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The World at Large (Jul 2010)

Posted By Chris Reay, Tuesday, 14 September 2010

A recent presentation by Investec Bank on the status of the world economy and the investment position shows that SA is in a lot better condition than many developed and emerging economies. Thankfully, whether by design or not, we were saved from the direct effects of the credit crisis by the Credit Act, our traditionally high but realistic interest rates and relatively conservative banking system. In the USA it is estimated that some 30% of homes have mortgage liabilities that exceed the value of the assets themselves. Millions of toxic loans comprising the structured investment vehicles of securitized assets whose values cannot be determined remain in the system as do the credit default swaps, the ultimately crazy and disastrous process of gambling with insurance products on assets you do not own. And Europe now shows serious bankruptcy cracks.

A well presented explanation of the build-up and collapse of the world credit markets is provided in a book called the Perfect Recession which shows the analogy with the causes of the Perfect Storm that destroyed so much of the east coast of the USA in 1991. It identifies the coincidental phasing of some 12 independent effects, that happening on their own, would normally pass by unnoticed.

How should SA emerge from the recession? Investec convincingly pointed out that unemployment was our biggest threat, a feature that we have to solve ourselves. No bailout is available for that. How well is SA creating an environment that encourages the entrepreneur and the small businesses that are the backbone of growth in any economy? If SA were in effect a business corporation, would you invest in it when presented with some of the following attributes in a strategic plan? The Planning Commission believes it is acceptable to have a two and a half year sabbatical before it needs to put any plan forward (one year to form, 18 months before delivery). An integrated energy policy , crucial to confidence and forward planning, does not exist. So what do we have to consider?

Labour market and labour laws: most employers try to automate where they can to eliminate labour that has first world rights in a third world environment. No hire and fire here that built most successful economies. Competitiveness: low down on the world scale and dropping. Education of citizens: like the curate's egg, good in many parts, horrible in many others. Our private schools are as good as you can get, and need to be nurtured to keep that standard. Many government schools in general need a big kick just to get the teachers to class in time. Even the Minister is shocked, and that says something. Energy and power: per the new Eskom edict, the 25% increase will now happen 5 years in a row. Plug that into your cost planning. Effective skills development: blank screen. Some skills are marginally available while the world recovers and many projects end in SA. I place Engineers as a business and interact every day with employers and candidates; if you are not relating to your future skills need, you may be in trouble because the really good ones are still scarce. Too many employers of engineering resources believe Mr. Perfect is waiting on the street corner for the call. The huge intellectual capital tied up in retired-age Engineers remains unutilised due to a belief that these skills reside in the 30 to 50 age category. We need more effective Candidate Engineer training and paid mentoring, as well as a lot more CPD than the minimum required for registration credits to help keep the institutional memory in the system.

There is big hope for tourism if we do not mug or steal from too many visitors. The World Cup should be a great event and I believe SA has done well against the forebodings of many critics. It could do wonders for putting us on the map, perhaps bringing skills (back) into the country, but we have to energise ourselves beyond the revenues of tourists. Will the intangible benefits of exposure and national identity outweigh the massive cost to SA of the event?

We need a game plan as a country. Where is it, Mr President and Mr Manuel? Let us not find that while we survived the recession, we lost the way to compete in the recovery.

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