Talking to members of his head office staff recently, Bill Rawson outlined for them a future in which there will be tougher trading conditions, increased competitiveness and a large number of business failures – but, he said, it will be a future in which the aware, “smart”, adaptable property companies will capitalise on the difficult conditions and continue to grow.
These remarks were based on a talk given recently in Cape Town by Clem Sunter, the scenario planning guru. Sunter startled the 80 guests present by saying that South Africa has now only a 50% chance of remaining in the “premier league” of internationally competitive countries. In the last year, he said, they had dropped from the 44th to the 52nd position in this league.
Sunter, who originally made his name with his High Road Low Road scenario talks, warned that as a result of the western world’s economic chaos, trading and business operations in South Africa should expect no significant relief or let up for five years.
The present times are economically, in Sunter’s view, more difficult than any in his lifetime – and as a child he had a father serving in the Second World War. In the 25 years preceding the current downturn, Sunter said, even inefficient companies were able to make good profits. A whole generation had grown up never experiencing a recession and learning to extend their credit to the limit. That, he said, has now all changed: everyone is looking for low cost, high value alternatives. High net worth spenders are few and far between and property values in many parts of the world have fallen by anything up to 50%. Many slack businesses will continue to go bankrupt.
The all time high national debt levels incurred by most western countries (in the UK they stand at 60% of GDP, in Greece at 82,5% and the USA at 100%) make a quick recovery out of the question.
Most European economies will now, in Sunter’s view, perform as Japan has for the last 20 years i.e. with minimal growth (probably around 1%). He rates the chances of Greece defaulting on its debt at over 50% but he said that is “containable”. He puts Italy’s chances of following suit at 20% - and if that happens, he said, Europe’s central banks will probably not have the resources to continue a bail out.
In contrast to this, the economic graph of many emerging countries is likely now to be V-shaped, i.e. they are already approaching a sharp upward trajectory – and Africa will be one continent where high growths will be obtainable. As a result, old world capital is already moving there. As an example, Sunter quoted Kraft Foods, which saw 60% growth in turnover in Tanzania and 40% in Kenya last year.
South Africa, and the world in general, said Sunter, are now heavily dependent on China for growth – but, he warned, China’s economy will slow as it is highly export orientated (38% of their GDP is generated by exports) and as it is already feeling the effect of economic stagnation in Europe and in the USA. China’s booming property market is now also having to cut back drastically and their banks will have credit problems as a result of large developments now standing empty.
Particularly challenging, said Sunter, will be the increasingly high cost worldwide of basic necessities: oil could in the foreseeable future rise to $500 per barrel and a $1 000 price is not that far off. South Africa will need to invest R750 billion in the next 20 years just to provide adequate water to its people; electricity supplies will continue to make a hole in the budget and food, already rising in price, will be increasingly costly.
Shrewd politicians and businessmen – and scenario planners – said Sunter, have to be on the lookout for “red flag” warning signs.
Right now, he said, the “flags” disliked and distrusted by South Africa’s investment and trading partners are:
• talk of nationalisation which is still punted as a panacea but which has never yet promoted growth or attracted investment
• a clumsy, expensive, new health care initiative;
• serious dissension and leadership challenges in the ANC;
• high monthly welfare payments (15,5 million South Africans receive welfare handouts but only five million pay income tax);
• high unemployment, especially among the youth.
Sunter said that high youth unemployment is always a signal that rioting and violence are likely to follow. Syria, he said, was a prime example of this. Here, social networking had proved decisive in stoking resistance – and much the same is possible in SA, where social networking is on the rise.
South Africa, said Sunter, has to play to its strengths – these are the exploitation (and greater local beneficiation) of its natural resources, tourism and its status as the gateway to Africa.
Above all, however, SA has to free up the economic regulations and encourage entrepreneurs: Trevor Manuel has said that 90% of SA jobs will have to come from small business. This is vital to our future as the big corporates can no longer come anywhere near meeting job demand. Sunter’s own group, Anglo American, which at one stage had 450 000 employed, now has under 100 000. However, labour and business regulations and a dependence/employee mindset dampen SA’s entrepreneurial enterprise. (In this respect, he added, lessons can be learned from India, which has a largely unregulated economy and even from China, which although communist, which gives business a free hand.)
For the ordinary businessman (rather than the politician) what does Sunter recommend as a survival strategy in the current hard times?
Sunter, said Rawson, has stuck to his hedgehog vs fox recommendations (already published as a book).
Hedgehogs have one big idea, one plan, which they pursue with total dedication. In predictable times, with growth rates assured, hedgehogs do well – but their businesses fall apart when the operating scenario changes.
Foxes, by contrast, remain aware of every nuance and change – and play to the challenging conditions. They are adaptable – they abandon old strategies and take on new ones – and their businesses thrive under new conditions, and even in recessions.
“This,” said Rawson, “applies 100% to property marketing and property development. The Rawson group has, we believe, understood this and will continue to grow in the current tough conditions because our franchise model suits the independent entrepreneur on which the future of South Africa depends.”
