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Breaking futures 2012
Author: Clem Sunter
By Clem Sunter
Never in our
lifetime has the future been in a more uncertain state.
Obviously, neither Chantell Ilbury nor I experienced the
horrors of the two world wars of the last century. So the
phrase that change has become more extreme is simply not
valid. However, the potential for major upsets is huge; and
it is against that backdrop that we offer our list of
events, trends or issues that could make headlines in 2012:
1) Red Flags Rising
In terms of the global economy, we have upped the
probability on the “Forked Lightning” scenario of a double
dip, where the second crash is even bigger than the one of
2008, to 20% (from 10).
The reason is that one of the flags for this scenario has
always been a sovereign default of note. Italy and Spain are
candidates, the crucial thing to watch being the interest
rate on their 10 year bonds. If it jumps above 7% for a
prolonged time, the servicing of the bonds becomes
problematic given the challenge of reducing the overall
The hike in interest payments will overshadow the cuts in
government expenditure effected elsewhere to improve
solvency. The deficit will thereby worsen creating a vicious
circle of even higher interest rates. Greece has already
entered this downward spiral.
In regard to South Africa, we have raised the probability on
the “Failed State” scenario from 10 to 15% following the
passing of the Secrecy Bill. While the main flag for the
scenario remains the level of violence which is certainly
nowhere near what is happening in Somalia, Afghanistan and
Iraq, a subsidiary flag was the gagging of the press.
By Clem Sunter
The latter could cause a massive leap in corruption as there
will no longer be the counterbalancing fear of exposure.
Critical factors to watch now will be the scope of topics
defined as secret and the magnitude of punishment meted out
to journalists found guilty of breaking the law.
Both scenarios are still outsiders, but have become more
heavily tipped to challenge the favourites.
2) Dances with Wolves
The recent climate change conference in Durban has only
revealed the deep divisions that still exist between nations
on how to handle the issues. The upshot was to kick the can
into another convocation in two years time.
Accordingly we attach a 90% probability to our scenario
“Dances with Wolves” in which the super-emitters like China
and America carry on their dirty dancing act regardless.
Alas, “Strictly Ballroom” – a tight agreement forcing
nations to waltz together towards clearly set reductions in
carbon emissions – is given a wild card probability of 10%
By Clem Sunter
3) Fragile China
Last year we showcased “Ultraviolet”, a scenario where
advanced economies were caught in a U-shaped trap of
lacklustre growth while emerging economies were enjoying a
V-shaped recovery, as our favourite to win the race over the
next five years.
We have now switched back to “Hard Times” for everybody, the
flag being China’s future GDP growth rate. We are less
convinced that China can continue to exceed 8% per annum for
two reasons: exports are 38% of China’s GDP and exporting
into a flat Europe is taking its toll; and there are now
indications of an imminent bursting of the property bubble
which could lead to defaults on loans provided to
municipalities by Chinese banks.
If China dips below 5% economic growth, all the countries
which supply resources to China will feel the heat too. We
are now 60:40 on China having a soft/ hard landing versus a
4) American Civil War (Part 2)
Relations between Democrats and Republicans have fallen to
an all-time low, just when co-operation between the two
parties is essential to get America’s finances back in
order. The focus has been on Europe; but it could easily
switch to America if inflation picks up unexpectedly and
interest rates rise.
Nevertheless, its economy is in better shape; and it is a
unitary state capable of fixing things in a way that Europe
– without establishing closer fiscal ties between its
members – cannot do. It remains to be seen whether the
presidential election will degenerate into an all-out war
between the candidates.
Given the widening gap between the rich and the middle class
and the poor caused by the recession, social unrest cannot
be ruled out. Meanwhile, it is unlikely during an election
year that any meaningful solution will be found to the
escalating cost of government health and welfare programmes.
Democracy and austerity are uneasy bedfellows. But if anyone
can find a way through, the Americans can. Never count them
By Clem Sunter
5) Syrian Showdown / Russian Spring / Iranian Blockade
2011 will be remembered as the year of the Arab Spring which
toppled regimes in some countries and continues to be a
revolutionary influence in others.
The jury is still out on whether genuine democracy and a
better life for all will result from what has happened so
far. The situation in Syria with its ties to Iran and its
proximity to Israel could have far more complex and
The surprise is that the Russians seem to have caught the
bug too with all kinds of implications for the nation
possessing the second biggest nuclear armoury on Earth.
Rightly, Time magazine has named the protester as its person
of the year.
We have maintained for several years that the biggest
potential event for another major war is if Iran is provoked
by sanctions to blockade the Strait of Hormuz, through which
a significant proportion of the world's oil is transported.
Will 2012 be the year in which this happens?
6) The Age of Intelligence
We have moved through the Age of Industrialisation and more
recently through the Age of Knowledge, and currently stand
at the dawn of the Age of Intelligence.
With all the tools and machinery of the first era and all
the information at our fingertips from the second era, we
now face challenges of much higher complexity demanding a
huge leap in the quality of education, skills, creativity,
and all-round intelligence. Nations that understand this
will do better than nations which remain blissfully
Companies that apply their intelligence to inventing new
products and services which offer value for money in the
“Hard Times” scenario will continue to grow and flourish.
Unintelligent companies will go to the wall. Individuals who
demonstrate versatility of skills and flexibility of mind
will make a good living. Those that fail to adapt will limit
By Clem Sunter
7) The Dutch Disease
Last year we talked about more smacks from Mother Nature.
Sure enough, she duly delivered those smacks in Japan, New
Zealand and several other countries.
This year the risk is that a deadly strain of bird flu – a
genetic mutation of H5N1 into a highly infectious influenza
transmittable through coughing and sneezing – could escape
from the laboratory that created it in Rotterdam. H5N1 kills
60% of the people it has infected.
The knowledge of how to manufacture the new strain could
also be leaked to terrorist groups. With seven billion
inhabitants on this planet, with the concentration of a
large portion in megacities and increased mobility offered
by travel by air, sea, rail or road, the danger of a global
epidemic always lurks in the background.
8) The Year of the Bull
Our mainframe scenarios for South Africa are “Premier
League” to which we assign a 50% probability and “Second
Division” which we give a 35% probability.
If you take into account the 15% probability for “Failed
State”, we are now at a 50:50 ratio between good and bad
scenarios. In other words, we are at a second tipping point,
the first one being in the early 1990s when we could have
tipped into civil war. Fortunately, Codesa 1 and 2 produced
a new constitution and a free and fair election in 1994.
The real issue at the current tipping point is no longer
political freedom but economic freedom. South Africa still
has a highly exclusive, lopsided economy plagued by an
unacceptably high unemployment rate.
At the same time, 2012 is a year of note for the ANC
starting with centenary celebrations through a debate on
national economic strategy and ending up with a leadership
contest. Will the young, radical bulls in the kraal push
through their nationalisation and land expropriation agenda:
or will the older, more experienced bulls prevail?
We would prefer 2012 to have another forum for creating a
new economic blueprint: a Codesa 3 involving all the major
economic actors. Only a joint approach will succeed.
Otherwise, it could be all bull.
By Clem Sunter