Winding the clocks two decades forward
What will economists say about South Africa’s current economic situation two decades hence? What will today’s recession, employment and production statistics teach tomorrow’s market analyst? These were some of the questions probed by Professor Andre Roux,
Hindsight – the perfect science
We will remember 2009 as a year in which a number of economic truths were reinforced, and an equal number of economic conventions broken. In the former category the realisation that “bubbles DO burst” is probably the most notable. This phenomenon proved true in the early 1600s when so-called Tulip mania hit the skids, in the late 1990s when the Dotcom bubble deflated and again at the end of 2007, when the property-driven sub-prime bubble burst in the United States. A second economic truth is that good government is good for business. In light of the massive fiscal stimulus plans unveiled by governments around the globe, Roux concludes that the “global market is not capable of managing itself.” Thus 2009 could go down in history as the year in which economic nationalism returned to prominence. Levels of regulation will undoubtedly increase while the importance of capitalism will be severely tested.
Throughout the twentieth century (and certainly through the first decade of the new millennium) the global economy was dominated by the United States and Europe. The global financial meltdown that blighted most of 2008 and 2009 will force economists to accept the changing world dynamic. In 20 years time emerging countries like China, India, Russia and Brazil will be entrenched in the top 10, with many developing economies creeping into the top 20. Cartoonists have already spotted this shift. In a spoof on the new world economy published in the Economist they caricature India as software designers, China as manufacturers and the USA as creators of household and government debt!
Whatever happens between today and 2029, the world will have to grapple with the concept of sustainability. Population growth cannot continue at the exponential rate that first showed in the 1980s. Current projections point to a global population of some 9bn by 2030! The problem – as Thomas Friedman pointed out in the New York Times (8 March 2009) – is that “Mother Nature doesn’t do bailouts!” Friedman expressed doubts about the economic growth model he’s worked on over the past 50 years, saying that it might prove unsustainable, economically and ecologically. In support of this observation, Friedman quotes Glenn Prickett from Conservation International: “Just as a few lonely economists were warning that we were living beyond our financial means and overdrawing our financial assets, scientists are warning that we’re living beyond our ecological means and overdrawing our natural assets!”
No time to waste – South Africa’s response is critical
Looking at the world with his 2029 hat on, Roux believes there are three “windows of opportunity” for the African continent. The first is to harness and develop the human capital embodied in the 400m children on the continent. This requires an immediate focus on education. It’s an observation of particular relevance to South Africa, where despite per capita expenditure on education exceeding most of the country’s African peers’, standards continue to drop. The second growth opportunity is to empower small and micro businesses. Governments in Africa have for too long been wooing large multinationals while neglecting the “unmeasured” and “unrecognised” savings in their citizens’ hands. The third opportunity is agriculture. At present only 22% of arable land on the African continent is gainfully used. If Africa harnesses these resources the continent could become self sufficient by 2029 and even export its agricultural production to the rest of the world.
If we turn the spotlight on South Africa, we realise the economy performed “above its weight” between 1994 and 2009, said Roux. The country simply cannot run such a large current account deficit given the low savings ratio in the domestic economy. To make matters worse, government faces an uphill battle to redress gaping socio-economic imbalances. The continent is clearly failing in meeting its ambitious millennium development goals as the number of people living in absolute poverty has increased by a third since 1990!
There’s no mystery about what South Africa has to do to improve the situation. “Countries that wish to reduce unemployment, poverty and other social ills need to grow at 7% per annum for at least 25-years!” said Roux. There are 13 countries that have achieved this feat since 1950, with only one (Japan) considered part of the developed world. In a nutshell the recipe for continued economic growth is: globalisation, macro-economic stability, savings, market allocation of resources and leadership, governance and capable administration! Does South Africa possess these five ingredients today? Although the country has potential, Roux believes our success hinges on the final ingredient – government. The big unknown is whether government will “maintain fiscal and financial conservatism, or be forced towards the left through financial populism?” Following the latter path will simply grow government’s debt burden and pass it on to future generations.
Three approaches for the future
There are three strategies South Africans can embrace as we prepare for the future. One is to simply shrug our shoulders and adopt a “what will be, will be” attitude. Under this scenario we allow change to roll over us, dictating our future. The second approach is dubbed NIMBY, or Not in My Back Yard. Companies that embrace this attitude believe they are impenetrable fortresses in a sea of change. Their typical response, said Roux, is “I’ve been around for decades so I don’t have to worry about change!” Such companies will soon realise the folly in their assumptions.
By far the best strategy is to follow Lord Baden-Powell’s ‘be prepared’ motto. Roux suggests we learn from the financial trauma experienced in 2008 and 2009 as well as from the other lessons history teaches us. “Things are constantly changing and we have to prepare for this change. We must think about this change, suspend disbelief and be proactive in managing change in such a way that we prosper through it,” said Roux.
Editor’s thoughts:
The South African government has ambitious plans to halve unemployment and poverty by 2014. It’s a noble goal, but probably unattainable without 7% plus per annum GDP growth. Current strategies involve redistributing resources from the haves to the have-nots rather than growing employment and economic output. Can government address South Africa’s social inequalities without creating an excessive debt burden for future generations? Add your comments below, or send them to [email protected]
