 Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at mercatus.org. For a full transcript of every conversation, enhanced with helpful links, visit conversationswithtyler.com. Hello everyone and welcome back to Conversations with Tyler. Today I am sitting in Tatu City, which is a special enterprise zone right outside of Nairobi, Kenya. And I'm here chatting with Stephen Jennings. Stephen and I go back a long way. We knew each other in New Zealand over 30 years ago, where we worked on New Zealand reforms together. To give you a brief overview of Stephen's biography, he was a critical figure in New Zealand Treasury working on those reforms. Later at Credit Suisse, First Boston, he has an extensive history of working in emerging economies, and he is now founder and CEO of a company called Rendever. Stephen is based in Tatu City itself, again right outside of Nairobi. And Tatu City is an attempt to reimagine urban environments for Africa. There are numerous other projects in other countries, and we will talk about what Stephen is up to. Stephen, welcome. So, so good to be with you Tyler, and it's been amazing to reconnect. It's like those 30 years were really like a week. I think 32 years we figured out, right? 32 years, so we just picked up the same thread of conversation and ways of thinking. Now try to sell me on Kenya. If I look at some of the other major African economies, they appear to have taken steps backward in the last two to three years. Why be optimistic about Kenya in particular? Yeah, Kenya has been on a path of modernization, political and economic modernization and development, really going back to the 80s. So it's averaged over 5% GDP growth over that period, but it's also modernized as an economic and political system, moving away from one party essentially dictatorship to very vigorous democracy and pluralism, as we saw last year. Huge development of infrastructure, modernization of the economy, improvements in school enrollment, life expectancy, every indicator of development as with much of the continent has really been transformed over the last 25 years, and our expectation is that will continue. But say if politics is the major risk to African development as it's proven in so many countries, why be more optimistic about the politics here? We have a more pluralistic system. You haven't had the coups or dictators or disruption you have had in many other African countries. So the transition is very organic. We have the checks and balances of a system that you'd like to see in a country you're investing in for the very long term. It's not necessarily the case in the likes of Nigeria or Wanda or even in South Africa today. Why is it that so many African cities at least appear to have very low or even zero agglomeration externalities? It's not true for cities around most of the world, but it seems to measure is true for Africa. What's the difference and where does that come from? It's something that's very unusual about Africa. So as you know in Asia with growth, you saw agglomeration of economies and cities became more efficient. There's some pretty obvious reasons why that hasn't happened here. So proper planning and controls really broke down in the 60s. So there were no, the plans were not enforced. The development was completely haphazard. Utilities were not modernized and capacity was not built. So you have huge capacity issues and shortages around power, water and other amenities. You have enormous congestion problems. So the cities are clogged, the service levels are poor, the planning has been almost nonexistent and there are massive capacity issues and transport issues. So as they've grown, they've become more congested and less efficient. So you have a plan through Tatu City and some of your other projects in essence to bring agglomeration externalities to at least some African cities. Is that a fair way to put it? Yeah, 15 years ago it was a plan. I think it's way beyond the plan now. I think we've proven beyond a shadow of a doubt. If you create new large scale world-class urban infrastructure and administration that they will function as normal cities and you have the demand that you would normally have for a normal efficient international standard city. So just give us some basic facts. Where is Tatu City right now and where will it be headed when it's more or less finished? Yes, Tatu City is the only operational special economic zone in the country. It has 5,000 hectares of fully planned urban development. It is quite an advanced stage. So we have 70 large scale industrial companies with us, including major multinationals and many of the regional leaders. We have 3,000 students come on site every day to our four new schools. We're advanced in building the first phase of the first new CBD for the region. We have tens of thousands of core centre jobs moving into that area together with other modern office amenities. So all of the elements, we have many residential modules, thousands of new residential units at a wide range of price points. So all of the elements of a new city are in place. So how many people will end up living here? Around 250,000. And how many businesses? There'll be thousands of businesses. The GDP of Tatu City, how would you imagine it? What would you compare it to? Assume things go well, the project is mature. I think we're in seven projects in five countries. I think we're aware of every project across the continent. But there's very little doubt at all that this will be the leading new city and the largest new city in sub-Saharan Africa. And eventually it'll catalyze the whole region. You don't have a barrier around the spillover effects in terms of development and infrastructure. We'll extend way beyond the borders of the city. And we already begin to see that. Why not do a charter city? We're first cousin, well, there's a lot of reasons that we haven't really had charter cities happen. It's a very interesting thought experiment. The whole issue of sovereignty, seating sovereignty and taking someone else's sovereignty is a pretty kind of intractable issue. But we're like first cousin to a charter city. So we're a private municipality with a lot of devolved authority. So we have the ability to make decisions the way that a charter city would be. We have the incentive to optimize the NPV, the long-term value of the city. And you can see that we've created many of the benefits in terms of quality of governance, quality of