Professor Adrian Saville, CIO, Cannon Asset Managers, told South African risk managers that he believes the nation can, for example, build upon an already impressive track record for innovation and investment in research and development (R&D) to help ensure it is a leader of the pack of nations that will help drag the African and global economy out of recession.

Before taking a look at Professor Saville’s upbeat analysis, however, it is worth considering the more sobering facts and figures thrown at delegates by other speakers at the IRMSA conference.

Professor Matthew Lester of the Rhodes Business School gave considerable details about South Africa’s sudden budget deficit that seemed to leap out of nowhere in 2009 after a period of balance, leaping up to R196bn last year.

According to Professor Lester’s analysis South Africa will report a deficit of R183bn for 2011 and this will continue to reach a less painful but still big R111bn in 2014.

Part of the reason for this is that the national growth rate has slowed. In 2006–2007 the country averaged growth rates of about 5%. In 2008–2009 it was actually negative as the country officially entered recession in June of 2009. The rate for 2010, however, thankfully recovered to 3.1% in 2010.

Compared with virtually zero or even negative growth rates in other regions such as Europe this is good news of course. And it is expected to hit 3.1% again in 2012 and pick up to 3.8% in 2013 and 4% in 2014. But unfortunately inflation will register 5.4% in 2012, 5.6% in 2013 and 5.4% in 2014, according to Professor Lester.

Real interest rates will of course remain low in South Africa as elsewhere but the local banking sector is well capitalised and survived the crisis far better than most other national banking sectors.

“Assuming an orderly resolution of the European financial crisis the domestic outlook improves over the medium term,” said Professor Lester, making perhaps a more optimistic assumption than many would back in Europe at this moment in time.

But, the academic also pointed out that stagnating global growth will hit South Africa’s exports and this could be exacerbated by ‘capital flow reversals’ as investors repatriate capital which could weaken the Johannesburg Stock Exchange, he warned.

On top of this, weakening emerging markets could affect China, which is a big partner for South Africa, and commodity prices, still one of the nation’s key sectors.

Moreover, household consumption growth will remain weak in the short term, the household debt ratio remains above 75% and household service costs at above 14%, he added.

This may sound like a pretty sobering analysis if you are a risk manager sitting in an office in Johannesburg or Cape Town of course.

But if you are a risk manager cowering in an office in Athens, Milan, Lisbon or Madrid currently you may actually be thinking that does not sound too bad at all.

But then up stood JP Landman, independent political and trend analyst, to pour more cold water on the party.

South Africa’s population has grown dramatically over the past 100 years up from just under six million to just over 50 million today, an annual growth rate of some 2.2%. But this is falling quite dramatically as Mr Landman explained.

“By 2001 it had declined to 1.33% per annum and demographers now (2011) estimate the population growth rate to be 1.1% per year and declining. The census (the big census is about to be published) forecasts is that population growth will be less than 1% as soon as 2014. All in all a huge change from the trend in the 1990s,” he said.

The main drivers of this are a lower fertility rate and a higher mortality rate.

For economists, however, the most interesting and perhaps worrying fact is that South Africa has a very young population and large swathes of youngsters entering an already overpopulated job market.

According to Mr Landman some 41% of the population is currently estimated to be below 20 years of age and a further 26% are between 20 and 35. “Add the two together and literally two-thirds of the population is younger than 35 years of age,” he said.

Mr Landman explained that the five-year age cohorts of people younger than 20 each consists of about 5 million people. That implies that roughly 1 million people a year will join the ‘adult world’ at age 20 or 21.

At the other end of the age scale, at age 60, an average of 300,000 people will leave the adult world and become ‘senior adults’ which leaves a net increase of about 700,000 for the group between 20 and 60 years of age.

He explained that this number must then be reduced by whatever one thinks the mortality number is for the age group 20 to 60, probably about 250,000 per annum.

Thus the net increase in that age category is about 450 000 per annum or close enough to the National Labour Survey of 485,000 for Mr Landman.

If one presumes that about 75% of 485,000 people are willing and able to look for jobs, then South Africa is in need of about 350,000 jobs per annum, he concluded.

Currently there are 13.3 million people at work in the country. Thus to create an extra 350,000 jobs implies growth in the labour market of 2.6%. “Assuming an employment co-efficient of 0.6 it will require economic growth of 4.4%,” explained Mr Landman.

“Even at 4.4% growth the economy will only take care of new job seekers coming into the market. It will do nothing about the 4.4 million unemployed that we already have,” he added somewhat bleakly.

