Stephen Jennings on Building New Cities (Ep. 193)

The keys to managing a 40-year asset class

Stephen and Tyler first met over thirty years ago while working on economic reforms in New Zealand. With a distinguished career that transitioned from the New Zealand Treasury to significant ventures in emerging economies, Stephen now focuses on developing new urban landscapes across Africa as the founder and CEO of Rendeavour.

Tyler sat down with Stephen in Tatu City, one of his multi-use developments just north of Nairobi, where they discussed why he’s optimistic about Kenya in particular, why so many African cities appear to have low agglomeration externalities, how Tatu City regulates cars and designs for transportation, how his experience as reformer and privatizer informed the way utilities are provided, what will set the city apart aesthetically, why talent is the biggest constraint he faces, how Nairobi should fix its traffic problems, what variable best tracks Kenyan unity, what the country should do to boost agricultural productivity, the economic prospects for New Zealand, how playing rugby influenced his approach to the world, how living in Kenya has changed him, what he will learn next, and more.

Watch the full conversation

Subscribe on Apple Podcasts, Spotify, or your favorite podcast app to be notified when a new episode releases.

Recorded June 12th, 2023

Read the full transcript

TYLER COWEN: 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 Rendeavour. 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.

STEPHEN JENNINGS: 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.

COWEN: I think 32 years, we figured out.

JENNINGS: 32 years. We just picked up the same thread of conversation and ways of thinking.

COWEN: 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?

JENNINGS: Kenya has been on a path of modernization, political and economic modernization and development, really going back to the ’80s. It’s averaged over 5 percent 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. Our expectation is that will continue.

COWEN: 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?

JENNINGS: We have a more pluralistic system. You haven’t had the coups or dictators or disruption you have had in many other African countries. 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. That’s not necessarily the case in the likes of Nigeria, Rwanda, or even in South Africa today.

COWEN: 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 as true for Africa. What’s the difference, and where does that come from?

JENNINGS: It’s something that’s very unusual about Africa. As you know, in Asia with growth, you saw agglomeration of economies and cities, and cities became more efficient. There’s some pretty obvious reasons why that hasn’t happened here. Proper planning and controls really broke down in the ’60s. The plans were not enforced. The development was completely haphazard. Utilities were not modernized, and capacity was not built.

You have huge capacity issues and shortages around power, water, and other amenities. You have enormous congestion problems. The cities are clogged, the service levels are poor, the planning has been almost nonexistent, and there are massive capacity issues and transport issues. As they’ve grown, they’ve become more congested and less efficient.

On Tatu City

COWEN: 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?

JENNINGS: Yes, 15 years ago it was a plan. I think it’s way beyond the plan now, and I think we’ve proven beyond a shadow of a doubt, if you create new large-scale, world-class urban infrastructure and administration, they will function as normal cities, and you’ll have the demand that you would normally have for a normal, efficient, international-standard city.

COWEN: 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?

JENNINGS: Tatu City is the only operational special economic zone [SEZ] in the country. It is 5,000 hectares of fully planned urban development. It is at quite an advanced stage. 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 center jobs moving into that area, together with other modern office amenities. All of the elements — we have many residential modules, thousands of new residential units at a wide range of price points — all of the elements of a new city are in place.

COWEN: How many people will end up living here?

JENNINGS: Around 250,000.

COWEN: And how many businesses?

JENNINGS: There’ll be thousands of businesses.

COWEN: The GDP of Tatu City, how would you imagine it? What would you compare it to, assume things go well, the project is mature?

JENNINGS: 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. Eventually it’ll catalyze a whole region. You don’t have a barrier around this. The spillover effects in terms of development and infrastructure will extend way beyond the borders of the city. And we already begin to see that.

COWEN: Why not do a charter city?

JENNINGS: We’re a first cousin. 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 — seeding sovereignty and taking someone else’s sovereignty — is a pretty intractable issue. We are like the first cousin to a charter city. We’re a private municipality with a lot of devolved authorities. We have the ability to make decisions the way that a charter city would be.

We have the incentive to optimize the NPV [net present value], the long-term value of the city. 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.

COWEN: The way you’ve designed water supply, sewage, electricity, local infrastructure, how has that drawn upon your background as a reformer and privatizer in New Zealand? Here’s your chance to do it right, not in New Zealand.

JENNINGS: Yes, precisely.

COWEN: What did you learn there, and how are you doing it here?