infrastructure, security, environmental amenities. So many of the envisaged benefits of charter cities are being realized within this model. So the way you've designed water supplies, sewage, electricity, local infrastructure, how has that drawn upon your background as a reformer and privatizer in New Zealand? So here's your chance to do it, right? Not in New Zealand. What did you learn there and how are you doing it here? Well, it's a bizarre situation that every era of reform and business that I worked in around the world, the threads of that are picked up in this project. So the governance issues through the reform efforts, designing SCZ legislation, obviously as a public policy issue, but I've worked extensively in water and power. So understanding how those businesses should be structured and organized makes it a lot easier to set them up and managing them. So a city is very, it's much more multifaceted than you would think. The work that I did in New Zealand on Treaty of Waitangi issues with Māori has also informed a lot of thinking around community and property right issues. So it's been this bizarre experience of all these threads fortuitously being drawn together in these projects. What's the hardest part about designing the incentives for a sewage system? Not the physical work, but thinking through the incentives. The challenges have to do with scale and time horizon. So in environments where utilities are not being provided by municipalities, everyone tries to solve their own solution, create their own solution. So they'll have their own water solution, their own power solution, maybe their own sewer solution, their own security solution. Clearly there's zero economies of scale and people don't have the expertise or even the desire to solve those solutions. So you have these very patchwork, extremely efficient and non-sustainable solutions to these very basic problems. So a city has the advantage that you are able to solve those problems for everybody and there's just tremendous economies of scale. So in terms of quality and cost, you get these tremendous advantages over what everybody outside of that environment is able to create. But because Rendever owns the sewage system, there's not the usual holdup problem with some outside authority. Is that fair or no? Yeah, so one of the things you're solving is the holdup problem at many levels. So everyone has to deal with bureaucrats who won't supply water, who won't provide licenses, who create tax issues. Every element of government you touch, there's a holdup issue. So there's economies of scale in solving that or mitigating that on behalf of everybody else. We have to deal with it, but it's more efficient to deal with it once than thousands of times for each developer and each resident. Well, let me tell you one of my biggest worries. See if you can talk me out of it. The more success you have in solving these holdup problems, the more the land the whole community is worth, right? That's what success means in a sense. So you create one really big holdup problem that the incentive of politics to confiscate the rents from the land goes up. And in terms of risk diversification, you put all the apples into this one big holdup problem, it becomes a juicer your target. How do you think about why that might work out? Well, clearly that is a risk. So the way you have to counterbalance that risk is you have to be adding more and more to the community and to the overall economy. So tens of thousands of jobs become hundreds of thousands of jobs. And those hundreds of thousands of jobs can end up supporting a million people or half a million people. If you're the largest source of FDI, if you're the largest proponent of investment within the country. So you have to be over time recognized as providing huge benefits to the wider community. Give us a sense of the range of price points. Say someone wants to live here. What is it cost? So people envisage these projects as being like gated communities for the elite. And that is one model, but that's if you think what a city really is, that is not a city. So a key dimension of building a city that's efficient and has agglomeration economies is mixed juice, mixed income. And you can't just pay lip service to that to make NGOs happen. It's actually now interest to do that. So for housing, we go down to about $30,000 for what is really a world-class product produced by Unity Homes. So in terms of the finish, the environmental amenities, securities, pools, bars, these really are world-class units. Equally, we want the owners of major businesses and the biggest entrepreneurs in the region to come and live at Tartu City. So we might have a product where just your land is gonna cost you a million dollars before you build your house. But it will be extremely beautiful. You'll have amazing amenities and you'll be in the heart of the project. But we do and we have to accommodate for that full range. And not just in housing, things like restaurants and services, nail salons. You can make it just for the elite in the shopping mall or you can have a variety of formats where you accommodate everybody. And we go out of our way and it's very unusual how we think about that. We want the worker who's earning $250 a month to do some of his shopping, to have a restaurant that is affordable for him. We make a big effort to provide those services for those people. Let's say either you or someone else wants to do a version of the idea but with a price point of $10,000, what problem needs to be solved or what problems for that to be possible? How do you, the price point for what? For a home. So you're selling dwellings for $30,000 here and someone wants to, they're inspired by what you've done but they're gonna be in a poorer location and they wanna bring costs down so they can sell dwellings for $10,000. So that's exactly the problem to be solved. Yeah, but what needs to go right for that to be feasible? It's not so much what needs to go right, it's the planning, the technology and the scale. So if you want to get the costs way, way down for a unit, you can't have car parking. Car parking is actually very, if you're trying to go from 30,000 to 20,000 to 15,000, you can't have car parks. So you're building houses for people who will live within the city and who are gonna be within a walkable distance of their work. Obviously you're gonna go up. You need more and more scale. It's a chicken and egg problem and getting affordable housing in