The Future of Business in South Africa project, conducted by the Gordon Institute of Business Science (GIBS), recently announced the launch of its inaugural GIBS alternative future scenarios for South African mining, manufacturing and financial services report.

The report states that South Africa’s economy must realign its core industries and rethink existing business models to maintain global competitiveness and avoid continued economic decline. It proposes baseline and alternative scenarios for three key economic sectors on which the country’s continued growth and prosperity depend.

The report forms part of a three-year study on the future of business in South Africa. It affirms that without urgent intervention, both in terms of strategy and policy, South Africa may see Chinese-owned companies taking over mines, existing manufacturing operations relocating to more attractive investment locations on the African continent, and the financial services industry leapfrogged by African start-ups.

Marius Oosthuizen, programme manager of the Future of Business in South Africa project at GIBS, warns: ‘The government is orientated towards social goals and the strategic focus of business is on success based on existing business models, but South Africa is becoming less competitive. The gap is widening and increasing costs are threatening the viability of the very models upon which our success depends.’

Researcher Kagiso ‘TK’ Pooe says, ‘The mining industry has long been the economy’s focal point. Both manufacturing and financial services owe their existence and advancement to mining but these dependencies are changing and cannot be sustained.’

The baseline scenarios proposed by the report foresee continued decline and South Africa falling further behind its global competitors:

Mining

Baseline scenario 2020, ‘Chinese partner for state mines – contestation for ownership’, predicts South African mining operations being negatively affected by political realignment, and a lack of appetite from historic investment partners. Under this scenario, rising costs undermine the profitability of the sector. The state intervenes, for both pragmatic and ideological reasons, opening the door to a form of quasi nationalisation. Chinese investors seize this opportunity to secure resources and anchor their influence in Africa through investment in undervalued mining assets.

Manufacturing

Baseline scenario 2020, ‘SA niche competes – high-end move north amid closures’, predicts that, as domestic affordability is strangled, only high-end manufacturers will be able to survive the decade and will make the decision to move the focus of their operations to more attractive environments that emerge elsewhere on the continent. However, the report suggests that the future of the sector could be secured by gearing it heavily towards previously underfunded niches and technologically oriented streams.

Financial services

Baseline scenario 2020, ‘SA firms slow to evolve – leapfrogged by African start-ups’, forecasts a challenge posed to the local monopolistic and inefficient business model by more agile actors that are less invested in legacy systems and cost structures. However, there is potential for the sector to be an enabler for growth on the African continent, given its high level of skills and global renown for sophistication in governance.

The report suggests that preferable scenarios can be achieved through a comprehensive public policy and business strategy response, and through collaboration between the private and public sectors, with the support of civil society. Three broad shifts are required to realise this, namely from isolation to collaboration, from distribution to inclusive wealth creation and from incapacity to efficiency. An approach marked by collaboration, inclusive wealth creation and efficiency requires a national discourse marked by optimism and partnership.

‘South African businesses have historically either operated independently of the state, or the state has actively supported industry through state ownership. We need to find a way for business and government to enter into a new collaborative partnership that would allow South Africa to be competitive: find a middle way that is not solely about politics or profit, but takes cognisance of social needs and goals,’ says Oosthuizen.