Scenario planner advises financial emigration

Donwald Pressly
2014-06-29 12:49
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Johannesburg - The middle class as well as the agricultural sector are likely to come under great financial pressure over the next five to 10 years, according to Centre for Risk Analysis chief executive Frans Cronjé.

But those likely to be the worst off are unskilled workers and those “living in shacks on sand dunes”.

Speaking after launching his book A Time Traveller’s Guide to Our Next Ten Years at the Cape Town Press Club, Cronjé presented four scenarios for the future – but he suspected that “we are on the downhill side”, embarking on a course of a rocky economic road, possibly the worst of the four scenarios painted.

The appointment of the cabinet – including Nhlanhla Nene as finance minister – did not fill him with hope that the new government would go down the road of economic reform that was required to instill confidence among domestic and foreign investors.

“Nhlanhla (Nene) has a sound reputation, but (he) doesn’t have the gravitas of a (Thabo) Mbeki, a (Nelson) Mandela or a Trevor Manuel.”

Cronjé said the reformists – the economic pragmatists – like (former finance minister) Manuel were gone and former central bank government Tito Mboweni was “out” of government.

Cronjé was fearful that the new cabinet would lean towards reckless economic decisions, allowing a bigger budget deficit to fund social expenditure or to subsidise underperforming industry. That would place South Africa on a slippery slope.

Hedge themselves

The downgrade by ratings agency Fitch was also not good news. It revised South Africa's outlook from stable to negative in mid-June and this he said should serve as a warning to the person in the street.

Pressed on how this downgrade affected Joe Dlamini, the ordinary guy, Cronjé said the guy who “exists on a sand dune in a shack… was going to have a hell of a difficult time … over what is going to happen in the South African economy over five or 10 years.”

The middle class, and farmers, were likely to suffer, but they were likely to be able to hedge themselves and come out the other side.

His advice to some who was slightly better heeled was “if you are in the middle class and you see it (financial trouble) coming and you hedge yourself sufficiently… you will get through it perfectly easily.”

Middle classes

His advice to the business community was “to focus management attention on Africa”.

There were plenty of opportunities on the rest of the continent.

“It is looking good in so many respects,” said Cronjé, whose centre provides scenario advice to businesses.

“Of course, the business class and the middle classes are not going to be wiped out… but they are going to go through, I believe, a rough time.”

How will ratings downgrades affect people and their pockets, Cronjé was asked.

The first thing is that the price of petrol goes up, followed by increases in goods and services. More broadly “it means two things… South Africa’s reputation as an investment destination is on the slide and it's unlikely to draw the foreign and domestic investment (required) to create the economic opportunities… to improve your standard of living.”

Pursue careers

The cost of borrowing for the government and big corporations increases, interest rates are likely to go up and “costs go up”.

It was important not to be complacent about the plight of South African farmers. One of the saddest things for white farmers in Zimbabwe was that they were told that everything would pan out alright. It did not.

Pressed on what the ordinary middle class person should do in the face of a rocky road scenario panning out in South Africa, Cronjé advised that parents made sure their children “are well enough qualified to pursue careers around the world”.

They should also consider “financial emigration” – a reference to hedging oneself against the rand currency and financial turbulence in South Africa by investing abroad.

Cronjé identified the key trends that will shape South Africa’s future. He pondered whether it will follow the narrow road, the wide road, the rocky road or the toll road... and suspected it to be the rocky road into which the economy would slip.

- Fin24

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