JENNINGS: It’s a bizarre situation that every area of reform and business that I’ve worked in around the world, the threads of that are picked up in this project. The governance issues through the reform efforts, designing SEZ legislation obviously is a public policy issue. But I’ve worked extensively in water and power. Understanding how those businesses should be structured and organized makes it a lot easier to set them up and manage them.

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. It’s been this bizarre experience of all of these threads fortuitously being drawn together in these projects.

COWEN: What’s the hardest part about designing the incentives for a sewage system? Not the physical work, but thinking through the incentives?

JENNINGS: The challenges have to do with scale and time horizon. In environments where utilities are not being provided by municipalities, everyone tries to solve their own solution, create their own solution. 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 solution.

You have these very patchwork, extremely inefficient and nonsustainable solutions to these very basic problems. A city has the advantage that you are able to solve those problems for everybody, and there’s just tremendous economies of scale. In terms of quality and cost, you get these tremendous advantages over what everybody outside of that environment is able to create.

COWEN: Because Rendeavour owns the sewage system, there’s not the usual holdup problem with some outside authority. Is that fair, or no?

JENNINGS: Yes. One of the things you’re solving is the holdup problem at many, many levels. 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. 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.

COWEN: 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. That’s what success means in a sense. You create one really big holdup problem: that the incentive of politics to confiscate the rents from the land goes up. In terms of risk diversification, you put all the apples into this one big holdup problem. It becomes a juicier target. How do you think about why that might work out?

JENNINGS: Well, clearly that is a risk. 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. 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 [foreign direct investment]. If you’re the largest proponent of investment within the country. You have to be, over time, recognized as providing huge benefits to the wider community.

COWEN: Give us a sense of the range of price points. Say someone wants to live here. What does it cost?

JENNINGS: People envisage these projects as being like gated communities for the elite, and that is one model. But if you think what a city really is, that is not a city. A key dimension of building a city that’s efficient and as agglomeration economies is mixed use, mixed income. You can’t just pay lip service to that to make NGOs happen. It’s actually in our interest to do that. For housing, we go down to about $30,000 for what is really a world-class product produced by Unity Homes. 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 Tatu City. We might have a product where just your land is going to cost you $1,000,000 before you build your house. It’ll be extremely beautiful, it’ll have amazing amenities, and you’ll be in the heart of the project. 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 a shopping mall, or you’re going to have a variety of formats where you accommodate everybody.

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.

COWEN: Let’s say either you or someone else wants to do a version of the idea, but with a price point at $10,000. What problem needs to be solved, or what problems, for that to be possible?

JENNINGS: The price point for what?

COWEN: For a home. You’re selling dwellings for $30,000 here, and someone — they’re inspired by what you’ve done, but they’re going to be in a poorer location, and they want to bring costs down so they can sell dwellings for $10,000.

JENNINGS: That’s exactly the problem to be solved.

COWEN: Yes, but what needs to go right for that to be feasible?

JENNINGS It’s not so much what needs to go right. It’s the planning, the technology, and the scale. If you want to get the costs way, way down for a unit, you can’t have car parking. If you’re trying to go from $30,000 to $20,000 to $15,000, you can’t have car parks. You’re building houses for people who will live within the city and who are going to be within a walkable distance of their work. Obviously, you’re going to go up. You need more and more scale. It’s a chicken-and-egg problem in getting affordable housing in sub-Saharan Africa because no one has cracked that scale problem to what we’re doing here.

You need bigger scale. You need to go up a little bit. I think we know with our partners — we already know how to go from $30,000 to $20,000, and then it’s going to get much harder going from 20 to $15,000.

COWEN: If cars cost so much for the community, how are you regulating cars?

JENNINGS: It’s not the cost of the car, it’s the cost of the land.

COWEN: Sure. 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?

JENNINGS: No, absolutely you can, and you can have two cars or three cars.

COWEN: I just have to pay a steep tariff to be able to do so.

JENNINGS: There’s somebody else who would love to have a properly built, safe, secured 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.

COWEN: 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, there’s no streetcars, right? There’s shuttles, or I walk, or there’s e-bikes?

JENNINGS: A lot of ideas on urban planning are born or are 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 should sit down with a clean sheet of paper, and you can think about how people are going to move around in the city, and you can do whatever you want to. 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. 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.”

There are the opportunities. We’re in one of the most beautiful and one of the nicest climates in the world. 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 plan from the very beginning, that’s very unusual.

