Looking outwards

2011-07-15 00:00

SOUTH Africa needs a Codesa 3 to discuss thorny economic issues such as nationalisation and land grabs, says famed scenario planner Clem Sunter.

Speaking at an SA Gold Coin Exchange breakfast in Sandton, Sunter said all constituencies — government, unions, business and the voiceless unemployed — should publicly hammer out an agreement on the economy.

The idea is to get away from internecine bickering and argument, and to develop an outward-looking economic policy, one focused on success in the changing world of the future.

"Negotiations do change peoples' minds. Remember they said the Nats would never change. Then along came F. W. de Klerk. South Africans are practical and tend not to go overboard."

Sunter presented a range of futures, first for the global economy, then for South Africa.

His first scenario for the world economy is "hard times", where there is no real recovery in the current "low, flat and ugly" growth path in the West. He said debt to gross domestic product in the United Kingdom at 80% and the United States at 100% are major impediments. The last time the U.S. had such a ratio was in 1943 as it geared up for World War 2. Sunter said much higher interest rates are untenable and therefore unlikely in this scenario.

In the emerging economies, which are growing three times as fast as those in the West, much depends on China not developing a speed wobble. China stands in the same position that Japan did during its annus horribilis in 1987. Like those of Japan, Chinese goods are no longer so cheap.

"China now has to move from a cheap replicator to an innovator and the Japanese experience shows this is very hard."

An outlier to this scenario is that Ben Bernanke is right and the U.S. and the West will stage a general recovery. Even in this more positive "new balls please" scenario, the East will be the economic equivalent of the West.

A second outlier is the possibility that the world is running out of commodities and that Thomas Malthus's theory will yet be realised. Food prices have not weakened in the recession.

"When two of the world's most populous nations enter their industrial revolutions, you can expect strong demand for commodities."

In the double-dip "forked lightning" scenario, the current sluggish recovery ends dramatically and we have a replay of the events of 1931 to 1933, when Wall Street lost 80% of its value.

On South Africa, Sunter offered three scenarios. First, we stay in the premier league of nations.

Currently, we are number 32 in size in the world economy. In the World Competitiveness Yearbook, our ranking has dropped from 44 to 52. This puts us in the "relegation zone". If we slide into the second division, we join the Third World.

Sunter warned that a violence flag would threaten to put us in the failed-state league with Afghanistan, Somalia and Libya.

He said there are four subsidiary flags.

"Nationalisation would be an incredibly retrogressive step. To nationalise the mines with compensation would cost R1,9 trillion, which would [remove] education, law and order, and health from the budget."

Nationalisation without compensation would bring on sanctions against South Africa.

The second flag Sunter raised was "clumsy implementation of the national health insurance proposal". If this causes the decline of private health care, young people concerned primarily with health and education will leave in droves.

His third flag was any clamp on media freedom, particularly if journalists go to jail.

The fourth was the idea of land grabs. Sunter said he recently conferred with Zanu-PF people at the Saxon Hotel in Johannesburg. They told him that after growing at seven percent to eight percent per annum, the Zimbabwean economy "hit the wall" straight after the first land grabs in the nineties. Today they wish they had never embarked on such a disastrous strategy.

To stay in the premier league, Sunter said we need to "work together as a team like Manchester United". We need President Jacob Zuma to be a more inclusive leader and avoid racial polarisation.

Stressing the importance of looking outwards, Sunter said: "There is not one example of a country growing at seven percent to eight percent that did not look outwards."

He said South Africa has some strengths: resources, where we are number one in chromium, manganese and platinum and a key player in many other minerals. He would like to see further beneficiation of minerals, for example a Johnson Matthey catalyst plant in South Africa.

Our second strength is being the gateway to Africa. Seven of the top 10 growth prospects of the International Monetary Fund are in Africa, which helps to explain why Walmart bought Massmart.

Sunter gave South Africa a 50% chance of staying in the first league, a 40% chance of slumping to the second league and a 10% chance of joining the failed states. Last year he put the first league probability at 60%. — Moneyweb.

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