sub-Saharan Africa because no one has cracked that scale problem to what we're doing here. So you need bigger scale, you need to go up a little bit. I think we know with our partners that we can go from, we already know how to go from 30,000 to 20,000 and then it's gonna get much harder going from 20 to 15,000. If cars cost so much for the community, how are you regulating cars? It's not the cost of the car, it's the cost of the land. Of the land, sure. But say I want to buy a unit that has a place for me to put my car. I can pay more and do that or I can't do that or... No, absolutely you can't and you can have two cars or three cars. I just have to pay a steep tariff to be able to do so. But there's somebody else who would love to have a properly built, safe, secure apartment for 15,000 with nice amenities and a park and a playground. You can do that, but you probably won't have car parking for those people. In the mature version of the idea, how do I get from one side of Tatu City to the other? Let's say I don't have the car. No street cars, right? There's shuttles or I walk or there's e-bikes or... So a lot of ideas on urban planning are born or driven by retrofitting of existing cities. There's a lot of principles that are paid lip service to, but the application of those is compromised by the fact that 99% of the time, urban designers are involved in the game of retrofitting. Imagine you sit down with a clean sheet of paper and you can think about how people are gonna move around in the city and you can do whatever you want to. So if you ask the urban planner, he will still start with designing a road. But maybe you start by saying, no, let's do human green corridors first and then we'll talk about the roads, about how they fit around those human green corridors. And let's, as designers would say, create an invitation so that people really want to walk. They really want to cycle. They're not even on the side of a road. They don't have to go near a road. So they are the opportunities and we're in one of the most beautiful and one of the nicest climates in the world. So we have opportunities that you just don't have in a normal urban planning setting to change mobility, to massively reduce the importance of cars, but to bake that into the, how we planned from the very beginning. And that's very unusual. As you know, there are many refugees in Kenya from other countries. Is there a possible vision where a special enterprise zone is built for them? It becomes a real functioning city or is it simply not profitable too many obstacles? Or can you think of doing that? Diversity, as you know, if you look through history, the city is that really prospered, that made a difference, that were hugely innovative. They were diverse. They were safe havens from people for all kinds of backgrounds, including foreigners, perhaps even people that have been persecuted in other environments. So this diversity, this mixing of people, this crossroads concept, this global marketplace, embedding that in everything you do is vitally important. So you need mosques, for example. We want to have a big Somali community here. If we want that, we need specialized infrastructure for them. We want it to be the main hub for Chinese investment in the entire region. So we need specialized institutions. We need to pay respect to Chinese culture. We need to listen to them, work with them on quite nuanced issues sometimes. So you definitely don't want to go into any kind of segregation along those lines. What's the aesthetic vision for Tatiou City? And one of the most beautiful countries in the world, we're in a country with huge cultural diversity and a very vibrant and distinctive culture. And we have a clean sheet of paper. So from a design and aesthetic perspective, we want this to be a Kenyan city. We don't want this, you walk into Tatiou and you think, well, this is a bit like Dubai or this is a bit like Santana, Johannesburg. That would be complete failure for us. But what does that mean concretely? What I mean I'm here now, but what do I notice as a visitor? Or I say that makes this a Kenyan city. So the way we're designing our CBD, there are a lot of subtle cultural references from different kakuyo, but also other tribal groups. And CBD, Central Business District, right? Yes, yes. So what would be a reference of that kind? It could be the facade of a building. It could be the pattern on in a plaza. It could be who designs and the cultural references in a major sculpture. Here at Megumi Tree is very sacred. So the center, we will be moving a massive, historic and culturally important Megumi Tree into the center of the plaza. And then the other element is making it very green, very walkable and very beautiful and very safe. And baking that into how we plan the city from day one, really committing in a very deep way to those principles. Generally, they're quite superficial in modern cities. And this is because you're constrained by the old city. There's this huge element of retrofitting. We don't need to do any of that. But you need to embrace those principles in a very wholehearted fashion. Takes more time, takes more effort. But the payoff, I think, is going to be massive in the medium term. Let's say you put aside budget constraints, forget about your shareholders. You're thinking unrealistically, you're up at night excited about something you know you can't do. But what is that something, aesthetically? I'll answer the question, but we don't think like that. Sure. Sustainability means it's commercially viable. So you have a lot of city projects that are massively subsidized by governments, particularly in Petro States. Our models are exactly the opposite. It doesn't matter what we want or what we might want to pay for. It matters what our developers and our clients and our residents, what do they want and what are they prepared to pay for. So we can bring all kinds of ideas of ours and all kinds of costs. But you can't do that and it's wrong to try and do that. So we don't try and impose solutions or levels of infrastructure people don't want or styles that people don't want. It's probably not how we look at things. There's things that we think our residents will want that are hard to bring. So let me give you an example. You can have good schools that the community is happy with or you could have a world-class school. And in my view, there's a qualitative difference between those two. Because if you have a world-class