An Interview with Sir Mick Davis

Sir Mick
Sir Mick

27th September 2015

Mick Davis was the CEO of mining company Xstrata, which merged with Glencore in 2013. He is now CEO of a new company, X2 Resources. For services to Holocaust Commemoration and Education, he was knighted as part of 2015 Queen’s Birthday Honours.

Q: Which emerging markets are you most optimistic about?
A: Well, I think emerging markets are generally not in great shape, for a whole range of reasons. This is partly because they are experiencing a decline of their large export markets, as world growth
has not been stellar. Clearly the most dominant emerging market, China, is going through a very important structural adjustment that is impacting its growth rates and is compounded by the anti-corruption drive, which I think is stultifying economic activity in that country. I think China has a process to go through which is potentially quite painful. I don’t think they will have a hard landing, but nevertheless it is quite complex. India, which has huge potential, needs to have a huge amount of infrastructure investment to realise its potential. It has massive problems realising that potential because of the Byzantine nature of the political structures there, but given the demographics of its young, integrated workforce, India could do very well. South Africa and Nigeria are not in good shape at the moment, and I don’t see those circumstances changing for the better anytime soon. And Brazil is also struggling, so it’s difficult to construct a positive story around emerging markets at the moment, but the one I think has the greatest inherent potential is India.

Q: How do you think the dollar will perform in the future?
A: The dollar is very strongly influenced by the US economy, and I think that what you are probably going to find is the US economy being the strongest of the OECD economies and the most flexible, so it will continue in a growth phase. I think that at some point in time the Fed will raise rates, and I think differentially that will impact the dollar: the dollar will strengthen more, so I think if I had to take a short and medium term view of the dollar, I would look for dollar strength.

A Selfie of Me with Sir Mick
A Selfie of Me with Sir Mick

Q: In your opinion, are the declining commodity prices demand driven, or are they a result of speculation?
A: No, I think it’s not a result of speculation. Speculation simply changes the level of volatility within a cycle, it doesn’t actually determine a trend, and so you can have a lot of volatility because of speculation and this might amplify different pricing trends. What is happening is actually not a decline in demand; although the growth in demand is lower than it was, there is still growing demand for commodities. The reason that commodity prices have come down very significantly is because the supply response of the mid 2000s is now coming through, with very significant supply which essentially can’t be easily absorbed in the current economic environment. So there’s basically too much capacity, and it’s driven prices down, and that will continue until that capacity is absorbed. This is where demand does come into it, it depends on your view on the rate of growth of demand on how quickly the new capacity is going to be absorbed. Until that is fully absorbed, prices are going to continue to be weak. They are in real terms right at the bottom of the cycle, so in real terms today’s prices are as low as they ever have been, which suggests that we should be nearing the bottom of the cycle. The second thing is that if current spot prices had to remain in place for say the next 5 years 75% of coal producers will be operating with cash costs per ton higher than the received price of coal per ton, 50% of copper production would be underwater and in aluminium almost 100% of production would be close to negative cash flow. So that’s another signal that prices are actually going to have to change, or alternatively we’re going to have to see very significant cost reductions, a significantly lower oil price, a significantly lower cost of labour, a significantly stronger dollar and weaker local currencies.

Q: Is there a particular commodity which interests you at the moment?
A: Not really. I will invest in any commodity where I think I will make a decent returns. Some commodities have better properties than others: base metals like copper and zinc are better to own than aluminium, simply because of the scarcity of the resources base, and where the resources are. Bauxite, the key ingredient for alumina, which in turn is the key ingredient for aluminium, is in plenty of supply. If you’ve got availability of power you can produce aluminium relatively easily, so generally speaking, structural surpluses in aluminium are possible. Iron ore, a bulk commodity with high margins for the low cost producers is nevertheless not a commodity I would be keen to be exposed to. This is because of the structure of the industry. Simply the three major producers have an enormous amount of capacity to produce more than they’re producing right now and they are the lowest cost producers. Therefore they tend to produce as much they can to actually take out competitors. So if I had to choose the commodities which I like, I’d be in copper and zinc, and I wouldn’t be in aluminium and iron ore, just to give you some examples.

Q: What are your thoughts about the situation in South Africa?
A: I think it’s a very sad situation. I think that it’s a country overcome by massive amounts of corruption, which is basically eating at the lifeblood of the economy. I think that the infrastructure is degrading, and while I think that you can resolve that situation, I don’t think enough has been done to resolve it. The educational legacies of Apartheid still exist, and the post-Apartheid government did not do the previously disadvantaged any favours in the way that they have managed education, and this failure is going to be a big deliberating factor going forward. And clearly being a resource economy, they are suffering because of the weaker commodity prices. I think there’s enormous potential in the country, but I think the risks are very high and I am very concerned about its future.

Q: Do you think people in Europe have learnt lessons from the Holocaust?
A: That’s a difficult question. I think one of the key things about the Holocaust it is that it was only capable of happening because society allowed it to happen: people stood by and watched, people acquiesced; all echelons of society were involved, the judges, the police, the teachers, the doctors, ordinary people were engaged in the execution of the Holocaust. The core lesson is that you should not stand by and let evil take place, and if you do stand by it will happen, but if you react against it, you have a chance stopping it. I hope that lesson has been internalised in Europe and indeed the whole world. But there still appears to be significant amounts of xenophobia and significant amounts of anti-Semitism. One must remember that the Holocaust was made possible by a number of factors, one of which is that I was precede by over a thousand years anti-Semitism in Europe, which conditioned the people of Europe to accept the racial laws in Germany in the 1930s, and then to accept the actions of the Nazis and the way they dealt with Jewish communities across Europe. So I think that we should be concerned about rising anti-Semitism today, but I would hope the people of Europe recognise that society has a role to play, and if society stands up for what is right, evil cannot take place.

