Greece's Debt problems...versus SA's?

Time Magazine Nov 21, 2011 reported that; "No financial rescue plan alone can fix the political and social problems that are the true source of Greece's debt".

The article continues; "After Greece emerged from military rule in 1974, its politics calcified into a system of institutionalised cronyism, with party leaders using control of the public sector to extract bribes in exchange for jobs and political favours. Corruption at the top helped foster a culture of unaccountability that permeates all levels of society. Many Greeks dodge their taxes, shorting the public coffers of some 22 billion euros in revenue every year. Powerful public unions have procured unsustainably costly and generous benefits for public workers.

Now if I did not lead the article by stating that this was about Greece, what would you have thought?.........South Africa? well it sounds just like this corrupted state of ours does it not? We are continually increasing borrowings to fund a gradually widening deficit, which is based upon ever-increasing social benefits rather than subsidising economic growth. Unemployment continues to rise, government interference in regulation is on the increase, corruption by cronyism continues unabated and public sector wages and employment is ballooning, whilst Unions continue to defend high labour costs to the detriment of employment, productivity and competitiveness.

Is this going to get better soon? Well the answer is emphatically NO!! We do not need 2 successive quarters of almost zero growth for economists to shout hooray we are "recovering"!!, we now need 6, yes SIX quarters of successive REASONABLE growth rates before we can say we are then RECOVERING!, and that will still mean caution should prevail.
The largest developed economy continues to deteriorate; Citigroup is to layoff 4,500 workers in next quarter, this is equivalent to 25% of the employees of each of our large banks. Whilst the  lack of recovery remains a crises in the US, we little minnows down here will continue to plough backwards. So keep the buckles tight on the trousers, we are in for a 5 year low period and at least a ten year stretch before we are back at, or better than, levels of 2007.

We didn't start the fire.............

If I listen to the words of the Billy Joel song that spews chaos all around at various junctures in history, then there must be a great follow up available if adapted to South Africa as we stand today.
Jacob Zuma, Cele Beke, Jacky Selebi, Glen Agliotti, Shaik Shabir, justice system, media suppression, wow wonderful set of words to set in such a song tune. "Rock 'n Roll, the colour wars, I cant take this any more, we didn't start the fire".......(Sound vaguely familiar?)

World renowned author John Demartini, a behavioural specialist, has stated rather succinctly:

"The key is education. Educating people on what their goals and values are. Educating people on how to set goals that are congruent. Educating people that you must have service and reward to obtain fulfilment. Educating people that you must contribute in the economic game".

DIRECT-LINE-OF-SIGHT

Aside from the obvious, i.e. the education of the largely illiterate voters roll of this country, why shouldn't this be the SA govt's mission statement for themselves?

It is only when everyone has a direct-line-of-sight to the objectives that the ship begins to steer in the right direction.

Duck the pooh.........

Latest Stats SA employment stats show another decline in unemployment if we ignore the pubic sector (only area to have employed people). Researchers state unemployment looks gloomy for the ensuing rest of this year. Earlier reports implied we would lose another 400,000 jobs from July to December 2011. This now looks like it is on the cards as we nefariously appear to retrench people towards the end of the year.

Overseas, large corporates are again announcing massive retrenchments, yet the politicians tell us we are not heading for a double-dip recession! If you have followed my comments on this blog from the outset, you will have noticed that I pleaded for sustainable signs in recovery around employment and GDP growth, none of which we have seen since the financial crash 2008. Talk of green shoots have been simply that: talk. Despite massive dollar printing, this has all gone into rescue packages all over the world. These receipients remain in limbo with regard to recovery, cannot therefore service these ballooning debts, thus placing more lenders in larger economies under further stress. How does it end?

Well the only way out is for developed economies to splurge infrastructure spending, to get the construction industries going (these must be on financially viable projects, and regretfully this would include toll roads), create financial incentives for cash flush businesses to invest - look for example at China that subsidises factory rentals to allow for lower cost exporting, lower business taxes and in SA particularly shrink ever-increasing public sector employment.

These are immediate actions that can take place that would in essence lift public sentiment, a key driver for investment activity. Yes we will have to deal with rising inflation as a result, but that can be treated in due course with gentle normal economic tools.

Watch this space............

The Storm Continues.......

Well the US eventually politicked their way into printing more dollars, ensuring that lower dollar values would not precipitate any bond holders calling for dollar repayments, which in essence they cannot afford to repay!

