The World and South Africa in 2013 to 2030

2012-12-27 19:59

Towards the end of any year you get those who look back and reminisce and those who look forward and make predictions. The National Intelligence Council of the US government has just released their 2030 Global Trends report and so falls into the latter camp. I’ll summarise some of it below and also add in my 2 cents worth for South Africa. I’ll also suggest where I think you can make some money this coming year.

Firstly the US report describes some Megatrends and Game Changers and then some Alternative World Scenarios. It would be interesting for someone to juxtapose this report with the National Planning Commission’s NDP for 2030 but I’ll have to leave that to someone else. Meanwhile, let’s get stuck in. According to the report the Megatrends facing us are i) Individual Empowerment, ii) Diffusion of Power, iii) Changing Demographic Patterns and iv) the Growing Food, Water & Energy Nexus. I’ll try to keep it more interesting than what these terms suggest.

Alongside these, the report offers some insights that show how quickly our world is changing. Because we are changing with it we sometimes fail to notice. But stand still for a moment and consider that in 1873 it took 46 years for electricity to be adopted by the aspirational classes in the USA. In 1991 it took the Internet only 7 years to achieve the same. In some ways we are going back to the past in that Asia will soon become the world’s powerhouse again, as it was prior to the 1500’s. By 2030 the global majority will also be middle class, not poor, as has been the situation for most of human history.

Individual Empowerment

The first megatrend is already starting to have ramifications for some of the more dictatorial governments around the world. China is anxiously watching as their population approaches US$15k GDP per capita, considered to be the trigger point for a democratic spring. The report states that individual empowerment is brought about through poverty reduction, a growing middle class and better education and health care. All of this I would agree with but I also believe that self-empowerment is only truly attained when one breaks free of the chains that bind us to our monthly pay checks and bills. True freedom is actualised at your core when you can provide your own shelter, energy, food and water. Read my previous post for more on this.

This is going to become a lot more important as these basic human needs become far more expensive in the near future. Inflation and the last megatrend on the growing crisis for food and energy will sort that out. Therefore you will feel freer and less stressed as you are able to start providing these on your own. South Africa will continue to experience more individual empowerment and should government not be able to resolve our glaring inequality any time soon we could be facing our own Arab Spring. I expect a resumption of mine strikes early in 2013 again. It is of course natural for everyone to aspire to middle class and experience what it means to have stuff. But this creates stress to keep your head above the growing costs. The paradox is that it is only once you reach this point can you start to realise you don’t really need all this “stuff” and you can begin to self-actualise and start self-providing.

Diffusion of Power

The next megatrend is basically about the Rise of Asia and what Goldman Sachs calls the Next-11 emerging countries (which includes SA). By 2030, Asia and the emerging economies will have more collective power than today’s Europe, Japan and the USA. In Africa, Egypt, Ethiopia and Nigeria have the potential to surpass South Africa in overall national power, but unfortunately for SA the report states that the key to growth is better governance. SA has become very troubled and inward looking lately and we can only hope that Zuma and his entourage who are pushing the race divisive, traditionalist approach (appealing no doubt to where the easy votes are), will either start to follow the inclusive Mandela approach or preferably, get off the bus. If not, history will judge them harshly and they will experience the opposite of what Madiba is now so revered for.

I have no doubt that SA will soon start to be shown up by some of these better performing African nations, both in terms of economic growth and governance. Just look to Mozambique and Malawi for recent nearby examples. Perhaps embarrassment and shame amongst once aligned political cadres will finally force Zuma and his spin doctors to do something useful.

The Diffusion of Power megatrend also spells the end of Europe’s influence in world affairs. Currently the UK, Germany and France all punch way above their weight in terms of relative material power whilst China and India are currently punching below. It is questionable however, whether China would want to be too involved in world affairs (like the global policeman role the US currently performs), other than where it benefits China e.g. resource security. Looking back to Africa, and interestingly for our local corporates and banks raring to do business in Africa, the report lists Uganda, Malawi, Kenya and Nigeria as being in the top 10 global countries at most risk of state failure in 2030 based on something called a Human Resilience Index.

Technology remains the great leveller in this megatrend and the report states that private companies with mountains of data (such as Facebook) will be able to influence behaviour on as large a scale as governments. Personally I don’t buy that. I abandoned Facebook ages ago in preference of more Facetime with reality. Whilst these corporates may have mountains of social data, the value of each bit declines as the volume increases. Soon the noise to signal ratio will make it all meaningless. Just as the map is not the terrain, the data is not the person. I’ve no doubt advertisers will soon cotton onto this and some other disruptive tech will divert ad spend.

Changing Demographics

This megatrend is essentially about age and changing patterns of migration. It is well known that Europe is about to experience the silver Tsunami as their elderly retire to be replaced by not enough workers to pay their pensions forward. Something called the Demographic Window of Opportunity is defined as when the total working age population exceeds the youth (0-14) and the elderly (65+) combined. It’s thought to be a good thing and countries experiencing the window grow quickly. On this basis, the window for the USA was 1970 to 2015 and China’s is 1990 to 2025.

I would suggest that South Africa’s is the same as India’s i.e. 2015 to 2050. Hence we have something to look forward to. However, the problem for SA is that our youth are not properly educated so even if jobs were more widely available it wouldn’t really benefit us. Our demographic window could in fact become a huge threat in terms of social unrest if we don’t sort out education and employment. Alternatively, Europe and increasingly Japan are opening their universities to all and sundry and will increasingly start accepting global workers as the youth migrate in search of better paying jobs where there is a low supply of youthful workers.

