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Unisa online - Making cents of SA's economic future

Dr Adrian Saville, Chief Investment Officer for Cannon Asset Managers

The world’s economy at present is the most turbulent it has been in modern economic history. This turbid and challenging landscape has resulted in economic stress globally; and this stress has filtered through to businesses. To a large extent, South Africa has been sheltered from the immediate stress of this situation; however, it does not mean that the country and its businesses don’t feel the pressure.

Chief Investment Officer for Cannon Asset Managers, Dr Adrian Saville, shared this on 20 June 2012 when he presented a business seminar entitled Competing in Uncertainty: Building Country & Company Competitiveness in a World of Dinosaurs & Dragons.

Hosted by the College of Economic and Management Sciences together with the ABSA Chair in Banking, Dr Saville’s presentation focused on the current economic situation facing the world, Africa and South Africa, as well as on the implications for businesses and investors in this turbid setting, in particular, the threats, challenges and opportunities that businesses and investors face.

To make sense of what tomorrow’s economic standing might look like, Dr Saville proposed two likely scenarios which bring specific challenges and risks – PAFTOTY (Pissing Around For Ten Or Twenty Years), and SINFOOH (The Sky Is Not Falling On Our Heads).

The PAFTOTY scenario borrows from Japan’s experience of the last 23 years, which has seen the economy remain stagnant. Dr Saville said the reasons for Japan’s economic stagnation are the same factors that appear in other advanced economies today – vast indebtedness in the private and public sectors, demographic decay, generous social welfare spending commitments that are unsustainable, and fiscal and monetary policies that have proved ineffective in the aftermath of the global financial crisis. He said 65% of the world’s economic footprint is represented by these advanced countries; and as things stand, the advanced world is going nowhere economically.

SINFOOH speaks to the dynamism in emerging markets. Dr Saville said while there has not been much economic recovery of the developed world, many other economies, such as China and India have seen swift growth. The African economy, he said, also continues to grow quickly, having grown faster than Asia in eight of the last ten years. He said while the advanced world stresses, the emerging markets talk about economic and social advancement. Six factors associated with socio-economic advancement are:

Prof Jackie Young, Department of Finance, Risk Management and Banking and Chair of Absa Chair in Banking
  • Savings and Investment – Having a high savings rate funds a high rate of investment in fixed capital that, in turn, translates into economic growth.
  • Demography – If more people are entering the workforce than leaving it, this adds to the nation’s productive capacity and economic welfare.
  • Policy and Institutions – Improving the quality of a country’s institutions and policy, including monetary, fiscal and industrial policy, is vital for economic growth.
  • Education – The more advanced the education of a country’s population, the higher the rate of economic growth.
  • Health – The state of a nation’s wellness, and ongoing improvements in access to healthcare and healthcare infrastructure, lead to further enhancements in socio-economic welfare.
  • Openness – The extent to which the factors of production (goods, services and capital; people and ideas) are able to move freely between nations plays a role in determining growth and economic performance.

Given Africa’s economic progress in the last 10 years, Dr Saville said that South Africa was filled with hope. Since 2000, Africa’s annual output grew by 4.7%, almost twice as fast as the previous decade and much faster than the global average growth rate of 2.6%.

He said countries in Sub-Saharan Africa, such as Botswana and Mozambique, are extraordinary partners to help the South African economy achieve much faster economic growth. He said the country is also blessed in terms of the six factors. “We are not the richest in terms of these six factors, but we are rich … We live in an incredible neighbourhood and it is going to get better and stronger. We are holding our own, we are well endowed, and we have good competitiveness.”

Dr Saville said that South Africa has to ensure that the six factors are embedded in its society, economy and political landscape. He said the country was in trouble regarding skills and education that foster employment, as well as healthcare, and these need immediate attention. He also said that while South Africa is doing well in terms of policy development, it’s not about how many policies you develop; it’s about the way these are communicated and implemented. Implementation of policy is vital if South Africa wants to avoid slipping into a PAFTOTY state.

He said that policymakers have to establish an environment where competitiveness is fostered. He also urged South Africans to make microeconomic contributions to help solving macro problems. “My observation regarding South African competitiveness is that certainly times are tough and policy makers get things wrong, but they get more right than wrong. We are also blessed with the six structures; and each of us have the power to make microeconomic contributions.”

To read Dr Saville’s blog visit or follow him on twitter @AdrianSaville

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