The global debt crises worsens daily and with market sentiment at an all time low, investors are panicking as evidenced by very volatile bourses. The various country unrests that we are experiencing, ala Libya, Middle East etc are making matters worse along with the deeply indebted nations such as Greece, Portugal, Ireland, Italy, Spain, etc all giving off negative indicators of not being able to service their massive debt obligations. It would appear that there is no possibility of avoiding a double-dip recession and we had better brace ourselves.

Back home we need to focus on our own job creation crisis as unemployment continues to rise with more negative employment data expected over the next few months.

Self-indulgent politicians and their parties need to wake up to critical priorities and to begin to spend budget allowances urgently in order to start mobilising the construction industry, that in turn will commence re-employment and create some positive spin-off. There is no other place to begin, so focus on what is immediately possible and get this done before the festive season shut-down.

The Super 15 Rugby competition has not helped sentiment with regard to support of our national team and with the Rugby World Cup now looming, the last thing we need is a Springbok disaster in New Zealand. The nation will go into cardiac arrest!!

Stormfront Brewing

An article by Leon Alberts in the publication "Blue Chip - The South African Journal of Financial Planning", states some very disturbing facts. Namely that other cities of the world such as Florence, Barcelona, Madrid and Venice are in trouble. The article states that 100 US cities are over-indebted to the tune of US$2 Trillion!! The municipalities within these cities are expected to declare bancruptcy, which in essence means that these local goverments will default on debt obligations!!. The Federal Reserve has stated that they have no intention of bailing out these local governments, which has resulted in the commencement of massive cost cutting, selling off of state assets, and the result will be further significant retrenchments.
This is the US - what chance do we have down here?

What is so different from our country???********

On the global front, the SA Reserve Bank cautions that banking exposure worldwide is at an all-time high and looking rather perilous. At the end of 2010, exposure to Portugal, Ireland, Greece and Spain (PIGS), stood at $2,3trillion!! With the UK having an additional exposure to Ireland of $190Bn!! Gill Marcus has intimated that a large default in any of these areas could have devastating knock-on effects which could include South African banks. “This sort of derailment could have disastrous effects for our domestic economy as well and export markets could collapse”.
 

At least we read that the cost of cheap labour in China is on the decline, with manufacturing moving north to Cambodia, Vietnam and India, and in some cases back to the USA believe it or not!! This seems to me to be an ideal opportunity for SA exporters to become more aggressive.

The overall economic circumstances are in need of a Hallmark; “Get well soon” Card.

Time article May 30,2011 talks about the 5 steps to bring unemployment down.

1) Manufacturing - German example of focus on technical education, technical institutes and polytechnics, as well as apprenticeship programs. Specialize in high-end, complex manufactured products that can command a premium price. Their BMW and Daimler Chrysler modesl are fine examples of this strategic initiative. Germany is the only European country that has survived the economic crisis.

2) Retraining - millions of Americans are in industries like automobile parts in which lost jobs are unlikely to ever come back, certainly not at the pay they once commanded. Many of these people, most in their 40's or 50's need to find new jobs through massive re-training programs.

3) Growth Industries - efforts to create jobs when in crisis should be directed at those industries/products where the country already has a competitive position, and to double the efforts in that area. In the US for example they export great amounts of culture; movies, TV programs songs etc. Health-care in the US, considered of the best in the world, they should concentrate efforts to increase the amount of people coming to the US for such treatment.

4) Small Businesses - improve the eco-system for small businesses, by funding research, streamlining patent process, limiting regulation and encouraging venture-capital like entities. Take a chip from China and their small business industry.

5) Jobs for Now - Construction industries have lost thousands of jobs, and despite Govt's huge debt burden, the accent shouild be on govt and private collaboration infrastructure spending in order to get these people re-employed and working on all crumbling infrastructure.

Back home, we are grappling with Govt infrastructure spending to get going - Where are South Africa's other steps?

Strategy Fails when Execution Fails....blah, blah, blah

It is an often spoken cliche that failure to execute/follow through is the reason why so many strategies fail. Well by now we all know that, but what exactly does that mean?

Norton and Kaplan identify the primary causes of failure of strategy implementation as follows:

1. Only 5% of the workforce understands the strategy
2. Only 25% of Managers have incentives linked to strategy
3. 85% of executive teams spend less than 1 hour per month discussing strategy 
4. 60% of organisations do not link budgets to strategy

These are succinctly the summation of why strategies fail, and 90% of such failures can be linked to these points.

COMMUNICATION

How different is organisational strategy planning down at everyday levels as compared to say Global Strategy planning, such as Europe and the common currency strategy?
Well if you think carefully about what Kaplan and Norton say, then the fundamentals are precisely the same.

We have been talking about communication since the 2nd World War; when will we get this right? How useless can we be in this fantastic modernised world if after almost 100 years we still have the same problem - Communication?

