The use of social media in disseminating information and sensemaking SF Nov 2011

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In this presentation I stand in the Current Reality of the SA Building Industry (contemporary analyst); I take a look backward (memories of the past); and see if I can make sense of the future (memories of the future). Thus I am simultaneously acting as contemporary analyst, historian and prophet. In this process social media is tremendously helpful in disseminating information rapidly, with the potential to go VIRAL and reach a much leveraged audience than with conventional communication channels.

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The use of social media in disseminating information and sensemaking SF Nov 2011

  1. 1. www.strategicforum.co.za Studium Ad Prosperandum •• BUILDING RESEARCH BUILDING RESEARCH BMI BMI STRATEGY CONSULTING STRATEGY CONSULTING UNIT cc UNIT cc  Voluntas in Conveniendum Reg. No. 2002/105109/23 THE STRATEGIC FORUM A place of assembly for strategic conversations Towards Making sense of the Building Industry: The use of social media in disseminating information and sensemaking Dr. Llewellyn B. Lewis November 20111 © BMI-BRSCU
  2. 2. STAKEHOLDER ANALYSIS BYSTANDERS ACTORS STAKEHOLDERS RESERVES PLAYERS High Demand Responders Demand creators Current orientation Future oriented Reactive Proactive Responsive Innovative Service oriented Entrepreneurial Risk Managers Risk Takers ONLOOKERS REFEREES INTEREST (STAKE) Demand observers Demand Facilitators Past orientation Current orientation UNAFECTED Passive Reactive Risk Avoiders Responsive Mediating Gatekeepers Low Risk Averse Low High POWER2
  3. 3. STAKEHOLDER ANALYSIS BYSTANDERS ACTORS RESERVES PLAYERS High STAKEHOLDERS Keep Informed In the Know LEVEL OF INTEREST (STAKE) CROWD REFEREES Minimal Effort Keep Satisfied UNAFECTED Low Low High POWER3
  4. 4. STAKEHOLDER ANALYSIS STAKEHOLDERS TEN FORCES THAT FLATTENED THE BYSTANDERS ACTORS High WORLD RESERVES PLAYERS 1.Keep Informed walls came down and the 11/9/89. When the In the Know LEVEL OF INTEREST (STAKE) Windows went up 2. 8/9/95. When Netscape went Public 3. Work Flow Software 4. Open Sourcing (Self-organising Collaborative CROWD communities) REFEREES 5. Outsourcing 6.Minimal Effort Offshoring Keep Satisfied UNAFECTED 7. Supply Chaining 8. Insourcing 9. In-forming Low 10. The Steroids (Digital, Mobile, Personal and Virtual) Low (Thomas Friedman: The world is flat: 2005) High POWER4
  5. 5. STAKEHOLDER ANALYSIS BYSTANDERS ACTORS STAKEHOLDERS High RESERVES CONVERGENCE flatteners THE TRIPLE PLAYERS Around the year 2000, all ten of the Keep Informed In the Know started to converge and work together in ways LEVEL OF INTEREST (STAKE) that created a new, flatter, global playing field. This was the FIRST CONVERGENCE. As this new playing field became established, both businesses and individuals began to adopt CROWD REFEREES new habits, skills, and processes to get the most out of it. They moved from largely vertical Minimal Effort Keep Satisfied means of creating value to more horizontal UNAFECTED ones. The merger of this new playing field for doing business with the new ways of doing business was the SECOND CONVERGENCE, Low and it actually helped to flatten the world even further. (Thomas Friedman: The world is flat: 2005) Low High POWER5
  6. 6. STAKEHOLDER ANALYSIS BYSTANDERS ACTORS STAKEHOLDERS High THE TRIPLE CONVERGENCE RESERVES PLAYERS Finally, just when all of this flattening Keep Informed In the Know was happening, a whole new group of LEVEL OF INTEREST (STAKE) people, several billion, in fact, walked onto the playing field from China, India, and the former Soviet Empire. Thanks to CROWDflat world, and its new tools, the new REFEREES Minimal Effort were Keep Satisfied some of them quickly able to collaborate and compete directly with UNAFECTED everyone else. This was the third convergence. (Thomas Friedman: The world is flat: 2005) Low Low High POWER6
  7. 7. STAKEHOLDER ANALYSIS7 © BMI-BRSCU
  8. 8. STAKEHOLDER ANALYSIS Customer/Revenue Contribution models Formal Customers Informal Customers In 1994 another 36 million customers walked onto the SA playing field! Revenue per Customer8 (Based on C.K. Prahalad: The fortune at the bottom of the Pyramid: 2005)
  9. 9. STAKEHOLDER ANALYSIS9
  10. 10. STAKEHOLDER ANALYSIS Attack the causes of poverty and you remove the roots of conflict - that was the message the Nobel Committee sent out by awarding its peace prize to the creator of a micro-credit scheme, which benefits millions - - - . (Star, 17 October, 2006) Bangladeshi economist Muhammad Yunus, the so-called "Banker to the Poor", and the Grameen Bank he founded three decades ago were the winners of the award for pioneering a system of small-scale loans that has helped 6,6- million people escape the grind of poverty. (Star, 17 October, 2006)10
  11. 11. STAKEHOLDER ANALYSIS11
  12. 12. STAKEHOLDER ANALYSIS "I think its quite possible to eradicate poverty from this world. I think we can The bank, - - - targets halve the poverty level in women because it Bangladesh by 2015 - - - " believes they are better (Star, 16 October 2006) than men at running family finances - - - .12