The Growing Food, Water and Energy Nexus

The last megatrend is the most worrying. The world has consumed more food than it has produced in seven of the last eight years. We are eating into our stored supplies and any squirrel will tell you that is not a great idea come the winter. Another major international study finds that annual global water requirements will reach 40% above current sustainable water supplies by 2030. I don’t mean to be the prophet of doom but this does not sound good. It will all come down to price. Expect food prices to increase dramatically and water to become a tradable commodity, despite howls of protest from many. Those with money will eat and drink. Those without will starve or fight for it.

This could well be the New Age the Maya predicted. Now you might start to realise why self-sufficiency is not simply a hippy thing to do but a survival imperative. Locally, South Africa will probably feel the energy crises the most. We don’t have enough cheap and easily mineable coal to fire our power stations come 2018 and beyond. Other countries buy our more expensive export coal and still are able to have power at least as cheap as we do (see the European Energy Exchange). However, Europe’s power market is deregulated and competitive, and as such power prices can go down as well as up. Unfortunately SA power prices are only going one way. Eskom would like us to believe that it is coal miners and coal prices that are at fault when in actual fact it’s the massive capital costs and delays in building the new power stations. I estimate that coal prices are around 1/3rd of the total power cost at the moment, at around R0.20/KWh.

The effect of power prices on inflation and our manufacturing economy is going to be disastrous. SA will run out of affordable power before we run out of food and water. We are not alone though; India faces a similar power crises.

Leaving the megatrends, I want to get onto how you can make some money this year so I’m not going to delve much more into the US report save to summarise the alternative world scenarios it describes:

- Stalled Engines: A scenario in which the US and Europe turn inward and globalisation stalls.

- Fusion: A world in which the US and China cooperate, leading to worldwide cooperation on global challenges.

- Gini out the Bottle: A world in which economic inequalities dominate.

- Nonstate World: A scenario in which nonstate actors take the lead in solving global challenges.

This all sounds too much like a Clem Sunter gameboard and the actual future outcome will likely incorporate shades of all of these plus a whole bunch of other scenarios that no-one is able to predict right now. For those with time on their hands, the report is interesting reading. I confess I haven’t read it all but I do agree with much of it.

Of course what is important for us is how this will play out in terms of South Africa’s future and what it means for us personally. The lesson I take from all of this is to seriously concentrate on becoming as self-empowered and self-sufficient as possible. Get out of the monthly economic chains and get off the grid as much as possible in terms of food and energy security. Harvest your rain water.

South Africa as a country needs to drastically focus on getting our youth better educated and employed. Borrowing a little from Freemasonry we should perhaps go back to the seven liberal arts i.e. the Trivium of grammar, rhetoric and logic plus the Quadrivium of arithmetic, geometry (number in space), music (number in time) and astronomy (number in space and time). Either way, basic maths, accounting and business skills are essential as we seek to grow businesses. Government also needs to introduce competition into our power market urgently or we will soon cease to have any real manufacturing activity to help drive economic growth. No doubt we will continue to see meaningless economic growth plans and political spin to support them. If we can just get these things right then South Africa could actually be a winner by 2030.

Making money in 2013

Economically, 2013 looks like starting on a fairly negative note. The US congress will probably not reach agreement and it will go over the so called fiscal cliff. The stock market will send a short, sharp signal to politicians. The same thing happened in the throes of the 2008 economic crises and the TARP program was introduced within weeks of the final stock market crash. Remember that stocks go up slowly about 80% of the time (the bull walks up the stairs) and they go down very quickly the rest of the time (the bear jumps out the window). Personally I’ve sold all my shares and moved my pension fund over these last few days.

Where I think you can make money in 2013 is in Rand denominated commodities such as Newgold and the little known RMB coal note that I developed whilst at Rand Merchant Bank. It’s the only place in the world where the retail investor can get exposure to the actual coal export price. International investors don’t like the fact it’s in Rands but you should. The reason is that I think the Rand will weaken significantly this year due to the stresses from ongoing labour disputes and the high inflation that higher power prices are going to bring. You need to own real assets like bricks and mortar and commodities like gold, corn, oil and coal now. Forget gold mining shares but consider the various commodity ETF’s and ETN's out there. I'm happy to answers questions where I can.

Inflation is not only going to come to SA in 2013 but also to the world in general as all the Quantitative Easing starts to leave stock and bond markets and make its way into the real economy in actual printed money. Worldwide the value of money is going to fall and this means higher inflation and interest rates to compensate. Whilst the Rand may not actually weaken under this relative global scenario it will probably not strengthen like it historically has when gold prices rise. SA is not a significant global gold producer anymore and FX traders know this now.

The other reason I am massively bullish on gold now is this: The new Chinese Party is encouraging ownership of real stuff and discouraging speculation. So if you want to own a property in China now you must live in it or have a guaranteed tenant. The Party also wants to see the percentage of actual gold held in Chinese national savings to go from 4% to 14%. At 25 trillion Renmimbi that is a huge new source of demand for gold. I did the numbers recently and at current gold prices it equates to around 3 to 4 years of annual gold production! Please remember however that I'm simply offering an opinion here, not providing advice. Do your own research. I think you need to own real stuff that will hold its value in real terms as inflation starts to go up. Unfortunately the world and South Africa will probably go into Japanese 80’s style stagflation for a while (low growth, high inflation) and this is one of the ways you can protect yourself. Stock markets generally do badly in high inflation and high interest rate environments. Globally we are not out of the economic woods yet but there are opportunities out there. Good luck.

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