SA on the edge of an economic cliff

South Africa is at its second tipping point with a 50% chance of making it either way.

So said renowned scenario planner Clem Sunter at the DESTINY, DESTINY MAN and PWC "Budget Speech and You" breakfast at the Michelangelo Hotel, Johannesburg, yesterday.

The first tipping point was in the early 1990s when the country could have imploded in a bloody civil war but chose the high road to a negotiated settlement, Sunter explained.

Now almost 20 years after democracy we find ourselves at another tipping point. Sunter and his partner, strategist Chantell IIbury, have worked out three future scenarios that could unfold depending on the how the country reacts to present circumstances.

Scenario 1: The Failed State

The best-selling author of Mind of a Fox said there was a 25% chance the country would go down the way of its neighbour Zimbabwe. He said there were four red flags pointing to this.

* One was nationalisation but thankfully the ANC’s Mangaung conference had put this matter to bed.

* The clumsy implementation of the National Health Insurance scheme. If it was not carefully introduced it would lead to a decline in private medical care and another exodus of young talent from the country. But Sunter was pleased to note that Health Minister Aaron Motsoaledi was consulting industry stakeholders.

* A media tribunal with punitive powers. “Gagging the media is as bad as undermining the independence of the judiciary… weakening either institution will remove any remaining brakes to corruption,” Sunter said. Although government had made concessions by turning the tribunal into a public commission and inserting the whistle-blower clause in the act, it’s a concern that there’s still no clarity on what is envisaged by “classified information”.      

* The worst of the red flags is that of land grabs, which would see the nation divided and could ignite a civil war. Sunter and IIbury believe land grabs should be pre-empted by convening an Agricultural Codesa that will negotiate a land transformation programme.

South Africa displayed all the signs of a potential Arab Spring-type revolt. Sunter said this included an abnormally high youth unemployment rate, combined with active social networks and a growing alienation from the state by young people.  

Scenario 2: The Second Division

Sunter said if no action was taken to turn the country around there was a 25% chance SA would slip into the Second Division with the rest of the “poor but peaceful” third world countries. He explained that in 2012 South Africa had risen from 52nd place to 50th in the Switzerland-based International Institute for Management Development list of 59 nations in the annual world competitiveness report. Prior to that SA was ranked in the 30s and 40s, which is where it should be as the 32nd largest economy in the world.

In the Second Division scenario, companies would still make money but government would be hard hit, as it wouldn’t collect the tax revenue it ordinarily would. Foreign investment would fall and SA would likely be replaced by Nigeria in the G20. Nigeria has a 7% economic growth rate as opposed to South Africa’s 2.5% (as per the national budget last week). And BRICS (Brazil, Russia, India, China and South Africa) would probably change to BRINC, with N representing Nigeria.

Scenario 3: The Premier League

Sunter said the was a 50% probability that SA would claw its way up to the Premier League of nations. He put forward three flags that would determine this outcome.

* Inclusive leadership. A look at successful nations reveals that they have had spells of inclusive leadership in their history. Somewhere along they way they have had a head of state that has united the majority and minorities into a cohesive team.

Sunter said he was encouraged by the election of Cyril Ramaphosa to the deputy presidency of the ANC. Having worked closely with him at Codesa, Sunter said Ramaphosa was incredibly inclusive and was the right person to tackle existing divisions in the country.

Asked if Ramaphosa could turn things around by himself, the scenario planner said, “I know Cyril enough to know he must have done a deal to do work in the background before he is deputy president of the country.”

* The various pockets of excellence that can be used to uplift the country as a whole. To illustrate, Sunter said SA has 28 000 schools – 5 000 of which hold their own against the best in the world. It was important for the nation’s competitiveness, he pointed out, to ensure that the standard of the other 23 000 was brought up to equal that of the 5 000 and not the other way round.

* Creating a balanced economy, which enabled healthy trade with foreign partners and a booming internal economy that creates jobs and lowers unemployment. He said the way the country treated its entrepreneurs had to be improved substantially.

“Payment culture of government is appalling. Sometimes businesses have to wait up to 180 days,” he said, “Our goal should be to create one million new business instead of creating five million jobs.”

To do this SA would have to exploit its competitive advantage in the following areas:

* Resources – “South Africa is still number one in platinum, manganese and chrome and we have plenty of high grade iron ore and coal,” Sunter said. However, he added we must add value before we export our resources.

* Tourism – We are a relatively cheap destination and we must use this to our advantage.

* Gateway to Africa – As per the World Bank, six of the top 10 fastest-growing economies in the world over the next five years are in Africa. As the largest and most advanced economy in Africa, we must position ourselves as the gateway to the continent, Sunter said.

In closing Sunter said we should convene an economic Codesa to decide on a way to transform the economy and erode inequalities.