  13. 13. STAKEHOLDER ANALYSIS A new mindset is taking hold. Where once the poor were commonly seen as passive victims, microfinance recognizes that the poor people are remarkable reservoirs of energy and knowledge. UN Secretary-General Kofi Annan’s remarks at Microfinance Symposium: Investing Private Capital in Micro & Small Business Finance. Geneva, 10 October 200513
  14. 14. STAKEHOLDER ANALYSIS Business Day, 22 November 2011 South Africa has 811839 Stokvels with a total estimated value of R44 Billion. The population of a city made up of all the Stokvel Members would be larger than any of the major metros, including Joburg, Pretoria, Cape Town and Durban.14
  15. 15. STAKEHOLDER ANALYSIS Government: • Resources • Control/Standards • Power/Influence • Concern for constituency BOP Strategy Working together WIN-WIN Private Sector: relationship Community: • Products • Housing • Processes • Dignity • Solutions • Family Life • Expertise • QOL SOCIAL RESPONSIBILTY AND BUSINESS OPPORTUNITY15 (Based on C.K. Prahalad: The fortune at the bottom of the Pyramid: Eradicating poverty through profits: 2005)
  16. 16. STAKEHOLDER ANALYSIS Government: • Resources • Control/Standards • Power/Influence • Concern for constituency BOP Strategy Working together WIN-WIN Private Sector: relationship Community: • Products • Housing • Processes • Dignity • Solutions • Family Life • Expertise • QOL SOCIAL RESPONSIBILTY AND BUSINESS OPPORTUNITY16 (Based on C.K. Prahalad: The fortune at the bottom of the Pyramid: Eradicating poverty through profits: 2005)
  17. 17. www.strategicforum.co.za PROPERTY OWNERSHIP LISTED PROPERTY SECTOR ENGINE FOR GROWTH EMPLOYMENT MARKET CAPITALISATION AND WEALTH CREATION IN BUILDING & CONSTRUCTION > R100 BILLION R3,8 TRILLION RES PROPERTY > 1 000 000 PEOPLE R1,3 TRILLION NON RES PROPERTY PRIMARY AND SECONDARY PROPERTY MARKET ANNUAL HOUSING NEED URBAN HOUSING R267 BILLION PA MORTGAGE BACKLOG > 1,5 MILLION ADVANCES PA (POP. GROWTH ONLY) UNITS IN 2010 R1000 BIO MORTGAGES O/S 250 000 INTEGRATED HOUSING FTHB SUBSIDIES (1,9% OF BUDGET = R13,8 BILLION) RESIDENTIAL AND BUILDING INV. (500 000 HOUSING UNITS) NON RES BPP AND R108,5* BILLION INVESTMENT IN AFFORDABLE HOUSING BUILDINGS COMPLETED (BC) (20,8% OF GFCF) (R1,4 TRILLION 2010-2020) GOVERNMENT BUDGET GFCF GDP R798,9 BILLION R521,6 BILLION R2663 BILLION (22% OF GDP) (30% OF GDP) GOVERNMENT CONSTR. INV. TRANSFER DUTY INFRASTRUCTURE SPEND R174,9 BILLION R8- R9 BILLION PA (R846 BILLION 2010-2020) (33,5% OF GDFI) * When the UNRECORDED Home Improvement and Affordable Housing is taken into17 account Building Investment = 30,5% of GFCF © BMI-BRSCU
  18. 18. www.strategicforum.co.za PROPERTY OWNERSHIP LISTED PROPERTY SECTOR ENGINE FOR GROWTH MARKET CAPITALISATION It is estimated that for every R1 spent EMPLOYMENT AND WEALTH CREATION > R100 BILLION on infrastructure, R1.40000 &added to a R3,8 TRILLION RES PROPERTY IN BUILDING CONSTRUCTION > 1 is 000 PEOPLE “Unless the Housing Market TRILLION NON RES PROPERTY R1,3 country’s gross domestic product. recovers, the Economy will PPP’s are the ideal vehicle for funding not recover.” SECONDARY PRIMARY AND (Warren Buffet, CNN, ANNUAL the gaps in infrastructure in Africa. HOUSING PROPERTY MARKET 4 October 2011) NEED URBAN HOUSING R267 BILLION PA MORTGAGE (Deloittes research, BACKLOG > 1,5 MILLION May 2011) ADVANCES PA (POP. GROWTH ONLY) UNITS IN 2010 R1000 BIO MORTGAGES O/S 250 000 INTEGRATED HOUSING FTHB SUBSIDIES (1,9% OF BUDGET = R13,8 BILLION) RESIDENTIAL AND BUILDING INV. (500 000 HOUSING UNITS) NON RES BPP AND R108,5* BILLION INVESTMENT IN AFFORDABLE HOUSING BUILDINGS COMPLETED (BC) (20,8% OF GFCF) (R1,4 TRILLION 2010-2020) GOVERNMENT BUDGET GFCF The UK Government plan to GDP R798,9 BILLION R521,6 BILLION R2663 BILLION promote building. “It clearly (30% OF GDP) has (22% OF GDP) recognised the need to boost house building, both to address GOVERNMENT TRANSFER DUTY CONSTR. INV. the housing crisis and to create INFRASTRUCTURE SPEND R174,9 BILLION R8- R9 BILLION PA (R846 BILLION 2010-2020) (33,5% OF GDFI) jobs.” (Business Day, 22 November 2011) * When the UNRECORDED Home Improvement and Affordable Housing is taken into18 account Building Investment = 30,5% of GFCF © BMI-BRSCU
  19. 19. BUILDING FOR GROWTH www.strategicforum.co.za The Daily Telegraph, 21 November 201119
  20. 20. BUILDING FOR GROWTH www.strategicforum.co.za Taxpayers will underwrite Britain has been “under building” for mortgages totalling hundreds of decades and a radical and unashamedly millions of pounds under plans to ambitious strategy is needed to shake up “unblock” the housing market and the housing market. revive the flagging economy. The housing market is one of the biggest victims of the credit crunch; lenders won’t lend, so builders can’t build and buyers can’t buy. With this strategy we will unlock the housing market, get Britain building again, and give many more people the satisfaction and security that comes with stepping over their The Daily Telegraph, 21 November 2011 own threshold20
  21. 21. BUILDING FOR GROWTH www.strategicforum.co.za Housing Strategy: • Mortgage guarantee • Subsidising construction • Pension funds used to finance infrastructure • Lower deposits • Discount for council tenants • Build for growth, with property companies able to bid for public funding to finish developments that have stalled • A classical PPP strategy. The Daily Telegraph, 21 November 201121
