The Future is what matters……….

We have just gone through an extremely stressful, global economic meltdown, partly insulated in SA by the magnificence of the 2010 FIFA SWC, but after which we were very quickly dumped into the landslide as effectively as our international counterparts. This scenario has been analysed to death, over and over again, but so what? What now? Where do we go from here? What is the way out? Can we get out of this mess? We now need to concentrate our efforts on the way forward.

Global Economics – The Risks and Challenges

There are a few realities that we must take into account when we debate the way forward.

Globally the US remains the largest developed economy in the world and will remain so for the next 15/20 years. There will no doubt be a gradual shift towards the so-called Brazil, India and China (BRIC) countries during this period. The US as we know is mired in a catastrophic financial crisis, the mainstays of its economy having been decimated by the global recession. The UK remains entrenched in a massive debt crisis, Ireland along with Europe, primarily Greece, Italy, Spain and Portugal also reporting significant funding deficits. Other matters such as the cessation of hostilities in Iraq, which politically may be seen as very positive, will surely add to the domestic stress in the US economy from an industrial point of view plus the returning troops face unemployment queues that continue to rise at home in the US. Afghanistan and the incessant Middle East saga add to the global financial woes.

China is now the second largest economy globally, but the reality in China is not all as rosy as made out, with pressure on labour costs and sweatshops causing wages to rise and will effectively give rise to their losing some of their competitive pricing strategies. The global pressure for China to adjust their currency model had an almost immediate effect after revaluation, with a significant slow down on their imports that had a negative effect on global commodities. This significant market will continue to dominate global currency and commodity debate for the next few years, as the world starts adjusting to what will inevitably be the new world economic power in years to come.

 

SA Economics – Our Risks and Challenges

The positioning of SA Globally is of critical importance, both from a political and economic perspective. The questions are do we know and understand what our role is? Do we understand where and how we fit in?

What is the positioning of Business within SA? Do we have the right environment for business?

Do we have the right regulatory support framework at our disposal? Do we have the right leaders in the right places to make this happen? What can WE do about this?

Any economic recovery, in a macro-economic environment is based upon 4 fundamentals:

1. Inflation

2. Output Growth

3. Unemployment

4. Currency stability

We now have inflation firmly under control, with latest figures stating this is below 4%. Output growth is dependent upon consumer spending, and this comes about generally via business investment in production and employment.

 

The Global risk platform upon which we compete can be both positive and negative but we are primarily reliant on foreign investment flows. The briefly suggested tax on foreign inflows indicates that such comments continue to attract negative international sentiment. Our Economic Risk factor remains low due to excellent fiscal and monetary controls in place and this is manifested in the low inflation and interest rates. The resultant problem is now the very strong rand and other currencies exchange rates that is the current centre of attention by governments worldwide. History shows clearly that these matters are best left to competent Central Bankers rather than political parties, but either way it is senseless to purposefully weaken the currency in the absence of a commensurate sustainable initiative to ramp up local production and beneficiation for the manufacturing and export industry. These are very serious factors that require urgent and sustainable supporting interventions to reverse the negative trends.

 

Just as in the USA, SA is facing an unemployment crisis of catastrophic proportions. A number of recent reports have confirmed that SA as with the US continues to shed jobs. Very recently two of the big four banks have once again announced significant retrenchments, and this in our so-called world class financial services system. Agriculture, the backbone of the Western Cape growth, has lost 32,000 jobs nationally in the last 12 months according to Stats SA. Unisa's research in conjunction with the Reserve Bank, points to a true unemployment rate of about 41% of our labour force. The advertising industry's All Media and Products Survey (Amps) reports that the real figure is even higher at 43%. Unemployment breeds poverty and the income disparity in SA, already considered one of the worst in the world will continue to widen, unless programs are put in place to stimulate output growth and thus employment.

Insofar as Political Risk is concerned, the ANC is suffering under moral decay, this by their own admission. This is compounded by massive corruption amongst Government officials, and many bankrupt municipalities unable to deliver basic services. Centralisation notions, ala nationalisation rhetoric continues to flame international caution. The undeniable rift in the ANC ranks and the weakening of the Tri-Partite Alliance may still see the implosion of this relationship and we could witness a new party/alliance come to the fore. Will the ANC allow this? At the end of the day the people will speak and some political commentators are on record as stating that the ANC will win its last election in its present form in 2014.

 

The way forward economically is the path that has already been in some evidence and that is of joint partnerships between government and the private sector. History has shown that this type of partnership, if correctly structured, reaps the most efficient benefits but it requires political will and intent and a non-corrupted tender process environment. There is much work to be done in this space.

“Strike Season”- Power to the workforce …or is it?

