VOLUME NINE   DECEMBER 2016

South African Flags and Scenarios:

A summary from Clem Sunter’s book “Flag watching” How a fox decodes the future Published in 2015. I extracted the numbers below from Sunter’s 2015 book... I tried to limit the words   but the words will inevitably be reflected in numbers, in time Clem Sunter is famous for his High Road and Low Road scenarios in South Africa.

I confine this News Letter to a summary from Clem Sunter’s 2015 book


Six essentials: Sunter’s list for a Winning Nation


1

  Education: Clem Sunter states we have moved from the Age of Information to the Age of Intelligence. Information is all on the Internet, how to use it, is now critical. This means teaching children cognitive skills.

To quote Sunter on education: “Pockets of excellence work in teaching, are all over South Africa, eg the Make a Difference Foundation (MAD). Schools like Christel House in Ottery Cape Town.”

Numbers in our schools: 28 000 schools in South Africa, 5 000 respectable to excellent, 23 000 dysfunctional to shocking.
 

2

 

Work Ethic: Sunter stipulates there are four items:

Small government – where government thinks of itself as the champion the work ethic has declined. 

A sound family system – the numbers show we have problems here – the number of single parents, teenage pregnancies. The speeding up of housing will help.

Low taxation – if the marginal tax rate is higher than a certain percentage it becomes a disincentive to putting in the extra effort.

Absence of corruption – very demotivating to others when corruption is evident – needs an open style and consequences for those robbing the system.
 

3

 

Mobilisation of Capital: A national saving habit is an essential part of this.  

4

 

Dual-Logic Economy: The encouragement of big and small businesses into a symbiotic relationship. Sunter mentions how successful the Zimele Project was at Anglo American. The project supported 1 855 companies employing 38 000 with a combined turnover of R6 billion. Small businesses need big businesses. 

 

5

 

Social Harmony Sunter says you cannot have harmony where there are angry majorities or angry minorities – and grotesque inequality. Essential for people to believe and trust that progress is happening on the transformation front that includes the right policies on land.

 

6

 

Global Player China has gone from the 100th economy in the world in 1978 to second largest today. Deng Xiaoping, when he succeeded Mao Zedong, opened the country to foreign investment and international trade (traded themselves out of poverty). A quote from Xiaoping “I don’t mind if a cat is black or white as long as it catches mice.” Running the country like a business with a surplus on the balance of payments account is part of being a Global Player.

 

South Africa’s Eight Flags:


1

 

Corruption and Crime – No. 1 Flag

Three reasons:

  1. Bribes as an invisible tax can render an economy dry – as in Brazil
  2. Most corporate firms have codes that forbid the practice of bribery. This can force international companies to quit the country.
  3. When contracts are awarded to politically connected firms and not on price or ability, this can destroy infra-structure, be it housing, roads, bridges, etc.
Crime – Crime would be chasing South Africans away – both black and white – a brain-drain. The price of security would also affect our competitiveness.
 

2

 

Quality of Infrastructure

Load-shedding – now better – would be an example. Water also looks problematic.

 

3

 

Style of Leadership

Inclusive leadership is the major problem. Both Thabo Mbeki and Jacob Zuma have not placed this as a priority on our becoming a Winning Nation

 

4

 

Pockets of Excellence

We are blessed with an extraordinary array of pockets of excellence:

World-class companies, some excellent schools, private and public, outstanding universities (going through challenges), some outstanding hospitals, SARS (South African Revenue Services).

We are threatened by mediocrity at least in one area, in our haste to have all organisations achieve racial demographics percentages.

 

5

 

Entrepreneurial Spark

Countries that have achieved, have produced individuals who have made it happen. Compare North Korea with South Korea. In America, there has been a history of industrialists that have lead the world in development – Henry Ford, Walt Disney, Bill Gates, Steve Jobs, Mark Zuckerberg --- and now Elon Musk (born and educated in South Africa) leading in three areas – the Tesla electric car, the SpaceX rockets into space and the lithium car battery.

The country has to support the investment for entrepreneurs – minimise red tape. The government is part of the value chain of industries, new development... Tourism – needs state support; it is full of entrepreneurial activity. The links in the chain of tourism - one link is Visa Application and the support and welcome on the part of Home affairs. They did not see themselves as part of the value chain or they would have handled this very differently.

Sunter makes the point, Jacob Zuma should have rather said we need to create one million new enterprises by 2020 rather than five million new jobs – he adds this is the best way to produce 100 black industrialists.

Sunter also mentions that the people who have done spectacularly well since 1994 in the entrepreneurial category are Afrikaners. They benefit all South Africans.

Siyabulela Xuza from the Eastern Cape is a budding entrepreneur to be encouraged. He studied at Harvard and has been recognised for the advances he has made in rocket fuel cells.

 

6

 

Independence of Judiciary

This flag in South Africa is green. There have been moments when some people have felt it was turning yellow before turning red, but the Constitution is holding firm, protecting all the vibrant independent institutions. The media is strong; we have a Competition Commission, Constitutional Court and a Public Protector of note, Thuli Madonsela (now retired). Trade Unions are also fiercely independent in spite of being in a political alliance with the ANC.

 

7

 

Nationalisation

Economic freedom, historically around the world, has not been aided by nationalising mines, banks and other areas of production. Nationalisation merely creates more people working for the state as opposed to working for themselves. It also transfers the risk of running a business to the state whereas taxing business is a risk-free activity. Moreover, the money raised by taxes should be spent on improving service delivery, not gambling on markets

 

8

 

Land Ownership

Sunter states that in the worst-case scenario it is the only flag that can ignite civil war. Sunter does not believe the status quo is sustainable. He states there must be a more equitable distribution between blacks and whites. On food security and adding some numbers. Sunter says the following:

Total area of SA is 122 million hectares; 16.6 million hectares are considered arable (13.6%). Subsistence farming is not productive. Overarching any change is the need for financial and technical support for new black commercial farmers.

Sunter ends by saying that the current approach of one side putting up unilateral proposals for reforming land ownership and the other side defending the status quo at all costs is a dangerous non-starter.

 

Based on the eight flags, what are the scenarios for 2020?

The matrix is as above.


1

  The top left is Quadrant Impossible. A country cannot be in conflict and be improving competitiveness at the same time.

2

  Premier League – the Annual League Table is produced by the Institute for Management Development. In June each year the World Competitiveness Year Book is produced. The rating is based on 300 countries which measures how well a country is doing in managing its human and physical resources to facilitate long term value creation. The Premier League consists of the top 61 nations.
  • In 2010 SA was rated 44
  • In 2015                       53
  • In 2016                         52
  • SA is the world’s 33rd largest economy but No. 52 in 2016 in world rating.

Sunter states that South Africa is at the second crossroad. We passed the political one and now must remodel the economy to pass the second crossroad. This is the exact opposite to China; they reformed the economy and must now face the political hurdle.

In this scenario, South Africa would have to embrace the eight conditions to become a Winning Nation and the GDP would have to grow at 5%.

 

3

  Second Division – we go down the ladder, below 61, our economy remains stagnant and exclusive. Foreign investors stay away. The number of South Africans leaving rises. Tax revisions are down and the country continues to slide down until it reaches the Failed State.
 

4

 

Failed State – the flag of violence and anarchy is high. We join Libya and Somalia. Armed militia begin to displace government structures. There could be a petual state of civil war.

Sunter’s team’s view that there is only a 10% probability of the Failed State scenario:

The probability then, is 90% that the scenario is in the Premier League and
2nd Division, 50/50. This will give each of the scenarios a 45% probability.

 

Best wishes for a Merry Christmas
and better numbers for 2017 


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