COWEN: 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 Kenya think of doing that?

JENNINGS: Diversity — as you know, if you look through history, the cities that really prospered, that made a difference, that were hugely innovative, they were diverse. They were safe havens for people for all kinds of backgrounds including foreigners, perhaps even people that have been persecuted in other environments. This diversity, this mixing of people, this crossroads concept, this global marketplace — embedding that in everything you do is vitally important.

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 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. You definitely don’t want to go into any kind of segregation along those lines.

COWEN: What’s the aesthetic vision for Tatu City?

JENNINGS: You know, we are in 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. From a design and aesthetic perspective, we want this to be a Kenyan city. We don’t want you walk into Tatu and you think, “Well, this is a bit like Dubai,” or, “This is a bit like Sandton and Johannesburg.” That would be complete failure for us.

COWEN: What does that mean concretely? I’m here now, but what do I notice as a visitor where I say, “That makes this a Kenyan city”?

JENNINGS: The way we’re designing out CBD. There are a lot of subtle cultural references from different Kikuyu, but also other tribal groups.

COWEN: CBD, central business district, right?


COWEN: What would be a reference of that kind?

JENNINGS: It could be the façade of a building. It could be the pattern in a plaza. It could be who designs and the cultural references in a major sculpture. Here Mugumo tree is very, very sacred. We will be moving a massive historic and culturally important Mugumo tree into the center of the plaza. Then the other element is making it very green, very walkable and very, very beautiful, and very safe. 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, 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. It takes more time, it takes more effort, but the payoff, I think, is going to be massive in the medium term.

COWEN: 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. What is that something, aesthetically?

JENNINGS: I’ll answer the question, but we don’t think like that.

COWEN: Sure.

JENNINGS: Sustainability means it’s commercially viable. You have a lot of city projects that are massively subsidized by governments, particularly in petrostates. 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? 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.

We don’t try and impose solutions or levels of infrastructure people don’t want, or styles that people don’t want. So it’s probably not a question — it’s probably not how we look at things. There’s things that we think our residents will want that are hard to bring. 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.

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 in whatever that industry might be, they’ll want to come to your city because their children could go to a school that’s as good or better than anywhere else. So that’s the kind of thing that challenges us.

COWEN: 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?

JENNINGS: Biggest constraint we face is human capital. We’re obviously not land constrained. We’re unleveraged, we have very good cash flow, we have very, very good financing partners. We’re absolutely not capital constrained in any way. 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 doesn’t exist in this market. City scale, landscaping, urban realm — these schools don’t exist. You either have a lot of foreign consultants fly in, fly out; they’re not particularly focused; they’re not necessarily the best consultants in the world; and it’s just extremely inefficient. The constraint is embedding world-class technical people within a Kenyan team.

COWEN: What’s the key variable that will determine whether the talent question goes well for Rendeavour or goes not so well? What does that hinge upon?

JENNINGS: A lot is experience in doing the same thing in other businesses, in 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. It takes a lot of time and a lot of judgment.

COWEN: 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?

JENNINGS: Yes, interviews — it’s pretty well documented — interviews are a very inaccurate way of selecting and evaluating people.

COWEN: But it’s often what you have.

JENNINGS: 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 their actually knowing that we’re deliberately doing that, to see how they will react with our local staff or without. 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? A lot of the recruitment information comes [when they’re] 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? We rely on a lot of those kinds of data points.

On Nairobi

COWEN: Putting aside Tatu City, which is your favorite part of Nairobi, and what about it do you find so interesting?

JENNINGS: 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. Amazing national parks, but very diverse, from desert-like areas to Maasai Mara. You have an incredible coastline, you have incredible cultural diversity.

COWEN: Say in Nairobi, what gets you excited about Nairobi other than improving upon it?

JENNINGS: Getting on my bike with a few friends on a Sunday morning riding for 60, 70Ks through just idyllic, diverse countryside.

COWEN: Why do you think the cost of living in Nairobi has so much skyrocketed lately?

JENNINGS: Everything’s inefficient. Government’s inefficient.

COWEN: There’s a delta issue and there’s a levels issue, right? Is it food prices, energy prices, or what’s going wrong at the margins?

JENNINGS: Yes, clearly, given the structure of the Kenyan economy, the external shocks have been very unfavorable. Fuel is imported here, and grains are imported here. They’ve been the big two short-term drivers — and clearly they’ll unwind now to some extent.

