledgeable. From a limited
point of view, they have been really helpful. There would be some
questions in territories round about as to how Foreign Office
help actually works in practice, but in South Africa it has been
good.
Q139 Mr Chidgey: Are there
any areas where you feel that the FCO and DTI could be more helpful?
You said that the service they do provide is good and worthwhile,
but let us look a little to the future. We live in a highly competitive
world and both of you are working in a highly competitive marketplace.
To try to concentrate one's mind on what more one could do as
a government, let us make a comparison between what other countries
are doing to try to break into what are traditionally Anglophone
British markets. I often hear throughout Africa about the amazed
looks on the faces of British companies when they see the efforts
being made by the French Government to promote French industry,
French business, in areas which have traditionally been British.
We seem to think that Francophone Africa is just a territory on
the other side of the moon. This must be causing you some concern,
because you are therefore meeting much more competition, I suggest,
which is from areas and countries which you previously did not.
Do you feel our government agency should be looking more closely
at how you can retain your competitiveness in what have been traditionally
British markets, when they are no longer being considered that
by our competitors? Mr Paterson: In terms of
South Africa, where the British knowledge of the local scene is
very strong, a good job is being done. The threat I have seen
is more in the printing industry, where you have seen a lot of
German investment coming in. It is not so much the French as the
Germans who are really quite aggressive. You see that in other
areas as well. In the media as a whole, because the South African
industry itself is so strong, we are not really seeing inroads
from other European competitors or American competitors.
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