  22. 22. BUILDING FOR GROWTH www.strategicforum.co.za DWELLING UNITS OWNED OR OCCUPIED BY RACIAL GROUP: 2010: UNITS (Total = 13 328 591) (Source: StatsSA, Census 2007; Extrapolation t 2009 by BMI-BRSCU Workings) White, 1,746,017, 13% Asian, 336,830, 3% BLACKS OWN Coloured, 999,542, 7% OR OCCUPY 77% OF THE DWELLINGS IN SA BY NUMBER Black, 10,246,202, 77%22
  23. 23. www.strategicforum.co.za If we had to think about the nature of our global financial markets all over again, how would we change what we did and did not do? (Ramo: 2009: 205)23 © BMI-BRSCU
  24. 24. www.strategicforum.co.za In the summer of 2007 William Browder’s habit of living on his toes, of looking for any sign that the landscape around him was about to avalanche away, drew his attention to a news item in the papers. In New York an auction of debt from leveraged buy-out deals had failed to draw enough bidders and was shut down. To most of the investing world this looked simply like a small hiccup in an otherwise well functioning financial system. But Browder recognised it for what it was: a sign that the world had run out of the ability to absorb new debt. It was the end of a Ponzi-like scheme and he knew, the start of an avalanche that might reach a historic, tragic scale. Almost immediately he began24 (Ramo: 2009: 56,57)© BMI-BRSCU
  25. 25. STRATEGY IN COMPLEX SYSTEMS: ECONOMY What did we see in July 2007? EQUITIES EQUITIES COINCIDE WITH PROPERTY ECONOMIC UPSWING  BONDS BONDS  Demand and Supply Equilibrium PROPERTY   COMMODITIES  12  11   COINCIDE WITH ECONOMIC CASH Which leaves us with the least sexy asset class of all — DOWNSWING cash. (Business Day, 6 July 2007)25 (Based on the Barings Liquidity Model : The Economist : 19 Nov. 1994) © BMI-BRSCU
  26. 26. STRATEGY IN COMPLEX SYSTEMS: ECONOMY What did we see in July 2007?ith borrowers starting to default on housing W EQUITIES debts in the US, bond markets there and in EQUITIES COINCIDE WITH PROPERTY Europe are trembling. More bad news about ECONOMIC sub-prime mortgages could create global panic and our bond   UPSWING market would be affected. (Business Day, 6 July 2007)BONDS BONDS  Demand and Supply Equilibrium PROPERTY   COMMODITIES  12  11   COINCIDE WITH ECONOMIC CASH Which leaves us with the least sexy asset class of all — DOWNSWING cash. (Business Day, 6 July 2007)26 (Based on the Barings Liquidity Model : The Economist : 19 Nov. 1994) © BMI-BRSCU
  27. 27. STRATEGY IN COMPLEX SYSTEMS: ECONOMY What did we see in July 2007? EQUITIES EQUITIES COINCIDE WITH PROPERTY Why were we all ECONOMIC taken so completely UPSWING   by surprise?BONDS BONDS  Demand and Supply Equilibrium PROPERTY   COMMODITIES  12  11   COINCIDE WITH (July 2007) ECONOMIC CASH DOWNSWING27 (Based on the Barings Liquidity Model : The Economist : 19 Nov. 1994) © BMI-BRSCU
  28. 28. STRATEGY IN COMPLEX SYSTEMS: ECONOMY WHEN TO HOLD GROWTH MARKET EQUITIES PROPERTY Excess Funding Rent Concession 12 Funding Available Saturated Market BONDS PROPERTY RECOVERY 9 3 DECLINEIncreasing Dividends Tightened Funding COMMODITIES 6 (July 2007) Reduced Funding Increasing Absorption CASH28 RECESSION © BMI-BRSCU
  29. 29. STRATEGY IN COMPLEX SYSTEMS: ECONOMY WHEN TO HOLD GROWTH MARKET lacked was the What the economists “. . . the failure of EQUITIES PROPERTY that it could all imagination to see explode into a crisis. They preferred to collective imagination Excess Funding believe that trends would continue . . . of many bright people”. Rent Concession 12 Funding Available Saturated Market But it wasn’t just a failure of imagination. BONDS PROPERTY It was a failure of courage. It takes a RECOVERY brave soul to foresee the worst, and go 9 3 DECLINE out and warn people. . . .Increasing Dividends Tightened Funding COMMODITIES 6 (July 2007) “The signs were Reduced Funding Increasing Absorption there. Did we ACT rapidly enough?” CASH29 RECESSION © BMI-BRSCU
  30. 30. STRATEGY IN COMPLEX SYSTEMS What do we see in Nov 2011? EQUITIES EQUITIES COINCIDE WITH PROPERTY ECONOMIC UPSWING 12 BONDS BONDS 11 Demand and Supply Equilibrium PROPERTY   COMMODITIES   COINCIDE   WITH   ECONOMIC DOWNSWING CASH November 201130 (Based on the Barings Liquidity Model : The Economist : 19 Nov. 1994) © BMI-BRSCU
  31. 31. STRATEGY IN COMPLEX SYSTEMS WHEN TO HOLD BOOM MARKET EQUITIES PROPERTY Excess Funding Rent Concession 12 Funding Available November 2011 Saturated Market BONDS PROPERTY COMMODITIES RECOVERY 9 3 DECLINEIncreasing Dividends Tightened Funding 6 Reduced Funding Increasing Absorption CASH31 RECESSION © BMI-BRSCU
  32. 32. THE PROPERTY MARKET AND COMPLEXITY The crisis in the financial markets that I had anticipated arrived in force on August 9, 2007. It came from an area we hadn’t expected – housing – and the damage it caused was much deeper and much longer lasting than any of us could have imagined. (Paulson: 2010: 61) Encouraging high rates of homeownership had long been a cornerstone of US domestic policy – for Democrats and Republicans alike. Homeownership it is commonly believed helps family’s build wealth, stabilizes neighbourhoods, creates jobs, and promotes growth. (Paulson: 2010: 64) All bubbles involve speculation, excessive borrowing and risk taking, negligence, a lack of transparency, and outright fraud, but few bubbles ever burst as spectacularly as this one would(Paulson: 2010: 65)32 © BMI-BRSCU