school, you will bring world-class professionals, the best professionals in the world and whatever that industry might be, they'll want to come to your city because their children can go to a school that's as good or better than anywhere else. So that's the kind of thing that challenges us. Putting aside all questions of politics, if you just think of constraints on the business side of what you're doing, what's the biggest constraint you face? The biggest constraint we face is human capital. So we're obviously not land constrained. We're unleveraged. We have very good cash flow. We have very good financing partners. We're absolutely not capital constrained in any way. So we're trying to do some world-class infrastructure, world-class execution, world-class buildings, world-class technology. And by definition, a lot of the human capital to do those things, it doesn't exist in this market. City-scale landscaping, urban realm, though their schools don't exist. So you either have a lot of foreign consultants fly and fly out. They're not particularly focused. They're not necessarily the best consultants in the world. And it's just extremely inefficient. Yeah, the constraint is embedding world-class technical people within a Kenyan team. And what's the key variable that will determine whether the talent question goes well for endeavor or goes not so well? What does that end, Japan? A lot of experience in doing the same thing in other businesses and other contexts, which I've been doing for 30 years now. You have to spend a lot of time. You have to spend a lot of your time identifying those people, checking those people, persuading those people, and integrating those people. It's very easy to hire some very senior development manager. But it's very hard to find the right person who's going to be committed to your project who will integrate your team and train local professionals. So it takes a lot of time and a lot of judgment. And what question do you ask people to try to determine if they're that young professional who wants to devote his or her life to building out, say, Tatu City? Yeah, we're not interviews. It's pretty well documented. Interviews are a very inaccurate way of selecting and evaluating people. But it's often what you have. We'll check their prior work in a lot of detail. And we'll spend a lot of time with them and we'll put them in a lot of situations without them actually knowing that we're deliberately doing that to see how they will react, how they will react with our local staff or it might be a dinner after a long day when they think it's time to relax. But we're actually looking to see how they interact with our clients. Do they listen? Are they respectful? Are they really interested? Or are they just going through the motions? So a lot of the recruitment information comes away from the interview process. How do they behave when you're actually negotiating their deal? Are they timely? Are they honest? Do they play games? Do they change their position? So we rely on a lot of those kind of data points. Putting aside Tatu City, which is your favorite part of Nairobi and what about it do you find so interesting? It's one of the most lovely countries and I've been to over 100 countries. Coming from New Zealand, I know what a beautiful country is. You have incredible diversity of environmental amenities here. So amazing national parks, but very diverse from desert-like areas to Masai Mara. You have incredible coastline. You have incredible cultural diversity. But say in Nairobi, what gets you excited about Nairobi other than improving up on it? Yeah, getting on my bike with a few friends on a Sunday morning, riding for 60, 70 Ks through just a delicate, diverse countryside. Why do you think the cost of living in Nairobi has so much skyrocketed lately? Everything's inefficient. Government's inefficient. But there's a delta issue and there's a levels issue, right? So is it food prices, energy prices, or what's going wrong at the margins? Yeah, clearly given the structure of the Kenyan economy, the external shocks have been very unfavorable. So fuel is imported here and grains are imported here. So they've been the big two short-term drivers and clearly they will unwind now to some extent. How should Nairobi fix its traffic problems? Well, so far they've done what everybody does and they've built more and more capacity and as everybody knows, more and more capacity creates more and more demand. So it achieves nothing and it's actually clogged up the center of the city more and more. Clearly there should be congestion charges as there should be everywhere. But it's harder to do in low-tech settings or do you think it can be done through smartphones? I think technology is really, it's like so many economic problems. They're technically easy, but they're politically complicated and obviously people try and blame the technology. No, the technology exists, it's developed a long time ago, it's ubiquitous, but there's not the political will to apply that technology. So the city will get more and more congested. Can a subway system be built? So most of the rest of the developing world has been through exactly the same problems. They're really problems of governance. The 99% problems of governance, water, power, municipal transport, these are all governance problems, not technical problems, urban realm. We know that these problems can be addressed. In my view, the governance issues here and in most of sub-Saharan Africa mean that these problems won't be solved for the next 25 years at least. Hence the demand for new modern urban environments. Should we be trying to title all land in Nairobi and in Kenya? Or is it more efficient when you have a sector with untitled land, lower prices, less formality, arguably less regulation? What's the right way to think about the land titling issue? You know, as Stigla said, all regulation is rationally devised. So the inefficiency in land titling and land offices is very purposely designed to be inefficient and to facilitate corruption in cartels and land offices. So it's a huge source of rents. The Kenyans are in the process of digitalisation. They can digitalise the whole thing and create transparency in their sleep, probably in six months. It's a question, is there the political will to deal with those cartels and the rent seekers who are benefiting from the existing system? But you think it is an ideal to title everything, even though rents probably