Making sense in the age of the unthinkable

1 © BMI-BRSCU

TowardsMaking sense in the Age of the Unthinkable

Dr. Llewellyn B. LewisDr. Llewellyn B. LewisJanuary 2010January 2010

THE STRATEGIC FORUMTHE STRATEGIC FORUM

A place of assembly for strategic conversations

THE STRATEGIC FORUMwww.strategicforum.co.za

BMI

StudiumAd Prosperandum

Voluntasin Conveniendum

BUILDING RESEARCHSTRATEGY CONSULTINGUNIT cc

Reg. No. 2002/105109/23

•BMI




•BMI•

BMI•

BMI•

2 © BMI-BRSCU

BUILDING & CONSTRUCTION INVESTMENT

R297 754 MILLION BUILDING INVESTMENT

R172 972 MILLIONCONSTRUCTION INVESTMENT

R124 782 MILLION

CONTRACTOR (50,8%)

R60 504 MIOCONTRACTOR (50,8%)

R60 504 MIO

SUBCONTRACTOR (49,2%)

R58 598 MIOSUBCONTRACTOR (49,2%)

R58 598 MIO

LABOUR (40%)

R119 102 MIO

LABOUR (40%)

R119 102 MIO

DIRECT TO USER (40%)

R59 356 MILLIONDIRECT TO USER (40%)

R59 356 MILLIONMATERIAL (60%)

R178 652 MIOMATERIAL (60%)

R178 652 MIO

INDIRECT VIA DISTRIBUTION (60%)

R107 191 MILLION


R107 191 MILLION

LARGE IND BUILDERS MERCHANT (10%)

R17 865 MILLION

LARGE CHAIN BLDRS MERCHANT(25%)

R44 663 MILLION


R44 663 MILLION

HYPERMARKET/SUPERMARKET(5%)

R8 932 MILLION


R8 932 MILLION

SPECIALIST SHOP(5%)

R8 932 MILLION

SPECIALIST SHOP(5%)

R8 932 MILLION

LOCAL HARDWARE STORE(15%)

R26 798 MILLION


R26 798 MILLION

RESIDENTIAL INVESTMENT

R12 775 MILLION

NON RESIDENTIAL INVESTMENT

R66 321 MILLION

UNRECORDEDADDITIONS AND ALT’S INVEST**

R40 413 MILLION

* Constant 2008 Prices** Residential and Non Residential


R66 238 MILLION

CURRENT REALITY OF BUILDING & CONSTRUCTION: CURRENT REALITY OF BUILDING & CONSTRUCTION: 20082008

THE BUILDING AND CONSTRUCTION INDUSTRY: 2008www.strategicforum.co.za

3 © BMI-BRSCU

TIPPING POINTSwww.strategicforum.co.za

4 © BMI-BRSCU


We have arrived firmly in an age in which the unthinkable has become, frankly, inevitable.We are now at the start of what may become the most dramatic change in the international order in several centuries, the biggest shift since European nations were first shuffled into sovereign order by the peace of Westphalia in 1648. (Joshua Cooper Ramo: The Age of the Unthinkable: 2009)

5 © BMI-BRSCU


It was unthinkable a few months ago that all

of the major investment banks would be

gone, mortgage companies nationalised and other financial companies merged in order to keep going. (William F Williams, Executive Vice President, The Bank of New York Mellon)

6 © BMI-BRSCU


If we had to react to 9/11 again, what would we do differently?

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)

7 © BMI-BRSCU

“I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by the fact.”

The Congressman questioning him asked,

“In other words, you found that your view of the world, your ideology, was not right. It was not working?”

Greenspan replied, “Absolutely. Precisely. You know that’s precisely the reason I was shocked. Because I have been going for forty years or more with very considerable evidence that it was working exceptionally well.” (Joshua Cooper Ramo: The Age of the Unthinkable: 2009: 6)


Greenspan, in his fall 2008 congressional testimony: humbled, perplexed and worried.

8 © BMI-BRSCU

You probably don’t need to hear it from Greenspan to have a sense of the confused navigation of our leaders.