  33. 33. THE PROPERTY MARKET AND COMPLEXITY The Sub-Prime crisis is the name for what is a historic turning point in our economy and culture. It is at its core, the result of a speculative bubble in the housing market that began to burst in the United States in 2006 and has now caused ruptures across many other countries in the form of financial failure and a global credit crunch. (Shiller, Robert J. 2008 : 1)33 © BMI-BRSCU
  34. 34. THE PROPERTY MARKET AND COMPLEXITY34 © BMI-BRSCU
  35. 35. THE PROPERTY MARKET AND COMPLEXITY Fractional Reserve Banking involves multiple equilibria: People trust their Banks, and thus the banks come to be seen as trustworthy. But, conversely, if people lose trust in their banks, withdraw their funds, and cause the banks to fail, the lack of trust becomes a self fulfilling prophecy. (Shiller: 2008: 102) In terms of threats to economic confidence, the current sub-prime crisis in some ways resembles the onset of the Great Depression (Shiller: 2008: 97)35 © BMI-BRSCU
  36. 36. THE PROPERTY MARKET AND COMPLEXITY Building Industry Stakeholder Analysis BYSTANDERS ACTORS STAKEHOLDERS High RESERVES PLAYERS Architects, Specifiers, Property Entrepreneurs, Manufacturers, Distributors, developers, Public Sector, Contractors, FINANCIAL INSTITUTIONS FINANCIAL INSTITUTIONS (Mortgage Origination, Approval, Deposits, Repayments, Advances, Repossessions, Insurance) Auctions) CROWD REFEREES INTEREST (STAKE) Labour, Govt Prov-, Local-Authorities, Unions, CIDB, NHBRC, SABS, Agrement UNAFECTED Consumer bodies, Board, MBA’S, SARB, State Tender Board, FINANCIAL INSTITUTIONS (Property Values, Property reports FINANCIAL INSTITUTIONS (HPI), Statistics) (Valuations, LTV ratios, Mortgage Low Rate, term, Affordability) Low High36 POWER © BMI-BRSCU
  37. 37. THE PROPERTY MARKET AND COMPLEXITY Financial Institutions have Building Industry Stakeholder Analysis INORDINATE Power and Interest. They play in all the quadrants of the BYSTANDERS Stakeholder Matrix and are ACTORS STAKEHOLDERS High RESERVES PLAYERS SIMULTANEOUSLY PLAYERS, RESERVES, REFEREES and CROWD. Architects, Specifiers, Property Entrepreneurs, Manufacturers, Distributors, They make the rules of the game and developers, Public Sector, Contractors, influence every facet of it. FINANCIAL INSTITUTIONS FINANCIAL INSTITUTIONS (Mortgage Origination, Approval, Deposits, Repayments, Advances, Repossessions, Insurance) Auctions) CROWD REFEREES INTEREST (STAKE) Labour, Govt Prov-, Local-Authorities, Unions, CIDB, NHBRC, SABS, Agrement UNAFECTED Consumer bodies, Board, MBA’S, SARB, State Tender Board, FINANCIAL INSTITUTIONS (Property Values, Property reports FINANCIAL INSTITUTIONS (HPI), Statistics) (Valuations, LTV ratios, Mortgage Low Rate, term, Affordability) Low High37 POWER © BMI-BRSCU
  38. 38. THE PROPERTY MARKET AND COMPLEXITY Building Industry Stakeholder Analysis BYSTANDERS ACTORS STAKEHOLDERS High RESERVES PLAYERS Architects, Specifiers, Property Entrepreneurs, Manufacturers, Distributors, developers, Public Sector, Contractors, FINANCIAL INSTITUTIONS FINANCIAL INSTITUTIONS (Mortgage Origination, Approval, Deposits, Repayments, Advances, Repossessions, Insurance) Auctions) CROWD REFEREES INTEREST (STAKE) Labour, Govt Prov-, Local-Authorities, Unions, CIDB, NHBRC, SABS, Agrement UNAFECTED Consumer bodies, COMPETING WITH THEIR Board, MBA’S, SARB, State CUSTOMERS – AND THE Tender Board, FINANCIAL INSTITUTIONS BUILDING INDUSTRY? (Property Values, Property reports FINANCIAL INSTITUTIONS (HPI), Statistics) (Valuations, LTV ratios, Mortgage Low Rate, term, Affordability) Low High38 POWER © BMI-BRSCU
  39. 39. ANIMAL SPIRITS AND CONFIDENCE www.strategicforum.co.za Animal Spirits drive almost everything. Animal Spirits are more than just confidence as measured by confidence indicators. Declining Animal Spirits are the principal reason for the recent severe economic crisis. And despite the recent positive economic indicators, we see no clear indication that these spirits are yet revived. (Akerlof and Shiller: 2009: vii)39 © BMI-BRSCU
  40. 40. ANIMAL SPIRITS AND CONFIDENCE www.strategicforum.co.za We are facing the same problem today that we faced in the later years of the Great Depression – business today is inhibited by uncertainty about the future, about the tolerance of an angry public, about a disaffected labour force, and about what further government actions may be coming. Animal Spirits are the forces that drives all of this, and to understand animal spirits we have to use methodologies outside of traditional economics, leading us to other social sciences. Five psychological factors are of particular importance; 1. Confidence; 2. Fairness; 3. Corruption and bad faith; 4. Money illusion; and 5. Stories. (Akerlof and Shiller: 2009: ix)40 © BMI-BRSCU
  41. 41. ANIMAL SPIRITS AND CONFIDENCE www.strategicforum.co.za How the Macro Economy behaves Rational Economic theory incorporating Conventional Economic Theory “Animal Spirits”. Economic theory incorporating Economic theory incorporating “Animal Spirits”. “Animal Spirits”. RESPONS Irrational Non Economic Economic41 MOTIVES © BMI-BRSCU
