Denzil Burger, senior portfolio manager at Old Mutual Asset Managers, told
the Personal Finance/Investment Frontiers Retire Rich Seminar to heed
global and economic trends in their retirement planning. Esann de Kock
reports.
Twenty years ago the global political landscape was very different from
what it is today; apartheid was still well entrenched in South Africa; Asia
was a minor world player and the technology wave was in its early stages.
This landscape, says Old Mutual`s Denzil Burger has changed drastically.
* There is a trend to globalisation
This trend, Burger explains, is characterised by factors such as falling
protection and increasing competition as trade barriers between global
players break down; the free movement of capital to better investment
opportunities and high or accelerated growth rates in developing countries.
The globalisation trend, he says, is also characterised by falling
commodity prices and the fact that, around the world, inflation is falling
to much more moderate levels than 10 or 20 years ago.
* South Africa has rejoined the global economy
Burger says South Africa`s late entry into this global market place has
been characterised by falling tariffs, the loosening of exchange controls
and the fact that increased import competition has assisted lower inflation
figures. With the South African average inflation rate down to five
percent, he notes the country has just joined the international trend to
lower inflation figures.
But, Burger says, South Africa`s late entry into the global market place
has also had a negative impact on employment. Although the economy has
expanded since 1994, the decline in formal jobs poses a real challenge.
On the other hand, Burger says there is hope in the the explosion of the
informal sector and in the number of smaller companies registered in South
Africa.
While growth in the economy is starting to come through, he says more
structural adjustments are needed to increase South Africa`s growth
potential.
He mentions specifically the need for privatisation and the need
to restructure the labour market - which is widely considered inflexible
and an obstacle to investing.
* Technological advances are fuelling change
Burger says the past 20 years have seen massive growth in the area of
communication, with data overtaking voice communication.
This huge demand for communication around the world, he says, has been
facilitated by the way communication is being packaged and in the diversity
of devices coming on to the market.
But, he notes, it is pointless having fancy devices if you are the only
person using them.
So connectivity (linking devices and the people using
them) has become equally important: A stand-alone device has no inherent
value, he says. The real value lies in co-ordinating data and in
intelligent networks.
Wireless technology, Burger notes, is also about the need to communicate
and to be connected.
While current cellular data speeds are not great there
are exciting times ahead as wap technology (for wireless internet access)
is expected to cause a further explosion among cellphone users.
E-commerce has also had a major impact on industry restructuring, Burger
points out.
For example, banks and travel agent operators are facing
significant challenges as people start doing their own research over the
internet and are able to make on-line bookings and reservations.
The growth potential of technology has, in fact, always been underestimated
by some people.
Take, for instance, IBM chairman Thomas Watson who said in
1943 that he thought there was a world market for ``maybe five computers``.
Burger says technology now focuses on key initiatives such as the value of
customers and retaining customers through their lifetime.
This means ensuring you have a business model which ``sticks`` and creating
channels that enable businesses to reach customers effectively.
In this
environment, he says, there is also a bit of a dog fight over customer
bases and, while some players will last, others will merge and consolidate.
With technology fuelling globalisation, Burger notes the world is nowhere
near the end of the technology era and that huge developments are still on
the way.
* Individualisation/democratisation
The global drive towards democracy is another trend associated with
globalisation. Burger points out that the implications of this trend reach
as far as decentralised decision-making, greater individual choice, less
compelling inherited norms, a changing social order and a trend to
migration as people with skills move around the world.
* Urbanisation
While there are currently about as many urban as rural populated areas in
the world, Burger says urbanisation is expected to accelerate over the next
25 years as better economic growth comes through.
So far, Africa has been
an exception when it comes to urbanisation trends, but additional pressures
on urban resources and deterioration of parts of cities are likely to
happen as growth accelerates on the continent.
This, he says, is likely to
have a significant impact on business and property values.
* Global warming
Environmental issues like global warming have been key trends over the last
two decades. The focus has been on temperatures rising as concentrations of
greenhouse gases increase around the world, rising sea levels and the
effects on agricultural production.
Burger says global warming is widely recognised as a longer term challenge.
At the moment it is difficult to manage due to the high costs associated
with long-term benefits and requirements for international co-operation.
Other environmental challenges that have surfaced in the past 20 years
include desertification as desert areas around the world enlarge;
protection of the earth`s biodiversity and depletion of the ozone layer.
* Crime
Crime in South Africa is part of a global trend of increasing crime and it
has been exacerbated by urbanisation and differentiated economies where
rich and poor live next door to each other. Burger says it has also been
exacerbated by globalisation, technology, the breakdown of tradition and
democratisation.
He warns that South Africa is not out of step with global
trends, but says the country has higher rates of violent crime - which has
a lot to do with the history of violence in South Africa.
Crime does, however, have a huge cost to the economy and it has invited
powerful responses from communities in the form of private security for
those who can afford it or vigilante groups for those who cannot.
* Aids in South Africa
With almost 60 percent of the world`s 15 million Aids sufferers living in
Sub-Saharan Africa, Aids is very much a local problem, Burger points out.
In 1998 3,6 million South Africans were HIV positive and 23 percent of
women attending antenatal clinics were HIV positive.
It is expected that 18 percent of South Africa`s workforce will be infected
by the virus in 2005 and, Burger says, Medscheme estimates that one out of
every five medical scheme members will be HIV positive within a decade.
Furthermore, the population growth rate in South Africa will drop from 1,9
percent in 1998 to 0,7 percent in 2006. By 2005 more than two million South
Africans will have died because of Aids and the country will have a million
more orphans due to Aids.
By 2008 the average life expectancy is likely to fall from 60 years to 40
years and by 2007 a quarter of a million South Africans will die every
year. By 2015 the South African population could be 16 percent smaller than
it would have been without Aids.
The consequences of all this, says Burger, are widespread and include a
significant impact on productivity, an effect on family structures and
communities and a slower growing consumer base.
There will also be a massive drain on health systems and medical schemes
and the Aids trend will pose a new challenge to life assurers and
retirement funds.
The key uncertainties in this environment, Burger says, include where the
next technological breakthrough is going to come from, what medical
advances will be made and what the role of government will be.
He says for people who want to retire rich, it means the following:
* Uncertainty and volatility of the markets will remain a feature;
* Flexibility is required in thinking, lifestyle and investing as many
opportunities may arise in these uncertain times; and
* While traditional inflation may become less of an issue, other costs such
as quality schooling and quality healthcare may rise.
Burger says people who feel uncertain in these times, should not be put off
making provision for retirement.
In fact, he says it will become more
important than ever to plan your future and your retirement with the help
of a qualified and trustworthy adviser.