The G20 nations, once the darlings of the investor community will face tough news when they meet in Los Cabos, Mexico from on June 18 and 19th. The big nations, battling with their own economic woes, lack the energy or the resources to be interested in the challenges of smaller nations.
“We’re pretty much on our own,” Liza van Wyk, CEO of AstroTech, a major management and executive training group said in Johannesburg, “and that knowledge has filtered to many of the executives we train who are bracing for tough times.”
Ruchir Sharma, head of emerging markets at Morgan Stanley in New York appears to agree. In his new book, Breakout Nations, he even queries whether BRICS (the economic partnership of Brazil. Russia, India, China and South Africa) has long-term viability. He suggests Indonesia, Poland and Nigeria, as examples, the Breakout Nations, are more viable.
In interviews Sharma has lashed out at countries, like South Africa, were conspicuous spending in the private lives of leaders is apparent. Investors trust best those nations where modest spending is apparent in the lives of leaders Sharma says. And Professor Robert Rotberg, an eminent Africa expert from Harvard in the United States agrees.
Sharma says that a tight rein on spending, value and fairness are indicators of long-term success. As well as, “creating balanced growth across income classes, ethnic groups, and regions… New wealth in Warsaw is boring and understated while the style of the Moscow elite is garish and overstated; it’s a sign that Poland has a more serious future than Russia does.”
Sharma notes too that, “It is not always a good sign when celebratory headlines announce that such-and-such company is “going global”; in countries like Mexico and South Africa... companies going global may be a bad sign if they are voting with their feet against the way politicians are governing the national economy.”
Sharma and Van Wyk challenge South Africa’s prediction that the “worst is over for the local economy with growth projections of 3%,” as Finance Minister Pravin Gordhan recently told CNN.
That growth, in South Africa, and the two percent lift seen in the United States is smoke and mirrors, none of it is creating jobs nor innovation, Van Wyk insists.
“Our group, which hears the views of hundreds of managers and executives each month is an important ‘listening post’ for the economy.
“And the news is challenging. Those companies that have survived are growing but the truth is that if they weren’t inching forward they would need to close. They have harshly trimmed workforces and the remaining employees are exhausted by the demands the last few years have placed on them, and so innovation has shrunk. Real economic growth needs persistent imagination and innovation; it needs the recruitment of fresh staff so long-term employees have time to reflect and better strategise.”
Van Wyk says, “we try to teach executives and managers the importance of being competitive, to keep prices low and look at long term gains rather than short term wins. Going for fast profits may not be wins at all but the fuse of their own self-destruction. And South African employees have to reduce wage demands and work harder – in this tough new world, we can’t live the way we did five years ago. We have to downsize expectations if we want to reap good returns in the years to come.”
Sharma says: “Warsaw’s example of boring and understated wealth is important. This economic crisis should have taught us that flash quickly exhausts cash – it’s the product of bad management and leads to corruption and self-defeating short-cuts.”
Van Wyk counsels: “We have to cut back personal expectations, study voraciously and learn from every source we can find, then implement. The seeds for new growth are here, but it is how wisely we nurture them that will predict our future.”
Van Wyk pointed out that Gordhan had pointed to government’s 10-year pipeline of infrastructure projects to beat unemployment, “and that’s a very long period of time for people to be patient. He also spoke of the importance of "leading with investment ourselves" and I believe we should also see that as meaning, ‘investment in ourselves’ as individuals. The person has to grow to be able to feed the company and the economy with the knowledge that pushes us forward and creates new work and opportunity.”
At the G20 China, India, Brazil and Russia will announce their contributions to the International Monetary Fund to contain the Eurozone’s debt crisis. This will probably see Europe give up two of the eight seats on the IMF board to emerging countries. Africa is demanding a third seat on the IMF's 24-member board.