would go up? No, absolutely it is. I mean, lack of land, poor enforcement and definition of property rights is one of the biggest barriers to development in the region. As you know, Kenya has many different ethnic groups, tribal groups. If you think about the prospects for Kenyans, all truly thinking of themselves as a single nation, what variable does one track to see how well that's going? I mean, is it the soccer team? Is it what music they listen to? Is it something about politics? It's probably urbanisation, because once people move into an urban setting, those tribal barriers and differences, they gradually melt away and you can see that and you're going to see it this week in our office. Most of our staff, they grew up in an urban context, but you're not going to distinguish anyone by their tribal background because they're living together, they're working together. So I think through urbanisation, those barriers are really, they've already eroded massively. The politicians like to stir them up every election cycle, but the underlying integration, I think, is very pronounced. I think it's much less of an issue than the outside world probably thinks. Is there a risk that Kenya becomes too top-heavy with Nairobi overdeveloping the way arguably London has, Vienna has, and Austria? How are the second and third cities doing in terms of health or a certain amount of political balance? No, the incentive structures are profoundly different. So UK and New Zealand have the highest proportion of tax revenues that go to central government. So it creates this huge bias towards development in the capital city and centralisation. So here we have a very devolved constitution and with that devolution, a lot of revenues are given to the local counties. So the structural reasons for that concentration and the likes of UK don't exist here. And then at just a practical level, you drive around, you see phenomenal development all over the country. But it's 47 counties, right? Isn't that too many? There's too much devolution. Over time, economies of scale, it'll evolve back, if only de facto, to being a smaller number of counties. What's the right way to think about optimal federalism for Kenya? There's too much, there's too little. Yeah, we know that Switzerland is the most devolved country in the world and we also know that's one of the most efficient. And we know that New Zealand and the UK are the most centralised and that model's not exactly working. I don't think there's any right answer and a lot has to do with culture and experience and skills that have developed. You know, devolution, this degree of devolution is quite new here. It's gonna take decades for it to really work efficiently. So I think it's much better than the centralised model, vastly better. It's the short-term transition costs, but medium term I think it's gonna be really great. How many counties there should be? I don't know and I don't think anyone else really knows either. Kenyan demographics. In Nairobi, I read total fertility is 2.5. That's quite low for Africa. How did it get there? How does that shape economic development for Kenya? Yeah, so it's one of the really amazing things about what's happening in Africa. Birth rates are falling very quickly across the continent, virtually everywhere with the exception of a few places like Niger. And that decline is accelerating and it's falling faster. The forecasts are revised pretty regularly now. And that's birth control, later marriage or what? Is it the annual factors or something? I think it's the same factors that have driven this incredible reduction in birth rates across the world. And as the likes of Charlie Robertson have said, the democratic dividend really kicks in when birth rates fall from say three and a half to two and a half. That's when people can save, that's when dependency ratios really start to improve. And Kenya is at the vanguard of that process across this region. So that demographic dividend is really gonna kick in over the next 10 years as they move towards 2.25, 2.3 kind of birth rates. What can you do to boost productivity in Kenyan agriculture? These are all the easy questions, right? But it matters a lot to have that saving surplus that later finds industrialization. So I don't think there's a problem in any of these countries that hasn't either been solved well or poorly many times in other countries. So we know where there's been successful agricultural revolutions more recently in countries like Brazil, for example, where there's this very sophisticated and effective interplay between government institutions, R&D, application of new ideas and the private sector. So the government has a very important enabling role if you wanna optimize that agricultural transition. But what does that role consist of? What should they actually do? It consists of very specialized research and development which is specific to the crops, climate, seed types and so forth that are relevant here as you saw in Brazil. It's partly to do with infrastructure, coal chain, these kinds of issues. So it's the government playing a catalyst role but at the same time getting out of the private sector. It's a subtle balance which at the moment Kenya probably isn't particularly good at. How can Kenya have better risk-sharing against drought? Which is a recent problem, right? And presumably some of it comes from climate change, a lot of it's external, right? The weather's gonna be what the weather will be. Some of the R&D ideas, so Brazil developed hybrid strains of grass and crops that were more drought resistant. So you need that R&D element so that your agriculture can adjust to these new climate conditions. And it's a problem that's hard for the private sector on its own to solve. So ideally you need this interplay with really well managed scientifically enabled government institutions and the private sector. Private sector is very strong in flowers and horticulture here but most of the heavy lifting has been done by the private sector. So there's some issues where there is a bigger role for the government to play. Have the universities done enough in terms of agricultural R&D? They've contributed. There are success stories. No flowers, it's a massive success story. But I think there's more that can be done there as well, yes. What can you do to develop its tourism resources more effectively? A lot and very quickly. Again, it's an area that we've studied and we've benchmarked against