The hardest year and the rediscovery of talent

What the world needs now

Unearned economic success breeds ever greater braggadocio and draws even the most reluctant investors into pledging the family silver to chase miraculous returns.

If a total stranger offered to give you 10% return on your investments, beating the market come hell or Jacob Zuma, you would be right to be sceptical. However, when that person was Bernard Madoff, stalwart of the investor clique, numerous fund managers threw discretion out of the window. Madoff took advantage of the mood of the time and defrauded investors out of an estimated $ 50 billion.

And so was built the credit crisis, where few gave thought to where “guaranteed” returns were supposed to come from, or what underpinned all this economic frivolity. Even the totalitarian and Communist dictatorship of Cuba seems genuinely astonished that a trade deficit that grew 43% has cut their economic growth forecasts by half.

In the UK, the 99-year-old Woolworths is shutting 200 stores as it declares bankruptcy. 27,000 people have lost their jobs. Several other major high-street brands have followed. In the US, GM, Chrysler and Ford are in peril and await a multi-billion dollar bailout from government to protect over 1 million jobs.

Businesses across the world have responded to plunging consumer demand by cutting their manufacturing capacity with a consequent series of mass retrenchments. US employers cut over 530,000 jobs in November. Over 194,000 jobs were lost in London alone.

Into this morass of collapsing fortunes steps COSATU, South Africa’s union of trade unions. Said Zwelinzima Vavi, COSATU’s press secretary, “We need to improve section 189 [of the Labour Act] and make it difficult for companies to retrench workers.” Implying that it is preferable for a company to go entirely insolvent than for a smaller number of workers to lose their jobs.

When one company goes, though, it takes out its entire supply-chain. The US motor industry is more than just the major brands, but also parts manufacturers, including jobs in South Africa.

South Africa stands to be hard-hit in 2009. With one of the world’s largest current-account deficits, at 7.9% of GDP, the economy is critically dependent on imports. Falling demand for commodities, especially metals and minerals, will see exports decline further. This is reflected in the falling value of the rand, which lost a third of its value against the US dollar in 2008.

The 2010 World Cup looms and much infrastructure remains to be built. This can help to maintain jobs, but will also add to the burden of state expenditure. 40% of the materials needed for the expanded facilities will be imported, requiring ever more of our cheaper rand. Weaker retail figures will lead to a reduced state tax-take and impose significant borrowing constraints on government.

All this in an election year in which government will be keen to make big spending promises.

After 2008, investors are battered and are looking for nice, safe investment returns; the equivalent of a warm blanket, a mug of Ovaltine and comfortable slippers. The potential final collapse of Zimbabwe and its knock-on impact to South Africa makes investors even more wary.

Against this backdrop, of falling revenues, consumer fatigue and job losses, companies will rediscover the importance of talent.

When times are good it isn’t difficult to convince a person to upgrade their existing mobile phone every year or so, even though the new ones offer little extra functionality. Now new washing machines, pop music, motor cars and other marks of the consumer age are going to have to be genuinely innovative.

An age that spawned over-hyped products of barely-definable indifference will give way to one in which consumers will only part with their hard-earned cash for genuine talent.

The last decade of skills-shortage will be eclipsed by one of even greater talent-scarcity. Now, more than ever, it is important to discover and promote the most talented amongst us.