  42. 42. ANIMAL SPIRITS AND CONFIDENCE www.strategicforum.co.za How the Macro Economy behaves Rational Economic theory incorporating Conventional Economic Theory “Animal Spirits”. Akerlof & Shiller believe that the answers to the most important questions regarding how the macro economy behaves and what we ought to do when it Economic theory incorporating Economic theory incorporating misbehaves lie largely (though not “Animal Spirits”. “Animal Spirits”. RESPONS exclusively) within the three white boxes) Irrational Non Economic Economic42 MOTIVES © BMI-BRSCU
  43. 43. ANIMAL SPIRITS AND CONFIDENCE www.strategicforum.co.za The MFA CLIBI has moved sideways for four quarters, still reflecting widespread pessimism in the South African building industry … this is the first time that it has moved sideways for more than two quarters, an unprecedented occurrence … a recovery-in-waiting? MFA COMPOSITE LEADING INDICATOR (CLIBI) FOR THE SOUTH AFRICAN BUILDING INDUSTRY 100 90 OPTIMISM 80 PESSIMISM < 50 > OPTIMISM 70 60 50 ? 40 30 20 10 PESSIMISM 0 | 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10 | 13 Source: FNB / BER; SARB; MFA DATABASE43
  44. 44. ANIMAL SPIRITS AND CONFIDENCE www.strategicforum.co.za The real problem is the conventional wisdom that underlies so much of current economic The theory of animal spirits provides theory. So many members of the macro an answer to a conundrum: economics and finance profession have gone so far in the direction of rational expectations and efficient markets, that 1. Why did most of us utterly fail they fail to consider the most important to foresee the current economic crisis? dynamics underlying economic crises. 2. How can we understand this Failing to incorporate animal spirits into the model, can blind us to the real crisis, when it seems to have come out of sources of trouble. (Akerlof & Shiller : 2009 : the blue with no cause? 167) 3. Why have the measures to What has happened in the current financial forestall it falling short, while the economic crisis, corresponds to what causes most of authorities publically express surprise at our economic ups and downs: over- their ineffectiveness? confidence followed by under- confidence. The story in this case was that the price of housing had never declined We need to answer these questions if (that is only a story, and it is actually we are to feel any confidence in untrue) and therefore, that it would just economic policy in the (future). (Akerlof continue to go up and up. There was and Shiller: 2009: 167) nothing to lose. This is the story of our time; it is the story of the business cycle that began in 2001. (Akerlof & Shiller, 2009 : 170)44 © BMI-BRSCU
  45. 45. ANIMAL SPIRITS AND CONFIDENCE www.strategicforum.co.za For some reason in the late 1990s and early 2000s, the idea that homes and apartments were spectacular investments, gained a stronghold on the public imagination in the United States and many other countries as well. Not only did prices escalate, but there was palpable excitement about real estate investments; one could see the animal spirits in action everywhere. It was the biggest home price boom in U.S. history. It extended over nearly a decade, beginning in the late 1990s. Prices nearly doubled before the bust began in 2006. While it lasted, this spectacular boom mirrored in other countries as well, helped drive the entire world economy and its stock markets. In its wake, it has left the biggest real estate crisis since the 1930s. The so-called sub-prime crisis, as well as a global financial crisis, the full dimensions of which still have to be grasped. (Akerlof and Shiller: 2009: 149)45 © BMI-BRSCU
  46. 46. WELL FOUNDED HOPE ? Stage 5 What can we do to restore Recovery and growth when one part of the Renewal Industry wants to save (and not spend) and the other wants to stop spending (and Stage 3 ? Denial of Risk save)? and Peril Stage 2 Stage 4 Undisciplined Grasping for Pursuit of Salvation More What will it Stage 1 Hubris born take? Of success (Source: Based on Collins: How the Mighty Fall: 2009)46 © BMI-BRSCU
  47. 47. Drivers of Change and the Housing Scenario Map SA Social Government Capitalism; BOUYANT GROWTH intervention, 1. The High Road Growth through > 5 % PA PPP’s; Redistribution; GDFI > 25 % OF GDP Subsidies, The Golden SUBSIDIES 3 - 5 % OF BUDGET Infrastructure 2. Upper Middle Road Triangle. AVERAGE GROWTH 2 - 5 % PA SA Social GDFI 20 - 25 % Democracy; 4. The Low Road OF GDP SUBSIDIES 2 - 3 % OF BUDGET Redistribution Investor Confidence with LOW GROWTH 0 - 2 % PA Growth GDFI 15 - 20 % OF GDP NOW, 2 SA Communism; SUBSIDIES 1 - 2 % OF BUDGET Q 2010 3. Lower Redistribution NEGATIVE GROWTH Muddling Middle Road with or without < 0 % PA along as we growth GDFI < 15 % OF GDP are, or SA – A Third SUBSIDIES < 1 % OF BUDGET change . . . World Country PROPERTY A POOR INVESTMENT / AVERAGE / GOOD / A PREFERRED INVESTMENT Paradigm Regression Paradigm Paralysis Paradigm Shift Paradigm Reinvention Investment Climate47 (Based on Gerald Harris: The Art of Quantum Planning: 2009) © BMI-BRSCU
  48. 48. Credit and Capital markets OPEN 40% 10% Lower Middle High Road Road DECLINE GROWTH Upper Middle Low Road Road 30% 20% Credit and Capital markets CLOSED48 © BMI-BRSCU