the likes of so Costa Rica which has similar amenities but has had a tenfold growth in visitor numbers. So the tourist assets here are amongst the best in the world and they're large scale. But the promotion and the support for infrastructure has been extremely poor. Visitors come to Kenya and they are just completely blown away but so many people don't understand the quality of that visitor experience. So there's a lot of work to be done and it's not difficult work and it's work that can be done very quickly to promote and support in some key infrastructure areas including transport and air transport. As a business person, how do you think about when is the right time window for entering an African market? Yeah, that very much depends on your product, your time horizon and the effort that you're going to put in. I don't think you can generalise about that. But you were here quite early, right? Before it was obviously a good idea. And what are the other countries that Rindeva is operating in? But our business model is about being a pioneer and dealing with issues that probably a lot of other investors don't want to deal with and getting set and getting in the best position in surfing terms where we want to be exactly where the wave's going to break before anybody else. We also have an asset class where we're trying to line 30, 40 year asset class with a 30, 40 year transition. So it made sense for us to come early and to commit very early. But that's not necessarily the case for everybody else. Why are there so few? You could call them perpetual projects in Africa. Projects designed to run on more or less forever. I don't think there's so many perpetual projects anywhere. There's not so many projects that literally have a 50 year time horizon because there's not really very much 50 year capital. Private PE money is supposedly seven years but you have to sell before the seven years. So PE is really five years. And people think of that as being long-term capital. DFI money, DFI say they don't have long-term capital at all. It's one of the many myths about DFI's. They do have to generate a return. They do talk about exits. They don't go into 30 year projects. So yeah, that's very unusual, I think anyway. Thinking in terms of perpetuity, you view that as comparative advantage or risk or you're all crazy or some mixed of those or it's division of founders or... It's definitely a comparative advantage because on every dimension you're trying to find less competitive spaces. So you've definitely got a need to build these very long-term projects and there's virtually no capital available. So that gives you a competitive edge. It's very hard for somebody else to come in and spend billions of dollars on a 40 year project. It could happen, it's very unlikely. But within Renderver there then has to be some higher level of trust at some level, relationships with investors or who's funding you or how do you think about the different pieces that go into Renderver having that comparative advantage? You know, any really good business has alignment. So it has alignment with its capital structure, with its values, with the selection of its... You know, you're senior executives. It's no use having a 40 year project and you have some guy who wants to make all his money in the next two years. There's an underlying inconsistency there and capital structure and shareholder identity is vitally important. It's very easy to bring someone in. They're very excited about the project. They'll help fund this module or that module. They know someone who can help us with something. But the guy's got it or the woman has got a five year view. Three years down the line, we got a problem because he's trying to get an exit or he's trying to get some more cash out of something where it's not optimal in an MPV sense. So being very disciplined about shareholder selection is extremely important. I take it to be your view that economic development is in some sense the default. It's not automatic. But there are forces pushing economies in that direction. If you had to reduce that view down to your most fundamental belief, like where does that view come from? Well, it started in New Zealand working with you because we saw how a country could be changed and we saw how growth could be catalyzed. I guess that opened my mind to change. I have this idea that humans evolved over a period of time where no change happened. So we're wired to think that the world doesn't actually fundamentally change. I think that's like a default, cognitive default. But that's actually a variance with the world's experience since the Industrial Revolution. So the experience since the Industrial Revolution is a wider and wider group of countries with a more and more diverse set of institutional settings and styles of government have experienced economic takeoff and very high rates of growth by historical standards. So there's a disconnect between the way people think and what has actually happened. And my default setting is unless you do things really badly, per capita GDP is going to grow and it's probably going to grow quite quickly. And that's what's happened in most countries in the world. Whereas people look at Africa and they look at the past and they have got this default setting, probably nothing's going to change. But in my mind, the bias is massively to change, more change, more growth. What do you think is the book that has influenced you most? It's a very good question. I think I've read just about everything in development. There's nothing I really like very much. Development is a black box. I don't think there's anything that has much predictive power. There's a lot of explanations, whether they be policy settings, location, culture. I think 90% of them are exposed. Very few of them are predictive. Some of them are just tortologies. I really like factualization. It's descriptive, more than analytical. It makes it clear that most of the world has been on a very similar development trajectory. It's just not sequenced. Sweden started early, Ethiopia started late. But the nature of the transition and the inevitability of that transition, other than very extreme circumstances, is kind of the same. And what do you think economists get wrong? I don't think we really understand development at all, because if we could predict it, we can predict virtually nothing. It's just too complicated. It's too connected with politics. And I think there's a lot of feedback