# General Business Category > Entrepreneurship and Business Management Forum >  Complex factors for medium term strategic planning in SA

## Dave A

This article on M&G certainly gives serious pause for thought about the medium term prospects for our economy.

The story may well lead off with the hook line of:




> It may not be immediately obvious, but South Africa's burgeoning black middle class is the country's largest driver of growth.


but there's a lot more food for thought stashed in there - this is no shallow filler piece. 

And the issues certainly run a lot deeper than many of the narrow interest comments below the piece suggest.

Worth reading a few times over before you start trying to draw conclusions, I reckon.

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IanF (13-May-13), pmbguy (13-May-13)

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## wynn

I did mention the change of purchasing in the CBD's in the 'Chinese' thread, although I did not say it as 'Middle Class' but meant it as people with 'Rands to Spend.'
In my area there are a lot of rural village and township dwellers who are earning a hell of a lot more than they ever used to but are not moving out of their traditional accommodation, some have an improved rural shack with extended family in it and only go there for weekends, they live in shared accommodation in town during the week, others just commute from the townships.

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## Miro Bagrov

The strategic outlook of South Africa because of factors like the change in the way of thinking of customers will also change business completely. The hardest place to be is the middle class because there is strong pressure by many to push them down to poor and also the middle class has constant distractions which slow them down to becoming wealthy.

There is a drive in middle class business owners to try to obtain anything for free or at cost. For example, I do not see much future in the service industries other than education. Their spending focus is more on things that are either completely necessary or which are tangible. In this way they differ somewhat from previous generations in my opinion. The older generations preferred to spread monthly payments of insurance and loans over many months as small amounts - the current generations want to take out cash when needed only. 

The new South Africans are no longer afraid of the government's dwindling power, and are actually much more understanding of the human element of government and far less paranoid than previous generations of what the government might do if they do not strictly comply with it's laws every time. This is the reason why most small to medium businesses enjoy free reign, almost without any government interference at all. The old way of thinking was more in the lines of "Everyone should get what's theirs." The new way of thinking is, "I should get what's mine."

The main consumers of services like insurance, accounting and other advisory services are the extremely rich who were established long ago and mostly trying to protect their prior gains. Now when the new "wealthy" replace the old the spending patterns will also change.

Now, many are under the impression that government is corrupt. In my personal opinion, the government is not generally speaking corrupt. However, the tender process has burst open the pockets of government. In fact the tender process is probably going to be the ruin of government and all of South Africa although it is assumed to be fair. The reason is that the government pays millions to middle and large firms to do work which they can do themselves at a 1/10 of the price or even for free. 
Here is an abstract example: Someone tendered for the provision of the Electric Meters installed in with Pre-paid electricity. This was possibly made overseas for 2$ per unit (something like R16 at the time). It was imported here and now priced at R120 per unit. Then the tenderer charged government R800 per unit. The government took into budget the additional admin costs of the project and charged the citizens a "fair" price of R1000 per household. This is a 6250% markup on production cost! In the end it would have been cheaper if the government called someone on Ebay to request direct shipment.

The economic outlook is likely to be as follows: 

The general wages will probably decrease (in real value) over the long term - the reason is basically that there will be oversupply of professionals in the market. 
The medical field and engineering field is likely to stand out as the last well paid professionals in South Africa. Finance, IT, and other fields that once used to be money makers will start to lose their income-value in the long term because their services are now expandable.

The actual economy is likely to look something like a petting zoo. People from overseas will come here to watch our backward ways. Because when everyone in the world is producing ballistic missiles, weapons, factories for fabricating all kinds of machines and assembly of equipment, we will still be producing bananas and oil. The truth is, that even though it's not too late for someone to rescue South Africa and bring the industry up to standard, it is getting more expensive every year because the world as a whole is able to out-produce, out-price and out-speed production in South Africa every year. The only delays they suffer arise from recessions, national disasters and war - however these 3 things also force them to continue production. 

Our government is sinking into irrecoverable debt, thanks to the tender process and not because they are bad managers. This debt will destroy the government's ability to actually assist the creation of industry. Because as I observe, we don't have any more locally owned industry. Even farming - few people want to invest in farming because there are more profitable, less harsh ways to make money.

As soon as the situation looks like it's going downhill, everyone with a business will try to push to get as much money as possible and will leave the country. That's when you will see prices become erratic and people will fly off and jump ship leaving the government with 500 000 deficit on their water and electricity, the banks with 5 000 000 bad debt, and who knows what other unpaid loans. What I am saying is, the economy has a risk of heading for self-cannibalization - where no one produces anything but everyone just borrows and never repays. 

There is a strange phenomenon in South Africa - returns for investors are extremely low, but risks to investors are huge. This means that either there is nothing to invest in which generates high returns or there is in a sense no compensation or safety net to cover risks. Possibly, there is just no more room for investors other than in acquisitions of the businesses which are still cash cows. It's becoming impossible to build wealth from a working career to live from through investment and insurance as previous generations did.


I predict, in the long term (say next 5 -10 years) the winners will be:
1. Farmers - when they unionize and inflate prices over several cycles.
2. Education Institutions - when they finish profiting on the government's inability to provide.
3. Health Care - as their profit margins are hard to shake.
4. Property Owners - as they are also hard to shake due to over-demand. 
5. Home Loan companies

The losers will be, of who many will close down:
1. Consultants (legal, accounting, other)
2. Retailers
3. Restaurants
5. Telecommunication Companies (as I foresee big adjustments will happen there)
6. Unsecured Lenders
7. Business Property Owners (specifically shopping centers and business complexes)
8. Banks & Investment Firms
9. Insurance companies (although slower than banks and lenders)

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Dave A (16-May-13), wynn (17-May-13)

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## Dave A

I see the repo rate has been left unchanged.

Ordinarily I'd say "stable is good, or at least good enough". But when you read the reasons given in the story - not exactly promising for future growth, job creation or inflation prospects, is it?

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## Blurock

> I predict, in the long term (say next 5 -10 years) the winners will be:


You left out lawyers. They are making a killing on all the litigation against the government and will make even more in future.

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## Miro Bagrov

> You left out lawyers. They are making a killing on all the litigation against the government and will make even more in future.


That is true. I was afraid to say it, because I suspect that the bigger ones will get bigger, and the smaller ones will get smaller. Meaning the industry will probably generate revenue, but will crowd itself out in the long term by big firms. So some will win, some will lose.

The profit for Law firms exists because there is a culture in SA of borrowing and never repaying. Or starting a business, stealing and flying to Australia with the business money. Or endless waves of crime. People focus more on taking from others what little is left with value than on production and utilization of resources... That's the truth.

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Blurock (24-May-13)

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