What to do, what to do? 2016 has arrived, and what a terribly difficult year it’s expected to be for South Africans. China is in a slump. Emerging markets are taking a beating. Our President made some reckless decisions with regard to our Finance Ministry. Go to the finance section on any website and the economic prophets are unanimous:
South Africa indeed faces a difficult 2016, Rian le Roux, Old Mutual Investment Group Chief Economist, warned this week. (Fin24)
If economic growth in South Africa this year is bad news, 2016 is set to be even worse, according to the International Monetary Fund (IOL)
The 2016 harvest in many southern African countries (SA included) could be a fraction of what it was just a few years ago and spending to import grain will have to be on several government budgets. (BBC)
Before you lose all faith and hope in the future, keep in mind this is simply a short term prophecy. Recently the US Department of Agriculture put forward an idea of what the global economy would look like in the next 15 years – including South Africa. Their forecast sees significant growth for South Africa. (see BusinessTech for the full detail)
The department provides historical and projected data for 189 countries that account for more than 99% of the global economy.
By 2030, total global GDP is projected to be around US$122.8 trillion, almost double the expected US$71.5 trillion in 2014.
The USA is still expected to be the world’s largest economy, contributing US$24.8 trillion to the global output, though only marginally ahead of China, which is expected to move up from US$8 trillion in 2014 to US$22.2 trillion in 2030.
India is expected to catapult past Japan to become the world’s third largest economy, at US$6.6 trillion.
All emerging market economies are expected to account for almost 40% of the total global output, at US$47.1 trillion.
By 2030, South Africa is projected to be the 23rd largest economy in the world with a total GDP output of US$810.6 billion (R9.72 trillion) – up 98.4% from the approximate US$408.6 billion the US DoA data showed for 2014.
South Africa was the 31st biggest global economy in 2014, according to the data.
That’s an 8 place positive jump for South Africa. You might argue that it should be more, but the point is that this year’s pain is not a trend, it’s just a bump (possibly a big one?). However, that doesn’t change the fact that 2016 will hurt.
Macro v Micro Pictures
I remember sitting in presentation being given by a client to their sales people, 5 or 6 years ago. It was a Vehicle OEM and they were talking through a graph depicting a slump in vehicle sales. The Economic Prophets had predicted a sad few years ahead, and even suggested the drop in vehicle sales (by percentage). The most interesting part of the graph was that while there had been a drop off in South African vehicle sales, it wasn’t consistent across each OEM. In fact, there was one manufacturer that had maintained a positive sales growth.
About a year later I was in a meeting with a Bank client. I was talking to their Bankers about the pain they were feeling, unable to meet their targets in a financially struggling environment. A room full of around 25 people who were despondent about their future. Except for 2 people in the room. They were having their best year ever.
These two stories have stuck with me when the economy turns to negative. We’re often exposed, via the media, to macro outlooks for the world or for our country. And the temptation is to take that macro outlook and apply it to your micro environment. I’m not sure one can or should do that? Macro views may be 100% accurate for an industry or even a country, but when you start looking at a more granular level you discover that it isn’t an equal drop (or rise) for everyone. Unless you’re the only player in the industry, you can’t simply extrapolate the information you’re getting onto your tiny piece of the market.
In fact, you can still have positive growth in a negative environment, or you can go insolvent when everyone else is making money. You have choices and decisions that enable you to still influence your destiny, no matter the environment you’re trading in.
What Choices Will You Make in 2016?
This is where our curiosity is focussed this year. What will people do? Will it be business as usual? Will companies pick a conservative strategy? Who will step out and do something extraordinarily different to attempt to take a big leap forward? Who will win and who will lose? And how will that play itself out?
Of course at Calidascope, we’re most interested in the disruptors? ‘The Crazy Ones’ as Apple calls them. Those that will take chances. The ones who step out in an attempt to blaze a trail for the rest of us to be envious of. Those are the ones that have my full attention.
We’re certain that there is no foolproof-guaranteed way to get through this next period. It will all come down to the decisions made with the opportunities presented.