  49. 49. LOOKING TO THE FUTURE: RESIDENTIALUNDERSUPPLY BOOM MARKETDemand exceeds supply RECOVERY Funding AvailablePrices increase Increasing construction Increasing rentsBuyer resistance develops Excess fundingMarket tightens Stabilising rents Increasing Absorption 12  AH F&TH 11 Demand and Supply Equilibrium RES   Overbuilding   DH<80 Rent Concession DH>80 Saturated Market   DECLINE   AAOVERSUPPLY Legend:Supply exceeds demand RECESSION AH - Affordable HousingCompetition increases DH<80 – Dwelling Houses < 80 m2 Reduced FundingPrices moderate DH>80 – Dwelling Houses > 80 m2Market loosens Less construction F&TH – Flats & Townhouses Tightened Funding A&A – Additions & Alterations49 © BMI-BRSCU
  50. 50. LOOKING TO THE FUTURE: RESIDENTIAL BOOM MARKET Excess Funding Overbuilding AH Increasing Construction 12 Rent Concession F&TH Funding Available Saturated Market RES RECOVERY 9 3 DECLINE DH<80 Increasing Rents Tightened Funding DH>80 Stablizing Rents Less Construction 6 Increasing Absorption AA Reduced Funding50 RECESSION © BMI-BRSCU
  51. 51. LOOKING TO THE FUTURE: NON RESIDENTIAL Funding Available What do we see in Nov 2011?UNDERSUPPLYDemand exceeds supply Increasing constructionPrices increase Excess fundingBuyer resistance develops GROWTH MARKET RECOVERYMarket tightens Increasing rents Stabilising rents 12  Increasing Absorption 11 Demand and Supply Equilibrium   Overbuilding   Rent Concession PNR Saturated Market DECLINE  OVERSUPPLY   ShopsSupply exceeds demand Offices NON RESCompetition increasesPrices moderate RECESSIONMarket loosens IWH Reduced Funding Less construction Tightened Funding51 © BMI-BRSCU
  52. 52. LOOKING TO THE FUTURE: NON RESIDENTIAL BOOM MARKET Excess Funding Overbuilding Increasing Construction 12 Rent Concession Funding Available Saturated Market RECOVERY 9 3 DECLINE Increasing Rents Tightened Funding Public NR Less Construction Stablizing Rents Shops 6 Increasing Absorption Reduced Funding I&WH Offices52 RECESSION © BMI-BRSCU
  53. 53. LOOKING TO THE FUTURE: RESIDENTIAL AH Affordable HOUSING MARKET PER LSM GROUP: 2010: UNITS Entrepreneurial (Source: StatsSA, AMPS 2010, BMI-BRSCU Workings) Rental Social Rental Social 37,725 40,000 Housing Housing 34,449 (95,225 units) (77,234 units) 29,141 30,000 20,557 UNITS 16,716 20,000 14,909 11,408 8,810 7,906 7,680 7,680 GAP Market 6,551 10,000 5,422 102 332 Units 4,518 4,292 4,292 3,840 0 INC/SHECH INC/SHESH STD/MUSH CONV/LASH CONV/LISH STD/MASH LUX/LUSH STD/MISH SHELP 1 SHELP 2 1-499 500- 800- 1500- 2000- 2500- 3500- 6000- 9000- 11000- 12000- 14000- 16000- 20000- 25000- 30000- 40000+ 799 1499 1999 2499 3499 5999 8999 10999 11999 13999 15999 19999 24999 29999 3999953 © BMI-BRSCU
  54. 54. LOOKING TO THE FUTURE: RESIDENTIAL AH AFFORDABLE HOUSING DELIVERY AND BACKLOG: 2002-2010 LOWER MIDDLE ROAD SOYUZ AND HIGH ROAD COLUMBUS SCENARIO: 2011-2020 (Source: StatsSA and BMI-BRSCU Workings) 550,000 3,200,000 3,000,000 500,000 2,800,000 ANNUAL HOUSING BAKLOG (UNITS) 450,000ANNUAL HOUSING DELIVERY (UNITS) 2,600,000 2,400,000 400,000 2,200,000 350,000 2,000,000 300,000 1,800,000 1,600,000 250,000 1,400,000 200,000 1,200,000 1,000,000 150,000 800,000 100,000 600,000 400,000 50,000 200,000 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 DOH Delivery: Lower Middle Road Soyuz Scenario DOH Delivery: High Road Columbus Scenario Annual Housing Backlog under Columbus Scenario Annual Housing Backlog under Soyuz Scenario54 © BMI-BRSCU
  55. 55. LOOKING TO THE FUTURE: RESIDENTIAL AH AFFORDABLE HOUSING DELIVERY AND BACKLOG: 2002-2010 LOWER MIDDLE ROAD SOYUZ AND HIGH ROAD COLUMBUS SCENARIO: 2011-2020 (Source: StatsSA and BMI-BRSCU Workings) 550,000 3,200,000 3,12 Million houses built in next 10 years and 3,000,000 Backlog reduced to I million by 2020. 500,000 2,800,000 ANNUAL HOUSING BAKLOG (UNITS) 450,000ANNUAL HOUSING DELIVERY (UNITS) 2,600,000 2,400,000 400,000 2,200,000 350,000 2,000,000 300,000 1,800,000 1,600,000 250,000 1,400,000 200,000 1,200,000 1,000,000 150,000 800,000 100,000 600,000 The target must be the eradication of all 400,000 50,000 slums, or informal settlements, by 2020. For 200,000 0 0 this to2002 2003 2004 2005 2006 2007 2008 2009 new units a 2014 2015 2016 2017 2018 2019 2020 happen, some 500 000 2010 2011 2012 2013 year must becomeMiddle Road Soyuz Scenario DOH Delivery: Lower available. DOH Delivery: High Road Columbus Scenario Annual Housing Backlog under Columbus Scenario Annual Housing Backlog under Soyuz Scenario55 © BMI-BRSCU
  56. 56. LOOKING TO THE FUTURE: RESIDENTIAL AH SUBSIDIES GRANTED: 2002-2010 LOWER MIDDLE ROAD SOYUZ AND HIGH ROAD COLUMBUS SCENARIOS: 2011-2015 (R BILLIONS) (Source: DHS and BMI-BRSCU Workings) Redistribution through Growth and 50 Growth through Redistribution. An APPROPRIATE STRATEGY in aR BILLIONS (CURRENT 2010 VALUES) 45 Developing Country. 40 35 30 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Subsidies granted: Lower Middle Road Soyuz Scenario 7.86 7.79 7.50 7.25 9.16 9.67 10.67 13.22 18.74 20.92 21.25 20.88 19.75 19.37 19.66 20.05 20.55 21.17 20.76 Subsidies granted: High Road Columbus Scenario 7.86 7.79 7.50 7.25 9.16 9.67 10.67 13.22 18.74 20.92 23.02 26.47 30.44 35.00 40.26 43.27 46.52 50.01 52.5156 © BMI-BRSCU