COWEN: How should Nairobi fix its traffic problems?

JENNINGS: 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 they should be everywhere.

COWEN: It’s harder to do in low-tech settings. What do you think, it can be done?

JENNINGS: I don’t think —

COWEN: Through smartphones?

JENNINGS: I think that technology is really — it’s like so many economic problems. They’re technically easy, but they’re politically complicated. Obviously, people try and blame the technology. No, the technology exists, it’s developed a long time ago, it’s ubiquitous, but there’s no other political world to apply that technology. So the city will get more and more congested.

COWEN: Can a subway system be built?

JENNINGS: I don’t think these problems — most of the rest of the developing world has been through exactly the same problems. They’re really problems of governance. They’re 99 percent 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.

On Kenya

COWEN: 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?

JENNINGS: Stigler 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 and cartels and land offices. So it’s a huge source of rents. Again, it’s not a tech — the Kenyans are in the process of digitalization. They can digitalize the whole thing and create transparency in their sleep probably in six months. It’s a question of, is there the political will to deal with those cartels and the rent seekers who are benefiting from the existing system?

COWEN: But you think it isn’t ideal to title everything, even though rents probably would go up?

JENNINGS: No, absolutely it is. Lack of land, poor enforcement and definition of property rights is one of the biggest barriers to development in the region.

COWEN: 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? Is it the soccer team? Is it what music they listen to? Is it something about politics?

JENNINGS: It’s probably urbanization, 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. I think through urbanization, 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.

COWEN: Is there a risk that Kenya becomes too top-heavy with Nairobi overdeveloping, the way arguably London has, Vienna has in Austria? How are the second and third cities doing in terms of health or a certain amount of political balance?

JENNINGS: No, the incentive structures are profoundly different. 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 centralization. Here we have a very devolved constitution, and with that devolution, a lot of revenues are given to the local counties. The structural reasons for that concentration in the likes of UK don’t exist here. Then at just a practical level, you drive around, you see phenomenal development all over the country.

COWEN: It’s 47 counties. 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?

JENNINGS: We know that Switzerland is the most devolved country in the world and also that it’s one of the most efficient. We know that New Zealand and the UK are the most centralized, 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.

This degree of devolution is quite new here. It’s going to take decades for it to really work efficiently. I think it’s much better than the centralized model, vastly better. There’s short-term transition costs, but medium term I think it’s going to be really great. How many counties there should be? I don’t know, and I don’t think anyone else really knows either.

COWEN: 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?

JENNINGS: 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, places like Niger, and that decline is accelerating, and it’s falling faster. The forecasts are revised pretty regularly now.

COWEN: That’s birth control, later marriage, or what? Is it the same factors or something different?

JENNINGS: I think it’s the same factors that have driven this incredible reduction in birth rates across the world. As the likes of Charlie Robertson have said, the demographic dividend really kicks in when birth rates fall from, say, 3.5 to 2.5, because that’s when people can save. That’s when dependency ratios really start to improve. Kenya is at the vanguard of that process across this region. That demographic dividend is really going to kick in over the next 10 years as they move towards 2.25, 2.3 birth rates.

COWEN: What should Kenya do to boost productivity in Kenyan agriculture? These are all the easy questions, right?

JENNINGS: [chuckles] For —

COWEN: But it matters a lot to have that saving surplus that later funds industrialization.

JENNINGS: Yes. 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. 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. The government has a very important enabling role if you want to optimize that agricultural transition.

COWEN: What does that role consist of? What should they actually do?

JENNINGS: 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, cold chain, these kinds of issues. 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.

COWEN: How can Kenya have better risk-sharing against drought, which is a recent problem?


COWEN: Presumably some of it comes from climate change. A lot of it is external. The weather’s going to be what the weather will be.

JENNINGS: Some of the R&D ideas — Brazil developed hybrid strains of grass and crops that were more drought resistant. 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. Ideally, you need this interplay with really well-managed, scientifically enabled government institutions, and the private sector.

COWEN: Could you —

JENNINGS: Private sector is very strong in flowers and horticulture here. 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.

COWEN: Have the universities done enough in terms of agricultural R&D?

JENNINGS: They’ve contributed. There are success stories. Flowers — it’s a massive success story, but I think there’s more that can be done there as well. Yes.

COWEN: What could Kenya do to develop its tourism resources more effectively?