 

As cautioned previously we had a robust strike season post SWC, all of which points to leadership on both sides serving their own interests. I have said this before; unless your people have a direct line of sight to your organisation’s objectives they will not be aligned to same. Easier said than done? Of course, but that is leadership’s responsibility to ensure that this communication and understanding is unsurpassed and the information loop is completely closed. Blue and white collar understanding and grasp may be at different levels, but again it is our responsibility to bridge that gap with tools at our disposal. Balance Scorecards are by their nature static instruments, it is up to leadership to breathe life into them and build bridges between them. I have seen many BSC’s that are behavioural tools rather than integrated performance tools, and the fall-out from these in almost all cases require costly resources, in the form of constant restructures.

 

This issue leads me to the following strategic initiative.

PERSONAL AND BUSINESS COACHING

The well documented cliché is how businesses today continue to struggle with the implementation of their strategy plans, the achievement of their business objectives and most of all getting the best out of their people. These issues are all interdependent, and one of the fundamental reasons for these failures, is that your people need guidance to get their own personal strategy plans in place, only then will they be able to resonate with those of the business.

What we mean is that when the people working for you have their personal strategy/career/family plans in place, then they can dovetail these with your business’s plans, i.e. they can relate their own plans to that of the business. At that point the business gets energy from within, because what they then drive has a direct impact on the rest of their lives.

Inevitably this is best achieved via third party intervention, as this is seen to be impartial and not biased from the point of the business. External facilitators are also able to hold candid discussions around these issues that if conducted internally are seen to confrontational and threatening. This is also applicable to those single owner businesses where the owner needs to correlate their personal ideals with that of the business objectives.

 

Economic “Heads-Up”

Business and Consumer confidence measures are key indicators of sentiment within markets. Sentiment gives rise to appetite and appetite drives spending, investment and risk taking all of which provides the platforms for business activity. Desperation measures also drive these factors but we need to be able to differentiate between desperation and appetite.

We hear and read that a number of confidence measures are on the rise, but the appetite appears lacking. Ad-hoc green shoots have been a-plenty over the last few months, but no definitive trends have emerged, and it is a sustained trend we are looking for. Our annual strike activity has done nothing to allay fears of “double-dip” recessionary conditions. Now we are informed that we cannot consume any alcohol at or before breakfast to alleviate our gloom – this is indeed a tough country!!

A recent business article reported that construction firms were eyeing Africa & the rest of the world for business, whilst apparently waiting for Govt to orchestrate the infrastructure capital injection of R800bn announced a while back. The mothballing of the R8bn Pebble Bed reactor program has reportedly resulted in a flight of expertise to grateful overseas projects. These two issues alone could pose some serious challenges once again in SA when we actually do need the resources and skills. We do not appear to lay down traction, matters always seem to take on an ad-hoc stop/start activity. This does not allow for structured planning by business to take place.

Consumer expenditure as we know accounts for some 70% of GDP, and with the soft interest rate cycle is expected to drive some recovery, but this may take a while as debt relief may take precedence over spending, which would be the prudent action at this precarious point in time.

2nd quarter stats reflect a marginally narrowing of the budget deficit spurred on mainly by an improved trade balance and increased spending during the SWC period. Whilst FDI decreased slightly, “other” foreign inflows also aided this positive position. A tax on foreign inflows would surely be a negative factor and such comments continue to attract negative international sentiment. Good fiscal and monetary policies appear to be holding extremely well and this is manifested in the <4% inflation rate and interest rates at an all time low. The resultant problem is now the very strong rand exchange rate. History shows clearly that these matters are best left to competent Central Bankers rather than political parties, but either way it is senseless to purposefully weaken the currency in the absence of a commensurate sustainable initiative to ramp up local production and beneficiation for the manufacturing and export industry. SA Unemployment figures are alarming high at the moment ranging anything from 25% to 43% depending on your source of information, and these factors require urgent and sustainable interventions to reverse same.

 

Insofar as our Rugby is concerned, well the trend we have witnessed is downside rather than upside, so in the absence of a sustainable strategy, what do we do? We do what every other strategy-less, business, family, Government, team does – we re-structure!! This is an annual occurrence not dissimilar to animal migration patterns, at least the animals have some structure to their activity!

We are fast heading towards the festive season and the reality would be to continue to batten down the hatches. Successive quarters of all the positive indicators will indicate trends emerging upon which we can begin to plan new investment tactics, which will in all likelihood not be before June 2011. This means that we should remain in grindstone mode, achieving efficiencies in all aspects of our businesses to enable us to react promptly when these trends manifest. It is the ideal opportunity to spend time and effort on strategising and embedding this process into your business and your team.

 

So we now see, Business, Government and our family homes are all subject to strategy – as Rameses II said to Moses: “So let it be written, so let it be done”

YOUR FUTURE IS AT STAKE – INVEST IN IT NOW

We’ll continue the conversation next time, along the road of strategy.