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Sunter outlines the importance of scenario planning

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Sunter outlines the importance of scenario planning

14th April 2010

By: Bradley Dubbelman

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Anglo American Chairman's Fund CEO Clem Sunter on Wednesday outlined the importance for both companies and governments, to strategically plan for potential future scenarios that may affect their performance and survival in changing socioeconomic environments.


Speaking at the 2010 Licensing Executives Society International conference in Johannesburg on Wednesday, Sunter spoke much on the themes carried through in his book, co-authored by Chantelle Illbury entitled 'The Mind of a Fox'. The book explored strategically dealing with changing environments to ensure productivity and strategic competitive advantage in a dynamic global economic environment.

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The effectiveness of dealing with a changing environment was, to a large degree, dependent on successful future forecasting, as well as on the level of responsiveness by organisations to deal with such change. Sunter emphasised the need to have an effective contingency plan relevant to a variety of possible scenarios, as well as the capacity to execute the relevant strategies to cope with them.


He noted the example of the media giant - the Naspers group - which effectively scanned and forecast a changing technological media environment and were successfully able to implement a strategy that saw a transition from a more traditional print media to the digital realm, therefore securing a competitive advantage in the market.

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FORECASTING GLOBAL RECESSION

Sunter's "futurist" methodology revolved around identifying certain signs that may indicate potential future scenarios. Analysis of these signs meant that he could identify a number of potential scenarios and calculate their risk probability.


In a post-recession global economy Sunter gave three possible scenarios that the world could enter. The first was one advocated by US President Barack Obama, which saw 2010 as the year of economic restructuring, where the world's banking structures would be overhauled, credit would be a lot more difficult to obtain, the East would become economically equivalent to the West, and the world's energy security would look at alternatives to oil. These signs would lead to a sharp global economic recovery, thus the description of a "V-shaped recovery", denoting a sharp economic turnaround on the back of a reforming financial sector. Sunter rated this scenario with a 20% possibility.


The second scenario adopted more of a "U-shaped" description, in which the global economy would experience a more gradual recovery and would be shaped by current economic structures and financial institutions. Sunter rated this scenario with a 40% chance.
The final possible scenario, similar to that of the Obama prediction, was also V-shaped. This recovery, however, was fuelled by credit, and if the world entered this scenario it would have done little to correct the conditions that caused the most recent economic recession in the first place, in which asset values were inflated, and which led to dangerous economic bubbles. Sunter rated this scenario with a 40% probability forecast.

SOUTH AFRICA

According to the World Economic Forum, South Africa was rated in the top 55 economies in the world. In 2007, the county's rating dropped from 32 to 52, putting it dangerously close to being classified as a third-world economy. The reason for such a significant drop, as identified by the institution, was mainly owing to the emergence of violent crime, the prevalence of HIV/Aids, infrastructure disrepair, as well as an increasing number of uncompetitive industries.
In 2009, however, South Africa bounced back and gained four places to 48 as a result of its stable financial and banking institutions, which provided protection from the global economic crisis.


Sunter thus outlined three potential scenarios for the country. The first was that the country strengthened its economy and increases its ratings under the World Economic Forum. This scenario was labeled with a 70% probability.


The second possible scenario was that the strength of the South African economy eroded and fell beyond the 55 threshold. Sunter gave this scenario a 30% probability ratio.


The final possible scenario was that South Africa became a failed State as a result of violent crime. This situation, however, was highly unlikely and given a 0% probability ratio.


The reason behind Sunter's enthusiasm for South Africa's economic advancement lay in three signs, or flags, that the country has fulfilled. The first was that the Zuma regime had demonstrated a commitment to advancing social harmony.


The second was that South Africa had focused on "pockets of excellence" that allowed it to excel. Sunter identified the South African Revenue Service as one of the most efficient tax collecting mechanisms in the world, which boded well for South Africa's economic development.


Thirdly, Sunter argued that South Africa needs to continue developing a dual looking economy that focuses on maintaining its external competitive advantage in resource exports, tourism and being the gateway to the African market. Further, the country also needed to look internally and maintain its financial stability by keeping a consistent fiscal and monetary policy, as well as maintaining its efficient banking sector.

 

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