Calling all Foxes: Your time has come

By Clem Sunter

The newest in the topselling Fox series, this book is a collection of his most recent columns. Master strategist Sunter covers current events and topics of general interest in his unmistakable, highly readable Sunter style. He has updated and annotated each column with new insights and information on what has happened since and how this bears out his theories (or not). The book includes possible paths the global economy and South Africa might follow in the years ahead. Packed full of wit and wisdom, Calling All Foxes is a guide to survival and success in these volatile and uncertain times.

• Language: English
• Publisher: Tafelberg
• Release date: May 28, 2012
• ISBN: 9780624057987

Clem Sunter

Clem Sunter was born in England and read politics, philosophy and economics at Oxford before moving to Zambia in 1971 to work for Anglo American Central Africa. In 1973 he came to Anglo headquarters in South Africa, where he spent most of his career in the gold and uranium division, serving as its chairman and CEO from 1990 to 1996. In the early 1980s, Sunter established a scenario planning function at Anglo with teams in London and Johannesburg. He is probably best known for his ‘High Road/Low Road’ scenarios for South Africa in the 1980s. His 2001 book, "The Mind of a Fox", co-authored with Chantell Ilbury, anticipated a major terrorist attack on a western city before the 9/11 tragedy in New York. The book sold more than 50 000 copies. Since 1987, Clem has authored or co-authored 18 books, many of them bestsellers. He has given scenario presentations worldwide, including lectures at the Harvard Business School in Boston and at the Central Party School in Beijing. Sunter married Margaret Rowland in 1969 and they have one daughter and two sons. His hobbies include walking and rock music although he hung up his guitar professionally in 1964 shortly after his band played at the same gig as the Rolling Stones.

Book preview

The global tightrope

This article illustrates how Chantell Ilbury and I have developed the scenario-planning technique over the last ten years. We feel that instead of just listing different scenarios as some consultants do, it is much better to present them in a matrix like the one depicted in the article. This allows people to visualise the logical connection between the different scenarios, have a debate around which quadrant the world is in and whether the world is about to move to another quadrant.

Obviously, the choice of the two axes that form the basis of the matrix is crucial. Our advice is that you should list all the key uncertainties surrounding the topic covered by the matrix and then ask yourself which are the ones that are the real driving forces for different futures and which are the ones that people are most interested in. In this case, we felt that the two key issues on people’s minds are whether or not the world economy is going to experience a short-term recovery; and secondly, whether or not the world will stay relatively united in overcoming existing problems or fall apart.

The other two modifications we have made to the scenario process are to identify the flags which we believe indicate movement towards a specific scenario; and then, based on the disposition of the flags, attach a subject probability to the scenario. We have found that our clients are as interested in the flags as they are in the scenarios themselves. We watch the flags all the time and, as you will see later on in the book, adjust the probability of a scenario as soon as we detect a shift in a flag’s position.

In other words, the matrix is dynamic in the way that we interpret it; and of course, over a period of time, we replace the axes with new driving forces and the quadrants with new scenarios. That is what is so fascinating about the future. It is like driving along a road where the countryside gradually alters but occasionally undergoes a sudden transformation. For this reason, no presentation on the future can ever get stale. You are always talking about different surroundings.

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If Ben Bernanke were in the circus rather than chairman of the US Federal Reserve Bank, he would be a tightrope walker. On the one hand, he has done everything to stop the Great Recession turning into the Great Depression with his monetary stimulus measures. On the other hand, he wants to avoid stagflation – a condition of low economic growth but rising inflation and hence rising interest rates. In other words, he does not want to repeat the mistake made by Alan Greenspan earlier this century which contributed to the Crash of 2008.

Let us analyse the tightrope on which he is precariously perched in terms of scenarios, flags and probabilities:

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On our latest scenario gameboard, Chantell Ilbury and I have chosen two axes. On the left of the horizontal one is a U denoting a long economic slog of at least five years before the world as a whole experiences a sustainable recovery. On the right is a V where 2010 was a year of transition, 2011 will see a mild recovery and 2012 we are truly back in business.