  57. 57. LOOKING TO THE FUTURE: RESIDENTIAL AH CUM SUBSIDIES GRANTED: 2002-2020 (R Billions) (Source: DOH and BMI-BRSCU Workings) Taxpayer Contribution of R296 – R460 Billion OVER NEXT 10 YEARS 480 IN THE PROVISION OF OVER 3 440 MILLION Affordable Housing Units R BILLIONS (CURRENT 2010 VALUES) 400 and creating employment in the 360 process by Growth through Redistribution. 320 280 240 200 160 The credit belongs to both Government, in providing the 120 leadership and 80 vision, and the Taxpayer in providing the finance. 40 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Subsidies granted: Lower Middle Road Soyuz Scenario 8 16 23 30 40 49 60 73 92 113 134 155 175 194 214 234 254 275 296 Subsidies granted: High Road Columbus Scenario 8 16 23 30 40 49 60 73 92 113 136 162 193 228 268 311 358 408 46057 © BMI-BRSCU
  58. 58. LOOKING TO THE FUTURE: RESIDENTIAL AH Growth through Redistribution ESTIMATED RESIDENTIAL INVESTMENT IN SUSTAINABLE INTEGRATED DEVELOPMENTS Residential Zoning Type Density )Gross) Units m2/Unit Total m2 R/m2 R/Unit Stand Total R Million* % Giveaway RDP Residential 2 Row Housing 90 Units/Ha 298,627 45 13,550,203 2,192 99,450 9,945 109,395 29,699 3.01% Giveaway RDP Residential 3 Walk-ups 125 Units/Ha 1,327,838 45 60,250,643 2,192 99,450 9,945 109,395 132,054 13.39% BNG Housing Upgraded RDP Residential 1 1 House/Stand 200 m2-450 m2 1,038,567 68 70,622,574 4,422 300,685 30,069 330,754 312,282 31.68% GAP Housing Residential 1 Semi-Detatched 190 m2 304,865 113 34,297,280 4,422 497,457 49,746 547,203 151,657 15.38% Bonded (FSC) Residential 1 1 House/Stand 1 per 350 m2 148,924 180 26,806,263 4,422 795,931 79,593 875,524 118,533 12.02% Total Residential 3,118,821 42 131,726,117 5,650 238,624 23,862 238,624 744,224 75.49% 744,224 ESTIMATED NON RESIDENTIAL INVESTMENT IN SUSTAINABLE INTEGRATED DEVELOPMENTS Non Residential (m2) Zoning Units m2/Unit Total m2 R/m2 R/Unit Stand Total R Million* % Offices & Banking Business 3,000 5,000 25,000,000 6,151 30,756,224 3,075,622 33,831,847 92,269 9.36% Industrial and Warehousing Industrial 3,000 5,000 25,000,000 4,039 20,195,000 2,019,500 22,214,500 60,585 6.15% Shopping & Commercial Business 6,000 5,000 50,000,000 2,960 14,800,000 1,480,000 16,280,000 88,800 9.01% Total Non Residential Total Non Residential 12,000 8,333 100,000,000 2,417 20,137,806 6,575,122 72,326,347 241,654 24.51% Grand Total Grand Total 231,726,117 985,878 100.00% (Source: BMI-BRSCU Estimate) * Land excluded Employment created per annum for Total Market 180,151 Employment created per annum for Affordable Housing Market 135,993 Employment created per annum for one Affordable House 0.0436 Employment vreated per annum for 1000000 Affordable Houses 43604.01 If the 3.12 million houses can be built in the next 10 years this will result in investment of R986 Billion (land excluded). And . . . Create 136 000 additional jobs in the process. *) Subsidy and stand included because affordability is determined in this way.58 © BMI-BRSCU
  59. 59. LOOKING TO THE FUTURE: RESIDENTIAL AH A major initiative to mobilise South African society in COLLABORATIVE Public, Private Sector Cooperation and social responsibility behind a COMPELLING VISION of Wealth Creation, Nation building and reconciliation through Homeownership. To inspire society it is imperative to give credit to the Public (in providing the finance through taxation) as well as the Private Sector for building most of the 3 million houses. It has been a cooperative effort – Government cannot assume all the credit.59
  60. 60. LOOKING TO THE FUTURE: RESIDENTIAL AH The Department of Human Settlements was unable to address the burden of the housing backlog on its own, Sexwale said at the launch of the “Each One Settle One” campaign at the JSE yesterday. “ . . . housing is not just a The campaign aims to mobilise various stakeholders, social expenditure item but an including the top 200 JSE-listed companies, to assist the economic dynamo because it department in providing decent shelter to more than 2 million contributes massively to households living in squatter camps, as well as in economic growth.” informal settlements. Sexwale said the number of informal settlements in the country had grown from 800 when he was Gauteng premier to 2 500 today. The housing backlog under his watch had increased from 2.1 million houses when he became minister to 2.3 million, despite his department building 200 000 houses a year. Sexwale attributed this situation to the increasing number of households and the decrease in the size of households, admitting that the government had got itself into “a very tight situation since 1994” by providing free houses for the poor. “It was not the best thing to do. We can’t provide free housing forever but we have got to do that because we can’t turn our backs against the poor. It’s not their fault they are in that situation,” Sexwale said.60 © BMI-BRSCU
