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Clem Sunter’s Current Global, and South African, Scenarios.

Regenesys Business School February 2013

We attended a briefing by Clem Sunter at the Regenesys School in which we heard his, interesting, current thinking on global and South African economic situations.

As he rightfully said, the future only happens once and no-one can predict with certainty what will happen tomorrow. According to Clem, more decisions are made about the future based on emotions rather than fact. He believes that there are only two paths that people and organisations can follow when going through change: they can do something now, or they can have a contingency plan for the future; doing nothing is not an option.

Clem maintains that it is also important that visions - for an organisation or an individual - and the future reality have to be aligned. If you have a vision for your organisation that is at odds with what is happening in the environment your organisation is doomed. He, along with Chantell Ilbury, uses the analogy of the fox and the hedgehog in which a hedgehog buries itself in certainty and believes that life revolves around one big idea. A fox is always scanning its surroundings and is quick to respond to threats and opportunities. Clem and Chantell believe that everyone needs to become more fox-like. It is better to be vaguely right than precisely wrong!

These days, businesses change dramatically every 5 years. Think back 5 years to the big business innovations of that time: Apple’s iPad (2010), Amazon’s Kindle (2007), and Masterchef (2005). However, the more successful you are in the game of business, the more oblivious you become to change. One only has to think of Kodak who invented the digital camera yet never leveraged this technology themselves and is now bankrupt!

Businesses have two choices in these tough economic times:

  1. Provide products or services that provide value at a particular price
    (e.g. Apple’s goods are not cheap, but provide incredible value at the moment.)
  2. Provide a cheaper alternative.
    (Look at how Mr Price has grown in recent years, as more and more people
    are looking for quality at a lower price.)

Global Economy Current Assessment: HARD TIMES & UV SCENARIOS

  1. Hard Times
    The world economies will remain flat where they are now for the next 10 – 15 years When looking at Japan in 1988, they had two flags that they were interested in:
     
    bullet Decline in golf club membership
    bullet High increase in property prices to take property out of the reach of much of the population

    Japan’s crash happened in 1990 and it has never recovered. It has an aging population and with an aging population, innovation drops. Very little innovation is coming out of Japan to revitalise it. Europe has worse demographics that Japan. For the last 8 years, Italy (a Catholic country) has had a declining population. The European market will remain flat. In Europe businesses will only grow if they are able to take over someone else’s market share! The USA is OK. It has a growing young population due to its effective immigration policies

    Red flags on the global horizon:

    bullet

    Spain’s defaulting economy

    bullet

    USA not rectifying its economic faults
     

  2. Ultra Violet (UV)
    There are two scenarios in this case: U and V. Both scenarios have had a dip in growth followed by an expected recovery. In the U scenario, the recovery takes longer -this can sometimes turn into cases like Japan. The V scenario is one where the recovery is quick and rapid.

    Most international businesses are now betting on Africa and India – countries with young demographics. In the latest World Bank report, 7 out of the top 10 growing countries are in Africa. The brand Kraft Foods has just reported that its sale of cheese into Africa has grown 60% over the past five years. Their top Africa salesman is from Angola.

    These scenarios are based on China still growing; however China has its own three red flags:
     
    bullet The Aging Cliff - Workforce is increasing in age due to their one child policy. The number of people over 60
    in China will double in half the time that this occurs in the Western world.
    bullet Exports – the growth, and competition, of European exports
    bullet Pressure on the banks – China has literally built cities that are full of empty buildings.

South African Economy Current Assessment: PREMIER LEAGUE, RELEGATION OR A FAILED STATE:

  1. Premier League (50% probability - down from 70% ,18 months ago)

    The world is a highly competitive place. In 2012, SA was only rated 50 out of 59 competitive countries.

    Flags to look out for:
     
    bullet Foreign Investment - foreigners are deterred from investing in SA because of policy uncertainty
    bullet Lack of Inclusive leadership – Clem has very high hopes about Cyril Ramaphosa who has inclusive
    leadership qualities that are desperately needed.
    bullet Pockets of excellence - there are many pockets of excellence in SA that need to be replicated. For
    example, there are 5000 good - excellent schools in SA. These schools must be used to raise the
    other 23,000 poor performing schools, and not let the 23 000 pull down the 5 000.
    bullet Balanced economy – Outward value is not balanced by Inward value:

    Outward – Value added in the following areas

    bullet Resources
    bullet Tourism
    bullet South Africa as the gateway into Africa

    Inward – Obstructive in the following areas:

    • Attitude to small business and entrepreneurs
    • In SA today the state is increasing their control of the economy. This control over the economy stifles entrepreneurial growth.
    • Current business climate in SA is very hostile to entrepreneurs:
      • Too much regulation.
      • Banks need to help rather than hinder.
      • Small businesses should be paid within 30 days.
      • SMME employers must have the right to hire and fire
      • We need to create space for entrepreneurs. SA has a very crowded economy – large corporates
        are able to squeeze out the smaller businesses, e.g. large retailers push out smaller shops
  2. Relegation League (25% probability,- down from 30%, 18 months ago)
    bullet Decline peacefully to the second league where there will be a decline in tax revenue and less access
    to international capital.
     
  3. Failed State (25% probability, - increased from 0%, 18 months ago)
    bullet Violence
    bullet Anarchy in workforce and with unions
    bullet Nationalisation flag is down but the National Health Insurance Flag is up
    bullet Media tribunal has jumped the probability of violence up 10%
    bullet Tendency for an “Arab Spring” to occur
    bullet Abnormally high numbers of unemployed youth
    bullet Active social network
    bullet Growing alienation of youth and authority

Food for thought: Was Marikana South Africa’s “Arab Spring”?