On the top of the vertical axis is a world operating as one unit and, on account of globalisation, sharing a common destiny. At the bottom is a world that is becoming increasingly divided, either because of differing economic prospects or as a result of rising tensions, protectionism or regional strife.

The interaction between these two axes yields four possible scenarios. Going clockwise, the first is Hard Times or a classic U for everybody where unemployment rates remain painfully high for much longer than people anticipate. The second scenario is New Balls Please where Bernanke is the hero of the day, but the economic game is very different in its revived form. Resources are scarce as the East vies with the West for economic supremacy.

Ultraviolet is a two-speed UV world where emerging economies experience a recovery in the short term while advanced economies labour on under a mountain of debt. Forked Lightning is a double-dip repeat of the early 1930s when the Crash of 1932 eclipsed the Crash of 1929.

Currently, we are in the Ultraviolet scenario and it is our favourite over the next five years with a probability of 40%. The flag to indicate we are moving into the universal Hard Times upper-left quadrant is a dip in China‘s economic growth rate below 6%. So many emerging economies in Africa and elsewhere, as well as advanced economies like Germany and Australia, are dependent on China‘s continued success. If China falters, the multiplier effect kicks in. We give Hard Times a 30% probability which is lower than Ultraviolet because it is odds on that the Chinese economic miracle remains in place.

The flags for New Balls Please are a decline in the US unemployment rate below 6% and a general drop in national debt to GDP ratios among advanced economies. The former is still at a historic high around 9½% and the latter are continuing to climb since governments have only just begun to rein in their budget deficits. We therefore accord New Balls Please a 20% probability at this stage, on the grounds that the conditions for sustainable recovery are elusive.

As for Forked Lightning, our principal flag is a jump in the ten-year US Government Bond rate above 5%, which would indicate a loss of faith in the dollar as a reserve currency. Other flags are a national default of note in Europe, a trade war erupting between America and China, and a massive conflict in the Middle East or between the two Koreas. Essentially, a gust of wind blows Bernanke off the tightrope and the finely crafted balance he has put together falls apart.

None of these flags is up at the moment and we therefore assign Forked Lightning a 10% wild-card probability. Our advice to clients, however, is to monitor the flags constantly and adjust the probabilities as the flags go up or down. Equally, there may be other flags we have not thought of or even other scenarios. Whatever your preferences, this approach is more sensible than betting the shop on a single forecast. It makes you more nimble when things change.

The gypsy lords

One of the most important roles of a scenario planner – especially a foxy one – is to pick up the megatrends which are reshaping the world. They become the new rules of the game, according to which the future may play out. In this article, the trend chosen is the growth of super-rich families on a cosmopolitan scale. They are immune to economic cycles. On a recent visit to London, I heard of a house that had been put on the market in Kensington for £75m. It needed another £10m spent on it to restore it to its former glory. No wonder one estate agent in the area said that every one of the last 60 houses she had sold was to foreign families. Not one British buyer could afford the asking price. Last year, sales of Rolls Royce and Bentley cars worldwide increased by over 30%. Life is unfair, isn’t it?

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I call them the gypsy lords. They are the roving kind and they have the money and the talent to wander wheresoever they choose.

In South Africa, you will find them in the gated golf estates or suburbs like Kloof in Durban, Hyde Park in Johannesburg and Constantia in Cape Town. Basically places where you can lock up and go away for six months of the year. We used to call them swallows when it was just English people following the sun; but now it is a variety of nationalities that find South Africa a favourable place to chill out with their preferred glass of champagne in hand while texting their private banker.

They have no allegiance to any particular country – only their own families and friends. They schedule their stays in each country to minimise their tax.  Some spend part of the year in luxury cruise ships where no official can claim them as a resident of anywhere. Others fly their luxury cars with them as they cannot do without their pet wheels. Of course, the richest of them all have their own private jets as caravans to ferry them to any destination at a whim.