Q: What life lessons have you learnt over the course of your distinguished career?
A: Well you learn lessons every day. I think the most important thing is to not take yourself too seriously but at the same time you must trust your own judgement, and take opportunities when they present themselves. Probably the other important thing is not to focus in on financial rewards as a metric for success: at the start of your career, you should think about what would build your personal asset, what would build your personal experience and enable you to be a better proposition to your employer. Concentrate on how you “spend” your own capabilities rather than focusing on what work is going to give you the highest pay. Finally, one should recognise that everybody has a contribution to make, and you should respect and value other people’s contributions.

Q: Who is the most interesting person you’ve met and why?
A: I’ve met lots of interesting people, and people are interesting for different reasons. I’ve met people in business who have been enormously successful, I’ve met people in business who have been less successful but have different perspectives on life. I’ve met people in arts and culture and sport, so I think that to actually come down and say one person has been the most interesting, that’s a really difficult thing to answer. Someone I have admired very much is Rabbi Lau, who is the former Chief Rabbi of Israel. He survived the Holocaust as a young boy, but lost his family, and yet he has a view and perspective on life which is so robust, and so full of hope and aspiration. And I think that he presents a role model on how you deal and cope with adversity in a way that allows you continuously to grow and go forward.

An Interview with Bob Diamond

Bob Diamond
Bob Diamond

23rd September 2015

Bob Diamond worked at Barclays from 1996 to 2012, rising to become CEO in 2011. He then co-founded Atlas Mara, which is aiming to become sub-Saharan Africa’s leading financial institution.

Mr Diamond did not want to be quoted on the subject of UK banks, however when asked about ‘too big to fail’, he said he believes that there is still a worry about size and complexity, both politically and in some of the world’s biggest economies, and that politicians have taken ‘too big to fail’ off the agenda. He referenced the opinion piece he wrote in 2013 for the Financial Times (, saying that much of it is still relevant.

Q: Which African country do you think is best for investing in at the moment?
A: It’s a difficult question, and I think that there’s no one answer. But if you think about our vision, which is to create the leading sub-Saharan African financial institution, one of the most important sectors for us is Nigeria. This is because it is underbanked, but also because of the very powerful demographics it has around population, growth in discretionary income, and the number of unbanked people in small businesses. So it’s hard to say there’s any one country more important than others, but there’s no question that Nigeria is critically important to our plan.

Q: What do you think about the Chinese ailing economy? How do you think about this will affect Africa?
A: Well, I think there are two answers to that. I am long-term bullish on China: I think it’s unsurprising that after a period of such strong above-trend growth, there would be a correction. I think that the depth of the correction will be very closely aligned with the quality of the policy responses. But I see this as a correction, not as China becoming less important and less relevant as an economy in the world. I think that China will continue to focus on the opportunity to invest in Africa for a host of reasons, one of which is they now have a competitive advantage, having been very focused on investing in Africa. They invested in infrastructure such as roads, hospitals, buildings, and not just the natural resources area for a number of years. And then I think the second answer would be that sub-Saharan African economies are not immune to the commodity cycle chain changing. They’re not immune from a correction in the Chinese economy, but I don’t see that changing the incredibly powerful story of Africa rising. I think in places like Nigeria, growth might go from 7 or 8% to 4 or 5%, and in Mozambique from 8 to 9% to 6 or 7%. I still think that a number of the world’s fastest growing economies will continue to be in sub-Saharan Africa, so while they will in no way be immune to the commodity cycle, or to the slowdown in China, it doesn’t change our medium and long-term very bullish look at the economies in sub-Saharan Africa.

Q: What life lessons have you learnt over the course of your distinguished career?
A: I’ve learnt a number of life lessons. I think that number one is to always work your hardest. I think the rewards that come to the people who are focused and apply themselves are tremendous. Another lesson I’ve learnt is that success doesn’t come without the willingness to take risks. I can’t think of an example of a successful career that didn’t have some ups and downs. I also think that the willingness to do the right thing in every situation is an important foundation.

Q: What advice would you give to people my age looking to enter a career in banking?
A: The financial sector is changing dramatically, but it represents 15 to 20% of developed economies. It’s critical to the growth of the less developed economies such as sub-Saharan Africa, and so while it will change and while there are corrections in place, the financial services industry and banking in general provide phenomenal opportunities for those willing to apply themselves. It will be different, but it will be critically important to the quality of life, the economic growth, and the job creation in both the developed and less developed economies.

Q: Who is the most interesting person you’ve met, and why?
A: That’s a great question. I had the opportunity about eight years ago to spend an hour with Lee Kuan Yew, the former prime minister of Singapore, and Henry Kissinger. And listening to their conversation about the growth of Singapore, and the development of Singapore as one of the world’s most successful economies during the 60s, 70, and 80s was remarkable. The respect I have for both Lee Kuan Yew and Henry Kissinger is immense.