Clem Sunter – Latest Global and SA Economic Scenarios
We were fortunate to attend a session by Clem
Sunter this month. As usual, he gave an excellent
presentation on the latest global economic scenarios and the
possibilities for South Africa. He also talked about how
pockets of excellence need to be talked about, encouraged
He presented three scenarios for the global economy and gave
us flags to judge which scenario becomes increasingly
The economic recovery will be flat like corrugated iron,
little up, little down. Recovery will only happen in 2016.
This is because the major problem of debt has not gone away.
It has shifted slightly away from consumers and businesses
to governments. It has become trickier as defaulting banks
can be closed down, but one can’t exactly close down a
country! Clem Sunter calls this the ABBA principle –
“Bailing You, Bailing me”!
The ratio of government debt/GDP is still very high and
climbing. It is 65% in the UK, 88% in USA and 200% in Japan.
All but four states in the USA are bankrupt.
Magnitude of debt increases as well as the deficit funding
Labour unrest in China
China property bubble burst
New Balls Please
Recovery will occur in 2012, i.e. much faster, but the game
will be very different to now. Banks will be much more
heavily regulated e.g. Basel lll; credit will be more
difficult to get; the East will become the equivalent of the
West (e.g. GM sold more cars in China than in the USA over
the past four months), and there will be a resource crisis.
The resource crisis will result in a commodity supercycle
and focus will now be on resource consumption efficiency
e.g. solar energy.
No serious drop in USA unemployment
No growth in property value and/or stock market
Here the recovery will be at two speeds. The developed world
will grow at 2 -2˝% - UK, Europe and Russia - and the
developing world at 5-6% - China, India, Brazil, and Africa.
The jury is still out on USA and Japan. Any investment and
business strategy will need to take this into account.
China controlling own currency too much
The last scenario is a serious “U” – steep and long. The
world will become unstable, hostile and countries focussed
Upsurge in protectionism
The percentages attached to each scenario are Hard Times
30%, New Balls Please 20%, UV 40% and Perfect Storm 10%
For South Africa, Clem gave three scenarios:
Stay in the Premier League
This is based on the Global Competitiveness Report – see
summary at end. Although SA slipped to 54 from 45 last year,
it still remains in the top echelon. Its position has
remained stable, other countries have improved. However the
slide downwards is concerning and shows that South Africa
must increase its competitiveness to remain in the Premier
League or else it will be relegated to the Second Division.
Non Inclusive leadership - Inclusivity means on the one hand
keeping the rich minority - who have the capital and a fair
measure of skills - on side; but also creating the
opportunities for the marginalised poor to become part of
the mainstream economy
Cutting down the tall poppies – not promoting and
Increase in unemployment
NHI – misguided understanding of the costs involved
Media Tribunal – arrest of first journalist will be
There are some green flags that can also assist in South
Africa turning itself around and away from the Relegation
Zone and dropping into the Second Division.
Extract more value from our natural resources i.e.
Use the success of the World Cup to encourage more tourists
Be the gateway into the rest of Africa – we produce 30% of
the GDP with only 5% of the population
Become passionate about promoting and growing small
businesses and entrepreneurs to bridge the gap between the
first and third worlds in this country
Celebrate pockets of excellence e.g. SARS, Children’s Red
Slide into the Second Division
SA becomes a third world economy, there is poor tax
collection and no access to world finance.
Sliding further down the Competitiveness Index and other
No-one will want to have anything to do with South Africa.
Think of other failed states – Somalia, Zimbabwe, and Iran.
There is only one flag and this can relegate South Africa
immediately from the Premier League.
Percentage possibilities Premier League – 60%, Second
Division – 30% Failed State – 10%
Summary of World Competitiveness Report on South Africa
South Africa, at 54th overall, remains the highest-ranked
country in sub-Saharan Africa. While it has dropped somewhat
in rank since last year, its performance has in fact
remained stable and the decline reflects improvements in
other countries. South Africa still benefits from the large
size of its economy, particularly by regional standards (it
is ranked 25th in the market size pillar). It also does well
on measures of the quality of institutions and factor
allocation, such as intellectual property protection (27th),
property rights (29th), the accountability of private
institutions (3rd), and goods market efficiency (40th).
Particularly impressive is the country’s financial market
development (ranked 9th), indicating high confidence in
South Africa’s financial markets at a time when trust has
been eroded in many other parts of the world. South Africa
also does reasonably well in more complex areas such as
business sophistication (38th) and innovation (44th),
benefiting from good scientific research institutions
(ranked 29th) and strong collaboration between universities
and the business sector in innovation (ranked 24th).
While a number of attributes therefore make South Africa the
most competitive economy in the region, in order to further
enhance its competitiveness it will need to address some
weaknesses. The country ranks 97th in labour market
efficiency, with inflexible hiring and firing practices
(135th), a lack of flexibility in wage determination by
companies (131st), and poor labour-employer relations
(132nd). Efforts must also be made to increase the
university enrolment rate of only 15 percent, which places
the country 99th overall, in order to better develop the
country’s innovation potential. In addition, South Africa’s
infrastructure, although good by regional standards,
requires upgrading (ranked 63rd) beyond what has been
achieved in the preparations for the 2010 World Cup. The
poor security situation remains another important obstacle
to doing business in South Africa.
The business costs of crime and violence (137th) and the
sense that the police are unable to provide protection from
crime (104th) do not contribute to an environment that
fosters competitiveness. Another major concern remains the
health of the workforce, ranked 127th out of 139 countries,
the result of high rates of communicable diseases and poor
health indicators more generally. Improvements in these
areas will enhance South Africa’s productivity and