loops and elements of development that we don't understand properly. We certainly can't quantify them. Because the development is happening in such a wide range of settings, from communism, dictatorships, through to very liberal systems, and with all different kinds of industrial. On every dimension, there's a huge range of variables. To go back to New Zealand, what is the most positive future in terms of economic growth for New Zealand? What does that look like? What should be done? Well, as you know, I'm very negative about New Zealand. We have, very sadly, been a huge underperformer on just about every economic and social indicator you can look at. I think there's partly a cultural element. I've thought that for a long time. I used to think that the very high immigration that we had would put some spark and some dynamism back into our society. That hasn't been happening. There's no sign of it. You think that's the immigrants who self-select to going to New Zealand? Are they somehow swamped by native Kiwi culture? I think it's primarily the latter. And self-selection. People, you won't go there if you don't like that culture. If you want to go to somewhere more dynamic, more competitive, you'll go to Australia so that reinforces their culture. I see some hope in Maori, Kiwi and indigenous businesses, contrary to what most people would think. They bring a different culture. They bring a more open-minded international culture in many ways, and they are being very successful. But that's a small part of our economy. I don't see a lot of silver linings. If you look back on the New Zealand asset sales of the 1980s, 1990s, how well do you think they went? What did we learn from that experience? I think clearly on bias, they went extremely well, and you have to judge that by the productivity improvement in the likes of telecoms, power, forestry. But these were incredibly poorly managed assets, hugely wasteful, very low levels of innovation, and archaic levels of technology. So, yeah, it unleashed a lot of value creation. But I think societies that can't take the medicine generally don't perform very well. So New Zealanders are still obsessed with the fact that the 80s reforms, there was so many things wrong with them, notwithstanding the fact that virtually every change has stood the test of time and hasn't been reversed. You see it in the same, you know, thatches to blame for so many things that are wrong in the UK. But if it's so bad, just go ahead and reverse everything she did. And I think countries that have been successful, they have wave after wave of reform, change, innovation. The change is painful, there's structural adjustment costs. But if you're good at absorbing that, understanding that, and moving on to the next round of change, as the Chinese have in some ways, that's a huge strength. If you can't do that, it's a big weakness. At least for a while, the New Zealand business community seemed to be strongly behind reforms, free of markets, free trade. That's fairly exceptional. Was that just luck or are there organic forces behind that? Yeah, I think fundamentally we'd had quite a entrepreneurial society. People went to New Zealand. Indigenous people went to New Zealand. It was an easy place. They had to build their lives. They had to build communities. They had to build infrastructure. They had to be pioneering in nature. They had to be in some sense entrepreneurial. And New Zealand ended up as one of the richest countries in the world with one of the best education and one of the best health systems in the world. It's in the facts, but at some point we put our feet up. Probably you have to go back to the 60s and 70s and complacency crept in many dimensions. And the most obvious one is education. We had objectively one of the best education systems in the world. Kiwis were leading thinkers in many areas. They were successful internationally. But we have one of the worst and most unequal education systems in the OECD today. We have third world levels of educational attainment for sub-sectors of our community. Do you have a sense of how to reform that? I think New Zealand is about, as you know, one of the most analysed, the over-analyzed countries in every area of reform. So it's not a technical issue again. Every area of reform the work has been done, it's sitting on the shelf. It comes back to the desire of society for change and the desire of the politicians to implement that change. How important is it that it's relatively hard to build new housing near Auckland? I know that's eased somewhat due to legal changes. But still, there's a movement, right? YMB for Auckland and New Zealand. Is that a major issue or a minor issue? It's a horrific issue. Auckland has some of the least affordable housing in the world. I think number five last time I worked. Yet only 2% of New Zealand is built upon. It's just massive paradox. And we're meant to be the country that believes in a fair go, but it's hugely hypocritical. If you're a bus driver, you're never going to buy a house. And a huge proportion of your income is going to go unrent. The biggest source of inequality in New Zealand is housing costs, which through regulatory change could be fixed. Just look at Tartu City. We can build a good apartment that anyone would be happy to live in for $35,000. In Auckland, that's going to cost you $400,000. And that could be changed in months. Everyone knows Queenstown, Milford Sound, but what's the most underrated part of New Zealand? Well, you know. Taranaki. Are you going to tell me it's Taranaki? Beautiful places off the beaten track. Yeah. North, somewhere in the North Island. There's gorgeous pockets everywhere through that absolutely beautiful country. Yeah, with lovely, really friendly people and very diverse and specific environments. So yeah, if you're going there, you should go to the tourist highlights, but go off the beaten track and you'll see so many wonderful, beautiful places and you'll meet a lot of very friendly people. And growing up in Taranaki in particular, how did that shape you and your views? Right, you're not from Auckland. You're not from Wellington. Yeah, I was outside or within New Zealand. I was at the end of that pioneering period where you grew up with grandparents who'd lived through the Depression and had lived through the war. And the values that were engendered in that period was at the tail end of when that was being passed on to people. And at that time, New Zealand