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What does a 25% probability for a failed state really mean?
By Clem Sunter.
Since writing the column two weeks ago raising the probability of South Africa becoming a Failed State to 25%, many people have asked me what it means and what they should do about it.
Should I make sure my passport is up to date? Should I be going on an LSD (look, see, decide) trip to Australia? Should I be approaching a head hunter for job options in Europe? Should I legitimately be sending more money offshore to mitigate the declining rand?
Should I be stocking food?
Connecting the dots
These are all valid questions which have been posed to me. Chantell Ilbury and I have always said that part of thinking like a fox is to connect the dots. You cannot just play scenarios – that’s daydreaming. You have to consider your options for each scenario and then decide what you are going to do about it depending on the probability and impact of the scenario. You can either do something now or prepare a contingency plan just in case. Either way, the whole point of the process is to improve the speed and quality of your response in chasing the opportunities and countering the threats offered by the scenarios.
So, let’s get back to the significance of a 25% probability. Pictorially, it covers an “L” or 90 degrees of a circular disc. If you spin the disc, there is a 25% probability that the needle will end up on that 90 degree segment. What is more is that if you spin it again whatever the previous result, the probability is still 25%. Like spinning a coin where you get ten heads in a row, the chances are still 50:50 that the next one will be a head. The difference between these examples and real life is that real life only happens once and therefore probabilities are far more subjective.
Recently, I had a discussion with a group from MIT in the US who tried to convince me that you can mathematically link the raising of the flags on our scenarios to their probabilities. I am not so sure because of the one time aspect of life; and so much of what happens is due to the animal spirits or irrational nature of mankind.
The bottom line is that the 25% probability on a Failed State is instinctive and should be treated as such. In other words, there is nothing scientific about it and if you have a different figure in mind, you are quite entitled to base your actions on your figure not ours. Suffice it to say, in our mind, the Failed State scenario is no longer a wild card possibility lurking in the shadows: it is now a genuine threat, the consequences of which have to be thought through.
Impact of the scenario on you
This brings us to the second aspect that has to be considered which is the impact of the scenario on you as a business, you as a family or you as a person. If I said to you that the plane you had booked a flight on had a 25% probability of crashing, you almost certainly would not take it unless you were in a war zone and wanted to escape. The reason is a high likelihood of death in the event that the scenario materialises. Equally, if I gave you a 25% probability of being eaten by a shark when swimming off a particular beach, it would be very foolhardy of you to go in the water. One of the reasons you would not take the risk in either case is that the alternative options are usually easy to exercise: use another airline and go to another beach or swimming pool.
The impact of a Failed State scenario is far more difficult to imagine since so many varieties of a failed state exist, ranging from oppressive dictatorships through perpetual anarchy to civil war and at the extreme end genocide. No expert in the field here has adequately described the different forms that a failed state in South Africa could take. We certainly can’t, particularly as regards timing and rate of descent.
The only thing we can state with confidence is that the rest of the world will collectively turn its back on us, apart from a few outcasts who will welcome us to the club of pariah nations.
Two categories of options
Hence, the evaluation of the overall risk of this worst case scenario i.e. probability times impact is a highly personal thing. And so too is the selection of options available which depends on individual circumstances such as age, level of wealth and education, business experience and skills, as well as the number of children and other family commitments you have in South Africa. In the case of a business, the opportunity to expand the geographical footprint outside South Africa will be linked to its range of products and services, health of its balance sheet and potential partners elsewhere.
However, options can be divided broadly into two categories: adapting your own strategies and tactics as regards your own future in light of the changing odds of the scenario; or rolling up your sleeves and taking action – however big or small it may be – to reduce the odds of the scenario itself. In other words, you become an active citizen in ensuring that South Africa does not fail.
Far be it from Chantell and myself to give you specific advice on which option you should take. What our 25% probability means is that you should give the matter some serious thought if you have not done so already. Then decide on appropriate action or have a contingency plan. That is what a fox would do – logically not fearfully, with a sense of purpose not despair.