JENNINGS: A lot and very quickly. Again, it’s an area that we’ve studied and benchmarked against the likes of, say, Costa Rica, which has similar amenities but has had a tenfold growth in visitor numbers. 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. 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.

On Rendeavour’s business model

COWEN: As a businessperson, how do you think about when is the right time-window for entering an African market?

JENNINGS: [chuckles] 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 generalize about that.

COWEN: You were here quite early, before it was obviously a good idea. And what are the other countries that Rendeavour is operating in?

JENNINGS: 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 the — 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 align 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. That’s not necessarily the case for everybody else.

COWEN: Why are there so few, you could call them, perpetual projects in Africa? Projects designed to run on, more or less forever?

JENNINGS: 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. 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 DFIs. They do have to generate a return. They do talk about exits. They don’t go into 30-year projects. That’s very unusual, I think, anywhere.

COWEN: Thinking in terms of perpetuity, you view that as comparative advantage or risk, or you’re all crazy, or some mix of those, or it’s the vision of founders or — ?

JENNINGS: It’s definitely a comparative advantage because on every dimension you’re trying to find less competitive spaces. 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, but it’s very unlikely.

COWEN: Within Rendeavour, 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 Rendeavour, having that comparative advantage?

JENNINGS: Any really good business has alignment, so it has alignment with its capital structure, with its values, with the selection of its 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. Capital structure and shareholder identity are vitally important.

It’s very, 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 — 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 MVP sense. So, being very disciplined about shareholder selection is extremely important.

COWEN: 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, where does that view come from?

JENNINGS: 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 are wired to think that the world doesn’t actually fundamentally change. I think that’s like a cognitive default, but that’s actually at variance with the world’s experience since the Industrial Revolution.

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. There’s a disconnect between people — the way people think — and what has actually happened. My default setting is, unless you do things really, really, really badly, per capita GDP is going to grow, and it’s probably going to grow quite quickly.

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.

COWEN: What do you think is the book that has influenced you most?

JENNINGS: 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 ex post explanations, whether they be policy settings, location, culture. I think 90% of them are ex post; very few of them are predictive. Some of them are just tautologies. I really like factualization.

It’s descriptive more than analytical, but it just 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.

COWEN: What do you think economists get wrong?

JENNINGS: I don’t think we really understand development at all, because if we could, we could predict it. We can predict virtually nothing. It’s just too complicated. It’s too connected with politics. 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’s 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.

On New Zealand

COWEN: 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?

JENNINGS: 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.

COWEN: Do you think that’s the immigrants who self-select to going to New Zealand, or they’re somehow swamped by native Kiwi culture, or?

JENNINGS: I think it’s primary the latter, yes, and self-selection. 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. That reinforces their culture. I see some hope in Māori iwi 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. They are being very successful. But that’s the small part of our economy. Yes, I don’t see a lot of silver linings.

COWEN: 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?

JENNINGS: I think — clearly, I’m biased. I think they went extremely well. You have to judge that by the productivity improvement in the likes of telecoms, power, forestry. These were incredibly poorly managed assets, hugely wasteful, [with] very low levels of innovation and archaic levels of technology, and [the asset sales] unleashed a lot of value creation. I think societies that can’t take the medicine generally don’t perform very well. New Zealanders are still obsessed with the fact that the ’80s reforms, there were so many things wrong with them, notwithstanding the fact that virtually every change has withstood the test of time and hasn’t been reversed.

You see it in the same — Thatcher’s 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. I think countries that have been successful, they have wave after wave of reform, change, innovation and they’re good at it. 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.

COWEN: At least for a while, the New Zealand business community seemed to be strongly behind reforms for your markets, free trade. That’s fairly exceptional. Was that just luck, or are there organic forces behind that?

JENNINGS: I think fundamentally, we’d had quite an 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.

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 subsectors of our community.

COWEN: Do you have a sense of how to reform that?

JENNINGS: I think New Zealand is about, as you know, one of the most analyzed or overanalyzed countries in every area of reform. 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.

COWEN: 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. YIMBY for Auckland and New Zealand. Is that a major issue or a minor issue?

JENNINGS: It’s a horrific issue. Auckland has some of the least affordable housing in the world, I think number five, last time I looked. Yet only 2 percent of New Zealand is built upon. It’s just a massive paradox. 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 to rent. The biggest source of inequality in New Zealand is housing costs, which through regulatory change could be fixed.