“It is also very unlikely that the SA economy will consistently grow at 4.4% over the next couple of years. Thus, many of the newcomers and currently unemployed will have to be absorbed in low-pay public works projects and community works programmes. These programmes will acquire greater importance in years to come, not less. They will become the swing factor between employment and unemployment,” he continued, no doubt ruthlessly killing any remaining enthusiasm that the massed South African risk managers may have had left after listening to Professor Lester.

But along came Professor Adrian Saville of Cannon Asset Managers to liven everything all up again.

Mr Landman said that the demographics would demand an annual growth rate of 4.4% per annum to create the 350,000 new jobs a year needed over coming years.

In Europe that really would be a hopeless cause currently. But, as noted above by Professor Lester, actually growth rates are expected to rise in South Africa from a half-decent 3.1% in 2012 to 3.8% in 2013 and even up to 4% in 2014.

Professor Saville quoted research from Citigroup Capital Markets that estimates an annual average growth rate of 3.8% between 2010 and 2050 for South Africa.

Now, given the falling fertility rates and depressing mortality levels in South Africa quoted by Mr Landman, surely one would have to presume that, over time, the required growth rate would have to fall below 4.4% and meet the long-term projected growth rate quoted by Professor Saville in the not too distant future?

Professor Saville is not just relatively optimistic about South Africa but about Africa as a whole as his subsequent facts and figures showed.

He kicked off by showing an awful front cover published by The Economist in 2010 that used the headline ‘Hopeless Continent’ above a photograph of a young African armed to the back teeth with rocket launchers and the like.

Professor Saville suggested it was perhaps more of a ‘hopeless forecast’ than a hopeless continent. He said that Africa is rising. He pointed out that the continent is experiencing price inflation, interest rates are sharply lower and there is currency stability, all of which is fuelling a new‐found confidence after decades of under‐investment.

He pointed to the emergent middle class which is so often lauded in India and China as key drivers of above average economic growth.

According to Professor Saville some 139 million handsets were shipped to Africa in 2007 and another 400 million are expected by 2014. The continent will enjoy telecoms investment of about $140bn by 2013.

Foreign direct investment is up ten times from 2000 with much of the money coming from China and India and there is long-term investment being made in Africa, not just attempts to make a quick buck, especially in infrastructure, he pointed out.

Professor Saville pointed to a survey carried out by The Economist Intelligence Unit and published this year that showed that of the world’s ten fastest growing economies between 2011 and 2015 a remarkable seven will be African. Over the 2001–2010 period the number was still six.

The negatives for South Africa and the wider continent are well known and starkly shown by the two other main stories for this IRMSA report that focus on the State Information Bill and conflict minerals.

For Professor Saville there are a number of key ‘transient’ factors including nationalisation, empowerment and regulatory setting that need fixing.

And there are three critical markers—education, healthcare and clarity of policy direction and execution—that need to be focused upon and proven to the population that the government is working on it. “If you don’t have a country you don’t have a company,” he said.

Though it has to be said the same can be said for most European countries. This is not a South African specific set of priorities currently.

From a business and economic perspective, however, the one big thing that South Africa has going for it is innovation, according to Professor Saville.

According to The Africa Competitiveness Report (2010) South Africa came 9th out of 11 African nations in its overall index which comprised basic requirements, efficiency enhancers and innovation factors.

But it came clear first with 4.1 on innovation factors against an average for sub Saharan Africa of 3.2 and against 4 for the BRICS, 3.9 for South East Asia and 3.4 for Latin America.

And according to The Royal Society 2010 report Knowledge, networks and nations: Global scientific collaboration in the 21st century, South Africa is investing in research and development.

The average growth rate of spending as a % of GDP between 1996 and 2007 was 4% for South Africa which placed it only behind China, Turkey and Mexico in the study. There was no other African nation in the top 19.

The importance of this factor in the continent’s future was stressed by Paul Kagame, President of Rwanda, whom Professor Saville quoted as recently saying: "We in Africa must either begin to build our scientific and technological training capabilities or remain an impoverished appendage to the global economy.”

For South Africa these are very pertinent words indeed for it does possess the infrastructure, people and brainpower needed to ensure it does not become an appendage.

What it clearly has to do to ensure that it can follow that path is convince foreign investors and not least their risk managers that it has the political will and stability to ensure that it has no intention of becoming an appendage, and can manage its considerable risks to enable the opportunities to emerge unfettered.

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