By Clem Sunter
The hedgehog approach to the future is to try and project it in a single, expertly derived forecast. If and when the "expert" forecast proves wrong, it is belatedly amended. Foxes, on the other hand, hold multiple scenarios in mind; and as the future unfolds, they gradually adjust the odds they give to each scenario. This involves far less shock and horror because whatever happens, it is usually captured in one or other scenario.
Moreover, as the odds on the scenario change, foxes modify their strategy accordingly - whether they are running a business, investing money in the market or taking someone out on a first date. It involves a continuous evaluation of the signs and possibilities and, where something really unexpected happens, immediately incorporating the event into the scenario mix.
The steps are straightforward. First, identify the scenario that you are actually in at the moment. Second, look at the possible pathways that could lead to the other futures and convert them into plausible scenarios.
Third, select the flags that would suggest you are moving from the present scenario into the other ones. Fourth, based on whether these flags are up or down (or at half-mast), assign relative probabilities to the different future scenarios. Then, on a balance of evidence in front of you, survey your options and make the most appropriate decision.
Each scenario should be a unique, internally consistent narrative that requires its own special response from you as a player. Foxes work out the best response beforehand so that they know what to do if the scenario materialises. They can then adapt faster than their competitors to the new circumstances.
Let's apply this process to the possibilities for South Africa in light of the country's 2009 General Election (and against the backdrop of the global economy in recession). We have been in the "Premier League" scenario, shown on the gameboard below, since 1994 - the year of our first truly democratic election. For most of the time since then, we have resided in the middle of the league, which is where we should be. We are not a Manchester United (about to beat America, Japan, Germany and China). We are more like a West Ham or Manchester City.
Nevertheless, according to some global surveys, we have lost considerable ground in the rankings, which puts us perilously close to the "Relegation Zone". Reasons given are that violent crime is driving talent out of the country; HIV/Aids is shortening the lifespan of the average South African; our infrastructure is showing signs of disrepair; and some of our industries (such as our textile industry) are looking distinctly uncompetitive compared to Eastern players.
Given our current predicament, there are three alternative scenarios (all shown on the gameboard above). The first one is that we get relegated to the "Second Division", where the bulk of the Third World resides - poor but peaceful. Companies will still make money (as they do in plenty of Third World countries); and they will always have the option of extending their geographical footprint into other African countries, or even overseas.
By contrast, for the Government the scenario is an unmitigated disaster because they can't change clubs! Certainly their tax revenue will be a whole lot less than they received when they were in charge of a Premier League nation; and they won't have the same access to international capital. Altogether it makes the perfectly honourable maxim of "a better life for all" seriously harder to achieve. The flag for this scenario is that we disappear from the "A" list according to an increasing number of internationally accredited surveys.
The second scenario is "Failed State" into which the principal flag for entry is widespread political or criminal violence. Examples of countries either in or on the border of "Failed State" are Somalia, Pakistan and Iraq. Nothing trashes a national brand like violence. The world turns its back on you.
The peaceful nature of the 2009 elections in South Africa means that the current odds on this scenario are negligible. It is more like a cautionary tale. This leaves the third scenario that South Africa returns to the middle of the Premier League - comfortably outside the "Relegation Zone".
There are three flags associated with this scenario. The first one is inclusive leadership. The last thing that South Africa ought to be in the global "Hard Times" scenario is a divided team. Inclusivity means on the one hand keeping the rich minority - who have the capital and a fair measure of skills - on side; but also creating the opportunities for the marginalised poor to become part of the mainstream economy. In other words, it's a delicate balancing act, and it's reassuring that Jacob Zuma has made inclusivity central to his initial presidential theme.
The second flag is to show tangible results in rectifying the problems that have caused South Africa's recent slide in the Premier League. This has nothing to do with ideology on the Left or the Right, and everything to do with back-to-basics management. The best way for South Africa to raise this second flag is for all of us to recognise the pockets of excellence that exist in our midst and then benchmark other similar organisations against those pockets of excellence.
For example, while there are many complaints against service delivery in the public sector, there is one world-class Government department - the South African Revenue Service. It is as good as any revenue collection service in the world. All other departments should be benchmarked against the excellence of delivery of SARS.
In the health sector, a pocket of excellence is the Red Cross Children's Hospital in Cape Town. It shows that a properly managed state hospital can combine state-of-the-art equipment with medical care for children only obtainable at the best hospitals in Western capital cities.
The third flag is about the evolution of a dual-logic economy consisting of an outward-looking economy that earns enough foreign exchange to cover the country's export bill (which is real issue since the current account deficit is around seven percent of GDP); and an inward-looking economy that creates enough new jobs to make a dent on our appalling unemployment rate of 23.5%.
The 'America' of Africa
The success of the outward-looking economy revolves around choosing ones spaces carefully in light of how competitive the global economic game is. South Africa has three spaces where it can dominate: mineral and agricultural resources, but we need to add more value here before we export them (a pocket of excellence being our wine industry); tourism, which can benefit from our ability to host major sporting events; and playing the gateway role into a continent that is opening up for business. South Africa is the "America" of Africa in that it produces 30% of the continent's GDP with a little less than 5% of the continent's population. Such a position confers huge competitive advantage in this particular trading space.
The success and inclusivity of the inward-looking economy will very much depend on the growth of small business in South Africa and overcoming the problem of a "two worlds" economy. We have a First World formal sector and a Third World informal sector with virtually no linkage between the two.
Yet a glance at the "Premier League" reveals that the three countries that made it to the top fastest all began their ascent with an entrepreneurial burst of energy - Japan and Germany after the Second World War and China after 1978. They are now respectively the 2nd, 4th and 3rd largest economies in the world.
Family-owned businesses were a critical element in the lift-off. Consequently a flag that will demonstrate progress in this area will be the transformation of the micro-lending industry. Why not invite Nobel Laureate Dr Muhammad Yunus, who founded the Grameen Bank in Bangladesh, to be a consultant on what we should do here? A second flag comprises more generous tax incentives to compensate for the risk of starting a small business, eg offering a complete tax holiday on profit up to a cumulative total of R1m and exemption from capital gains tax for investors in businesses below a certain size.
The odds that we give at the moment are 70% to a U-Turn in the "Premier League" and 30% to being relegated to the "Second Division". This may sound optimistic to some; but we're probably out of the "Relegation Zone" already, not because we've gone up but because the rest of the world has gone down.
Not a bad place
A positive flag is that in the 2009 World Competitiveness Yearbook, produced by the International Institute for Management Development, South Africa has risen to 48th out of 57 countries, compared to 53rd out of 55 last year. Reasons given include our resilience to the global financial crisis and our recovery from the rolling electricity blackouts experienced at the beginning of 2008. Indeed, our financial and insurance sectors have almost escaped the whole toxic debt tsunami unscathed; and we are relatively unencumbered by debt as a nation.
In addition, we shall probably experience a shallower "V" than Europe and the US despite the dramatic decline in out GDP, all these sporting events on our calendar act as an excellent gap-filler. On top of that, Zimbabwe has every chance of resurrecting its economy in the near future, for which we will act as a gateway. On the other hand, we have to make tangible progress in the areas where we rank lowest in the Premier League - unemployment, brain drain, available skills, life expectancy/health problems, pupil-teacher ratios in secondary schools and organised crime.
In conclusion, we feel that South Africa is not a bad place to see out the global economic "Hard Times", or even the "Perfect Storm" if it looks like engulfing the world. Obviously quite a few young South Africans living overseas agree with us. They are returning home.
Tuesday, June 02, 2009
By Clem Sunter