South African-born gypsy lords usually have houses in the south of France, flats in Chelsea and one or two exotic pads elsewhere in Africa. Virtually the whole of Knightsbridge and Kensington is in the hands of Russian and Middle Eastern gypsy lords. They have driven up real estate prices to a level which not even wealthy English people can afford. How about £20m for a nice house or £1bn for a Premier League soccer side?

The new emerging class of gypsy lords are from India and China with a sprinkling from South America and Africa. In Johannesburg, you know you have a gypsy lord next to you when you have a permanent security presence in the street made up of men in dark glasses with tinted-windowed BMWs.

For the gypsy lords, the recession is an opportunity to spread their global footprint. They snap up businesses which are famous brands that have hit hard times. Some ostentatiously display their wealth at charity functions and by hitting pole position in lists of richest families. Others hide behind a veil of secrecy and nominee companies. They do not want the grey side of their businesses to surface in the public domain. They shun the media or own it.

Globalisation has weakened the power of governments to hold the gypsy lords accountable. Indeed, the tough financial circumstances and growing debt problems of nations worldwide have turned the gypsy lords into some of the most influential powerbrokers in the universe. Forget presidents and prime ministers. The gypsy lords and their purses hold sway. They follow one step behind and issue the instructions.

So in future, please don’t talk of gypsies in derogatory terms or picture them only in barren fields surrounded by hostile homeowners. Remember that mobility has become a key characteristic of the Internet and Twitter age. Somewhere a gypsy lord is pulling strings which somehow will have an impact on your life. If things get really nasty, he will simply move to another country and pull the strings from there. That is the reality of existence in the teenage years of this century.

Small is really beautiful

You will see that small business is a recurring theme in this book. Its encouragement requires a change of heart from the powers that be.

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Let a million small businesses bloom. I know this sounds Maoist, but it is a lot more inspirational and realistic than saying we are going to create another five million jobs by 2020. The latter implies that you are in control of the situation: if you target a high economic growth rate, add a public works programme here and there and select one or two industries that are in the public eye like green technologies, the result is assured.

Actually our economy is closely correlated to the performance of the world economy. When the world booms, we boom. When the world goes through hard times, so do we. Yes, it would seem that we are moving into a two-speed world where emerging economies will grow three times faster than advanced economies. Nevertheless, it would seem that we are caught somewhere in the middle – we will grow faster than Europe but we won’t grow as fast as China, India and the rest of Africa. We are not a cheetah but nor are we a tortoise. I guess we’re a buffalo which is quick when it wants to be but can be chased down by other animals.

All this adds up to the fact that, in the current global environment, a goal of 6 to 7% economic growth is pretty stiff for South Africa. For that is the rate that many economists quote is necessary to lead to significant job creation. It may happen but, in my book, it would only be in a scenario of a renewed economic boom for the world as a whole.

Meanwhile, we cannot just sit on our hands and hope for the best. Two statistics suggest that we have to do something which is radical and far-reaching. The first is that there are 14 million South Africans on welfare and only five million taxpayers. The second is that the unemployment rate among 18–24 year olds is 42%.

My recommendation – and I have been making it for a long time – is that we have to create a whole new environment in South Africa which is favourable for entrepreneurs. My 2020 vision is for rural and urban communities to be teeming with small businesses, buying and selling from and to each other; and this activity is the key driving force behind the African renaissance rather than the expansion of government and big business. Obviously you need effective government and a thriving big business sector to make it all happen. But the focus is on empowering ordinary people to do extraordinary things.

The word job implies subservience to someone else. Five million jobs conjure up the picture of five million employees in hard hats slaving away in the sun on grandiose projects selected by some well-meaning committee full of policy zealots. We know better than you, they smugly say. At least you have work now and belong to a trade union. In other words, it is a