Just look at Tatu 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.

COWEN: Everyone knows Queenstown, Milford Sound, but what’s the most underrated part of New Zealand?

JENNINGS: Oh, you —

COWEN: [chuckles] Taranaki? Are you going to tell me it’s Taranaki?

JENNINGS: Beautiful places off the beaten track. Yes.

COWEN: Somewhere in the North Island?

JENNINGS: There’s gorgeous pockets everywhere through that. Absolutely beautiful country. Yes, with lovely, really friendly people and very diverse and specific environments. Yes, if you’re going there, you should get off — 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.

COWEN: Growing up in Taranaki in particular, how did that shape you and your views? You’re not from Auckland, you’re not from Wellington. Outsider within New Zealand.

JENNINGS: 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. The values that were engendered in that period would — I was at the tail end of when that was being passed on to people. At that time, New Zealand was a leader. You felt as a New Zealander, we could take anybody on, and we could beat them, whether it was sport, economic performance, even areas of innovation. I guess that’s always been part of me.

COWEN: How do you think playing rugby early on influenced how you approached the world?

JENNINGS: It was more that when you played rugby, it was competitive. From a very young age in terms of — 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 in your bare feet and playing, and you were going to enjoy it. You did enjoy it.

Yes, attention to detail, training. 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. Picked some of that up as a child.

COWEN: What do you find inspiring about rugby in Kenya?

JENNINGS: Well, we went and watched the children from slums play rugby, village children playing. I find it enormously inspiring. I see the sheer joy that children have of just being supported to go out and kick a ball around. I see their school levels, I see their dedication. They’re physically tough. They want to train; they want to learn. They’re not grumbling. They are physically strong.

COWEN: There were no parents there, right?


COWEN: Reminded me of my childhood.

JENNINGS: 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 laughing it up.

COWEN: If you think about New Zealand culture — cinema, books, music — what is it from New Zealand culture that inspires you or has stuck with you?

JENNINGS: We were very strong in a lot of areas. A Kiwi split the atom. A Kiwi was the first person to climb Everest. Economically, we were top three in the world. As I said, things like social services — we were a leader. Yes, why not be the best? 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. It’s just how determined you are, how organized you are.

COWEN: What is it from Russian culture that has stuck with you?

JENNINGS: Quite a lot, I would say: Not prejudging people. Not believing in stereotypes. Really, 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. I learned a lot.

COWEN: If you were to contrast Kiwi culture and Australian culture, how would you boil that down to the smallest number of dimensions?

JENNINGS: I think Australia is much more competitive. They’re comfortable being competitive. Kiwis are very polite, and cultural surveys 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.

I think time has shown they’ve turned out to be a much more dynamic, outward-looking, competitive, and vibrant economy. We are 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. That full-on competition, that in-your-face culture, I think it’s very different on each side of Tasmania.

COWEN: How long have you lived in Kenya now?

JENNINGS: I’ve been coming here for 15 years a lot, and my wife and I have been living here for three years.

COWEN: Putting aside all the projects, the business and all that, but just how has living in Kenya changed you?

JENNINGS: Absolutely, out of 10 it’s a 10, that’s for sure. It’s a wonderful country, 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 — yes, there’s huge problems, but all of Kenya thinks that this place is going to change, and they want it to change. Amazing work ethic and the chance to do big, big projects that can be transformational that you don’t really have in so many places. So, a lot of pluses.

COWEN: 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?

JENNINGS: Definitely the cultural experiences and getting — again — off the beaten track where there’s not a lot of tourism, maybe not a lot of development: Very isolated areas where traditional lifestyle is still as it would’ve been many hundreds of years ago.

COWEN: You go to the north to do that, or all over?

JENNINGS: You go probably to the far north, yes, Turkana or Samburu area. Also, you’re going to go somewhere very beautiful. You may not see a lot of lions, but you’re going to see gorgeous scenery. You’re going to see extremely interesting people.

COWEN: And on the coast, what should you do?

JENNINGS: The coast is very diverse, so you can go to where all the people are, Diani 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. The range of experience here that’s so accessible is fantastic.

COWEN: Very last question. What is the next thing you will try to learn?

JENNINGS: I’m trying to understand, and I’m trying to 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. How do we get the most and create the most opportunity for our African human resource?

COWEN: Stephen Jennings, thank you very much.

JENNINGS: Thanks so much, Tyler.