The Speculator: Pricing in the Future

Luck be a lady tonight...

Hands up if you drive your car to queue up and fill your tank on the night before a petrol price increase? Congratulations, you're a hedge-fund trader. Depending on the circumstances, you could also be called a profiteer, hoarder, speculator or a capitalist.

What you are doing is to price future risk into your current financial situation. You have been told that future prices will be higher; best then to stock up now and gain, at the very least, a short-term benefit.

Imagine, though, that the situation was different and that – while you may know that the petrol price will change – you have no idea whether it will go up or down or by how much. That becomes real speculation with some people buying, some refusing to purchase and everyone finding out only after the price changes.

That is where people's confidence about the future, and analysis of recent trends, comes into play.

Business owners behave in a similar way. They have to decide how to invest their resources now for a future return on that investment. The more risk they imagine, the more conservative their approach will be.

The share of middle-income nations' national revenue given over to agriculture (10%) and industry (35.5%) is strikingly different from South Africa's. Our agriculture is 3.8% and industry is 32%. Both sectors are in rapid decline, losing both jobs and investment. The flight is towards the services sector which now makes up some 68% of our economy.

"The reason for the growth in services is that South Africa's economy is maturing," declared Mandisi Mpahlwa, minister of Trade and Industry, speaking at the launch of Teletech's new Business Process Outsourcing centre in Woodstock.

It is true that South Africa's economy is structured more closely after that of high income countries, but the pressures there are significantly different to here. In Europe and the US the populations are older, more educated and unemployment levels are extremely low. This has lead to innovation and an explosion of new services.

The change in South Africa's economy from one that is resource and agriculture based to that of a services-based one started in the mid-1990s and seems to be bypassing broad-based industrial manufacturing altogether. When government demands more "beneficiation" of our resources prior to export this is what they're asking for.

Industry is perfect for a large semi-skilled nation of workers. The big, gaping hole of 26% unemployment is where manufacturing should have been. This can hardly be described as having a "mature" market.

Entrepreneurs and business investors make up a very small proportion of South Africa's population. They tend to be more highly educated and ambitious than most. When they choose to invest they also want to limit their risk. Services businesses are "safer" than manufacturing. For instance, it is easier to import low-cost bicycles from India than it is to set up a factory here and manufacture them.

Given the close relationship that organised labour has with the government, the strictness of labour legislation and the costs involved of bureaucratic red tape it isn't very surprising that most business owners choose not to go into manufacturing.

Voters decided the rules that govern business by majority, and the tiny minority of entrepreneurs priced in their risk and made a choice. Unsurprisingly the result has been growth, but with fewer jobs.

Business owners will make a similar choice once the ANC has completed their heated deliberations about who gets to "rule" the rest of us. If they don't fancy the future then they will take steps to reduce that risk. Maybe that will result in fewer jobs and lower growth.

Unlike a chicken staring down a truck in the middle of the road it is failing to cross, human beings have a very good imagination.

And when entrepreneurs are nervous, the whole economy gets a migraine.