We'lll chat again..............

Global Turmoil = Domestic Turmoil

Well now the Arab world appears to have been upended, and whilst this may be a good thing from a democracy point of view, it spells a further protracted financial recovery. Global funds that might have been used for stimulus packages will now be redirected to provide the numerous forms of assistance that will be required, and/or deals that will be struck with the capitalist countries of the world. At the bottom end of all of this is of course the oil commodity, the most significant holdings of which lie within these very countries in turmoil.

Portugal has fallen to its knees and Spain is rumoured to be close to financial meltdown. In both these countries there is mounting pressure not to accept bail-out funding. The reason for this is simple: along with bail-out funding comes austerity measures as a condition of same, and that means social program cutbacks that affect the majority of the population. Quite a chicken-and-an-egg conundrum.

On an almost farcical note, Moody's have again downgraded Greece's credit rating to below that of junk bond status, much to the ire of the Greek politicians of course. However this is an indication that Greece may not be able to settle bail-out loan finance instalments. Internally Greece continues to face financial ruin with citizens refusing to accept mandatory social spending cuts, and politicians having to trade off with the IMF et al. Again here is more non-revenue that will not be directed into stimulus packages.

The GDP legs of consumer spending, business investment spending, and goverment spending are all crippled in these european countries. The final leg of currency depreciation to lift exports is now also out of their hands due to the common currency of, and the overall need to support, the Euro. Good idea or not?

Domestically, we read that we created +- 157,000 new jobs in the final quarter of 2010, then we read that of this "wonderful" figure +- 145,000 were public sector jobs. We read that February new vehicle sales were up YOY - now I ask you, are we suddenly all morons? The new public sector employees more than likely, were the primary reasons for the new vehicle sales in the first part of the year, therefore all this "new job and car sales" were in fact tax payers money eminating from an ever shrinking tax revenue base. Statistics are a wonderful thing, that in the absence of further analysis are mostly meaningless.
We are now displaying desperate "signals" to create a "recovery" environment and yet unemployment continues unabated.
Thank goodness for the Cricket World Cup, which excitement is, as with the SWC, lifting our gloomy mood. Later this year we have the Rugby World Cup, maybe after that we can get back to work?

Economic Gridlock - As frustrating as the Traffic

It strikes me that there is a good reason to use the analogy of traffic gridlock when one thinks about the current economic suituation. After all, take the Gauteng highways, one moment you can be hurtling along at 130km + when all of a sudden, and without apparent reason, you are slamming on brakes and screeching to a complete dead stop. Then the stop/start process begins, a real risk for an actual accident, when suddenly, again for no apparent reason, one is again on the move at the same speed and nothing is transparent that could have caused the halt.This propcess will occur at least 2/3 times on your commuting way each day.

Now take the economic situation: there we were pre 2008, hurtling along at an awesome speed and living la Vida, when all of a sudden and to us mortals, for no apparent reason, we were suddenly brought to a grinding halt. Then we had some stop/start activity in the form of the FIFA SWC 2010. Then followed another grinding halt and now we seem to be in very uncertain stop/start activity before we can once again hopefully (and sometime soon) proceed full steam ahead.

As with the traffic the next level of activity is outside our control, or is it?



Where are your Dogs?

Allow me to explain; we can all simply remain in grindstone mode and wait for "something else" to move our cheese, or we can begin to plan our own way out of this quagmire. After all, it remains true that unless we plan to move forward, stagnation will mean that we will shortly begin to regress. In times such as these there are opportunities a-plenty, bargains available that requires intuition from our part to take advantage of. At some stage "other" businesses must re-stock, people must buy vital things in order to keep rolling, what we need to establish, through a strategic intuitive planning process; is whether we are in those places directly or indirectly. If not, then why not? If we are then it may be time to begin to seriously consider our own sustainability and to begin to make strategic decisions. 

Do we remember the hit song of the early 2000's - Who Let The Dogs Out? - If you don't let your dogs out, then beware the dogs that are hunting you!

Another excellent reason to commence your business planning now is that the cost of capital is undoubtedly expected to rise sharply whilst the world is within this recessionary state, and more so once acceleration commences. This may place easy capital out of the reach of many. This rationale is supported by a recent article in Time Magazine's issue of 17th January under the title "The Curious Capitalist" by Rana Foroohar, wherein she states that the risk of financial protectionism is going to be high when nations are too nervous in allowing state funds to be invested outside their borders. Thus in those instances where nations are "short" of free cash, up goes the price of capital. No kudus if you can guess which nation is the only one with loads of cash??

The time is NOW to start planning. Give us a call - we can help.