Take note of global trends in your retirement planning

Published May 6, 2000

Share

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.

Related Topics: