Globalisation is a continuing reality, but certain of its effects are increasingly coming under widespread attack and scrutiny. Just this year, Britain voted to leave the EU, the right-leaning US presidential candidate threatened to build a wall around America and the centre right in Europe rallied against migration policies. The upshot of this anti-globalisation sentiment is that the economy of virtually any country will likely stumble without access to international markets, trade and opportunities, directly impacting the livelihood and prospects of its people.
Speaking at the Old Mutual Corporate Wisdom Forum Gala Dinner held in Johannesburg last night, world-renowned American economist, Jeffrey Sachs, says that around the world, people feel there is a need to approach interdependence more rationally.
Discussing the topic of “Is globalisation crumbling?”, Sachs points out that there are areas where globalisation has worked well. “Globalisation has been a major source of economic growth for decades, especially in a country like China, which has powered the most rapid growth for large economies, we’ve ever seen on a sustained basis.
“The results, however, are not uniform across all countries, and within countries the benefits are also not equally shared, which is a big part of the problem. Even if globalisation increases the size of the overall economic pie, it doesn’t mean the slices are divided in a way that’s benefitting everybody.”
This inequality is one of the main contributors to a growing anti-globalisation sentiment, says Sachs. “There are large worldwide inequalities of income and differences of population dynamics. Europe has a stable but declining population, compared with Africa, which has a rapid rising population of very poor people and inevitable increasing pressures for migration.”
Also speaking at the event, Clement Chinaka, MD of Old Mutual Corporate, touched on the potential downside of de-globalisation, particularly for South Africa, warning that one of the main effects of the anti-globalisation trend is further halting global economic growth. “Without strong global economic growth to pull it up, South Africa’s economy is likely to remain stuck in its low-growth mode, with a recession still a distinct possibility.”
This will have a distinct impact on South African’s retirement savings, he says, as outcomes on retiring are likely to be lower than anticipated in such a low growth environment. “Retiring in the face of anti-globalisation is a serious concern, because most South Africans are saving for retirement through defined contribution funds – not defined benefit funds. This means members carry the investment risk and, as a result, the amount they get out on retirement depends on how much they invest and on the performance of the underlying investments in their pension fund portfolios.”
Chinaka points out that in such uncertain times, it is crucial that retirement fund trustees and advisers manage the expectations of members. “Advisers need to assess how much lower the returns would be if the economy were to remain in a low growth mode, compared to what the market has been used to. Similarly, trustees have to take a view on what is achievable in order to effectively manage the expectations of members.”
Globalisation is currently experiencing a phase of transition and the reality is that this will impact on retirement outcomes for members, says Chinaka. “Investment strategies need to be reviewed to improve returns, and ultimately to improve members’ retirement outcomes.”
He concludes by emphasising the importance of clear, constant and effective communication to members around return expectations, as well as the value of encouraging members to seek sound financial advice. “Ultimately, the investment risk falls squarely on the shoulders of members, and it is crucial that they be kept well-informed about the state of their retirement.”