  61. 61. LOOKING TO THE FUTURE: RESIDENTIAL AH Sexwale warned that if there was a second recession in the country it would introduce social instability. “The protests of our people are beginning to get violent every day. It’s worrying. The police are shooting every day. Let’s work together to try and stem the tide.” Sexwale said housing was not just a social expenditure item but an economic dynamo because it contributed massively to economic growth. “It stimulates the whole financial system and when it doesn’t happen, the world starts burning and we just don’t know where it ends.” He said it was easy for firms to hide behind corporate social investment but it would “not keep this problem at bay”. A social investment desk had been created in the department to manage the activities of the campaign and projects on a project-by-project basis. Khanyisile Kweyama, the executive head of human resources at Anglo American Platinum, said it embraced the campaign and was contributing R1.4 billion towards facilitating the building of 20 000 houses for its employees over the next 10 years. Leon van Schalkwyk, the group executive of strategic finance at Impala Platinum, said it had a proven track record in community-based housing solutions through its extensive home ownership programme in the North construction of more than 1 500 West to uplift its employees, which had resulted in the freestanding units over a three-year period. (Business Report, 30 September, 2011)61 © BMI-BRSCU
  62. 62. THE EDGE OF CHAOS www.strategicforum.co.za62 © BMI-BRSCU
  63. 63. THE EDGE OF CHAOS www.strategicforum.co.za THE EDGE OF CHAOS COMPLEXITY SECOND CURVE FIELD THEORY CREATING THE FUTURE ZONE OF CREATIVITY AND ADAPTABILITY IMPOSSIBLE RESULTS ENVIRONMENTAL THE BUTTERFLY EFFECT CHANGE EMERGENCE STRANGE ATTRACTORS RISK CRITICAL MESS RUDE AWAKENING CHAOS UNCERTAINTY FIRST CURVE SELF-DIRECTED TRANSFORMATION63 (Based on Handy : 1994) © BMI-BRSCU ©63
  64. 64. COMPETING EDGE OF CHAOS THE ON THE EDGE OF CHAOS Chaos Edge of Chaos Structure The Edge of Chaos Past Present Future The Edge of Time64 (Source: Brown and Eisenhardt: 1998)
  65. 65. COMPETING EDGE OF CHAOS THE ON THE EDGE OF CHAOS Chaos Edge of Chaos Structure The Edge of Chaos Past Present Future The Edge of Time65 (Source: Brown and Eisenhardt: 1998)
  66. 66. THE EDGE OF CHAOS the Challenge INDUSTRY AND COMPLEXITY Mindsets. CHAOS Future Intuitive capacity Permeable boundaries Second curve Creativity Emergence Mind forged First curve MANACLES Status Quo66 (Source: Based on Johnson and Scholes: 2002) © BMI-BRSCU ©66
  67. 67. THE EDGE OF CHAOS www.strategicforum.co.za  Competing on the edge rests on the assumption that the marketplace is in constant flux.  The assumption of static equilibrium no longer applies.  Rather the view is that competitors come and go. Markets emerge, close, shrink, split, collide and grow.  Today’s collaborators are tomorrow’s competitors . . . or both.  Technology is constantly shifting. Getting to the market early matters.  In complexity parlance, the marketplace is a continuously deforming landscape.  The image of this kind of landscape is of a terrain richly contoured by peaks and valleys.  And it is continuously reshaped by warp-speed change.67 © BMI-BRSCU ©67
  68. 68. THE EDGE OF CHAOS www.strategicforum.co.za68 (Source: Brown and Eisenhardt: 1998) © BMI-BRSCU ©68
  69. 69. THE EDGE OF CHAOS www.strategicforum.co.za Roll out new branches, source and develop new products, develop new markets, discover new customers, Reconfigure the Value Chain, diversify. LEAD CHANGE. Building Blocks69 (Source: Brown and Eisenhardt: 1998: 23) © BMI-BRSCU ©69
  70. 70. www.strategicforum.co.za Available on Amazon.com “This economic crisis doesn’t represent the cycle, it represents a reset. It’s an emotional, raw, social, e conomic reset.” (General Electric CEO Jeffrey Immelt) “People who understand that, will prosper; those who don’t will be left behind.”70 © BMI-BRSCU
  71. 71. THE GREAT RESET www.strategicforum.co.za Prolonged ECONOMIC DOWNTURNS like • the Great Depression of the 1930s and • the Long Depression of the late nineteenth century, are viewed in terms of the crisis and pain they cause. OPPORTUNITIES • to remake our economy and society and • to generate whole new eras of economic growth and prosperity. In terms of innovation, invention and energetic risk-taking, these periods of creative destruction have been some of the most fertile in history and the changes they put into motion can set the stage for full-scale recovery.71 © BMI-BRSCU
  72. 72. THE GREAT RESET www.strategicforum.co.za Economic development expert Richard Florida, examines these previous ECONOMIC EPOCHS, OR RESETS. He distills the DEEP FORCES that have altered physical and social landscapes and eventually reshaped economies and societies. LOOKING TOWARD THE FUTURE, he identifies the patterns that will drive the next Great Reset and TRANSFORM virtually every aspect of our lives – from how and where we live, to how we work, to how we invest in individuals and infrastructure, to how we shape our cities and regions. These forces, when combined, will spur a fresh era of growth and prosperity, define a new geography of progress and create surprising opportunities for all.72 © BMI-BRSCU
  73. 73. www.strategicforum.co.za The bubble was so big in the 1920s, that after it popped during the Great Depression, it would take 22 years for non-residential construction investment to regain its precrash peak and 24 years for real spending on residential construction to recover to its pre-crisis highs.73 © BMI-BRSCU

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