was a leader. You felt as in New Zealand that we could take anybody on and we could beat them. Whether it was sport, economic performance, even areas of innovation, that's always been part of me. How do you think playing rugby early on influenced how you approached the world? It was more that when you played rugby, it was competitive. You know, from a very young age, in terms of, you know, it was very monocultural, so it was very limiting in a way, but it was very competitive. It was serious. You had to train. It didn't matter what the weather conditions were. You were going out and you were bare feet and playing and you were going to enjoy it and you did enjoy it. So, yeah, attention to detail, training. You know, it's a paradox. The All Blacks, everyone expects them to be the best team in the world and to prepare and play to the nth degree. But we're not like that in everything else we do. It's a weird paradox we've got. So, yeah, pick some of that up as a child. What do you find inspiring about rugby in Kenya? Well, we went and watched the children from slums, rugby, villages, children playing. I find it enormously inspiring. I see the shared joy that that children have of just being supported to go out and kick a ball around. But I see their skill levels. I see their dedication. They're physically tough. They want to train. They want to learn. They're not grumbling. They're not, they are physically strong. And there were no parents there, right? Yeah. They're not being babied. It was pretty full-on. The girls was pretty full-on. They were getting knocked around and bruised, but they were loving it. They were letting it up. If you think about New Zealand culture, cinema, books, music, what is it from New Zealand culture that inspires you or stuck with you? You know, we were very strong in a lot of areas. The Kiwi split the atom. The Kiwi was the first person to climb Everest. Economically, we were top three in the world. So, and as I said, things like social services, we were a leader. So, yeah, why not be the best? You know, why not go the extra mile? Why be mediocre with anything? And why think that Kenya can't take the world on? I guess that's a very dominant part of my thinking. I genuinely and 100% believe anything is possible in Kenya. Just how determined you are, how organized you are. What is it from Russian culture that is stuck with you? Yeah, quite a lot, I would say. Yeah, not prejudging people, not believing in stereotypes, really doing your homework and understanding issues deeply and the history of issues and how history has shaped how people think and how they behave before you judge them or let alone try and influence them. Resilience, intellectual capacity. Yeah, I learned a lot. If you were to contrast Kiwi culture and Australian culture, how would you boil that down to the smallest number of dimensions? I think Australia is much more competitive. They're comfortable being competitive. Kiwis are very polite and cultural survey show this. We're not very assertive at all. We find Australians offensive because they're in your face, but they're actually just telling you the truth and they're cutting to the chase and they're getting stuff done. So I think time has shown they've turned out to be a much more dynamic, outward-looking, competitive and vibrant economy. We're very closed. We're one of the most restrictive countries in the world for FDI, but yet we're meant to be friendly, hospitable people. So that full-on competition that in your face kind of culture, I think it's very different on each side of the Tasman now. And how long have you lived in Kenya now? I've been coming here for 15 years a lot and my wife and I have been living here for three years. And putting aside all the projects, the business and all that, but just how has living in Kenya changed you? It was absolutely out of 10. It's a 10, that's for sure. Yeah, it's a wonderful kind of extremely friendly people, very diverse community, gorgeous environment, lovely climate, but you've got the energy. You drive through the local community, you can see the energy, you can see how every three to six months, it's changing, it's developing. There's aspiration right through society. All of Kenya, yeah, there's huge problems, but all of Kenya thinks that this place is gonna change and they want it to change. Amazing work ethic. And the chance to do big projects that can be transformational that you don't really have in so many places. So a lot of pluses. So let's say an educated Westerner who has traveled a lot is pondering a two-week trip to Kenya, putting aside safari, which everyone will do, and of course they fly into Nairobi, but what else should they be doing or thinking about or looking for? Definitely the cultural experiences and getting, again, off the beaten track with not a lot of tourism, maybe not a lot of development, very isolated areas where traditional lifestyle is still as it would have been many hundreds of years ago. And you go to the north to do that or all over? You go probably to the far north, yeah, Turkana or Samburu area, yeah. And also you're gonna go somewhere very beautiful. You may not see a lot of lions, but you're gonna see gorgeous scenery and you're gonna see extremely interesting people. And on the coast, what should you do? The coast is very diverse. So you can go to where all the people are, the Yani Beach, you can go north to Lamu, which is more the Swahili experience, or you can go south and get somewhere absolutely gorgeous and isolated. I had my first dive here a few weeks ago. I'm literally in the water for 45 seconds. I'm still going down and a seven-meter whale shark cruises past me about four meters away. So the range of experience here that's so accessible is fantastic. Very last question. What is the next thing you will try to learn? I'm trying to understand, and I'm trying to get help my team to understand the best way to manage and work with people in Africa. Because I think we thought we knew a lot, but I think there's some things we don't understand as well as we might. So how do we get the most and create the most opportunity for our African human resource? Stephen Jennings, thank you very much. Thanks so much, Tyler. Thanks for listening to Conversations with Tyler. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other listeners find the show. On Twitter, I'm at Tyler Cowan, and the show is at Cowan Convos. Until next time, please keep listening and learning.