How is it that the Secretary of the Treasury of the United States, a near-billionaire financier, can say that the worst of the crisis is over in May and then find himself in August furiously battling to save the global financial system? (Joshua

Cooper Ramo: The Age of the Unthinkable: 2009: 6)

We need to avoid models of the World built with the language of the past !


9 © BMI-BRSCU

STRENGTHSSTRENGTHSand and

WEAKNESSESWEAKNESSES



OPPORTUNITIESOPPORTUNITIESand and

THREATSTHREATS


THREATSTHREATS

Organisational LearningOrganisational Learning

STRATEGIC LEADERSHIPSTRATEGIC LEADERSHIPAs a way of Business LifeAs a way of Business Life



ENVIRONMENTALENVIRONMENTAL FORCESFORCES


ORGANISATIONALORGANISATIONALRESOURCESRESOURCES

CAPABILITIESCAPABILITIES



CURRENT REALITYCURRENT REALITY

STRATEGIC INTENT, VISION, MISSIONSTRATEGIC INTENT, VISION, MISSION

DRIVING FORCEDRIVING FORCE

PERFORMANCE GUIDELINESPERFORMANCE GUIDELINES

INDUSTRY FORESIGHTINDUSTRY FORESIGHTUNDERSTANDING THE INDUSTRYUNDERSTANDING THE INDUSTRYSCENARIOSSCENARIOS

UNDERSTANDINGTHE ENVIRONMENT

SCENARIOSSCENARIOSUNDERSTANDING

THE ENVIRONMENT

BUSINESS IDEABUSINESS IDEAUNDERSTANDINGTHE INSTITUTION


THE PARADIGM OR MENTAL MODELTHE PARADIGM OR MENTAL MODELBeliefs and assumptions held in common and taken for granted in an OrganisationBeliefs and assumptions held in common and taken for granted in an Organisation


(After Johnson : 1988)

STRATEGY AND PARADIGMSSTRATEGY AND PARADIGMS

10 © BMI-BRSCU






THREATSTHREATS


THREATSTHREATS











CURRENT REALITYCURRENT REALITY

STRATEGIC INTENT, VISION, MISSIONSTRATEGIC INTENT, VISION, MISSION

DRIVING FORCEDRIVING FORCE

PERFORMANCE GUIDELINESPERFORMANCE GUIDELINES

INDUSTRY FORESIGHTINDUSTRY FORESIGHTUNDERSTANDING THE INDUSTRYUNDERSTANDING THE INDUSTRYSCENARIOSSCENARIOS

UNDERSTANDINGTHE ENVIRONMENT

SCENARIOSSCENARIOSUNDERSTANDING

THE ENVIRONMENT





(After Johnson : 1988)

STRATEGY AND PARADIGMSSTRATEGY AND PARADIGMSIf you want to understand the World, commonly held ideas are absolutely blinding.

Buddhist masters like to say that if you’re trying to reach enlightenment, you must develop, in this order, “right view, right intention, right action.”

If you’re not seeing the world properly, you have no hope of any sort of breakthrough. (Ramo: 2009: 134)

The only way to spot threats and opportunities is to break out of a narrow way of thinking.

12 © BMI-BRSCU

DO

ING

Content Context

Shortsight Longsight Foresight Vision ContextFar Hindsight Near Hindsight

Blind spotsBlind spots

Bright sparksBright sparks



PARADIGM BLINDSPOTS

Data Facts, observations, data points

Information Data with meaning

Knowledge Information with insight

Wisdom Knowledge with context

(Source: Based on Dr. Kanes Rajah: 2005)

Partial knowledge

Incorrect knowledge

False knowledge

No knowledge

BE

ING

Process

13 © BMI-BRSCU

DO

ING

Content Context

Shortsight Longsight Foresight Vision ContextFar Hindsight Near Hindsight





PARADIGM BLINDSPOTS

Data Facts, observations, data points

Information Data with meaning

Knowledge Information with insight

Wisdom Knowledge with context

(Source: Based on Dr. Kanes Rajah: 2005)

Partial knowledge

Incorrect knowledge

False knowledge

No knowledge

BE

ING

Process

. . . The environment is far more powerful than any individual. It is never stable and in its sudden changes from one state to another, more important than the desires of any of us.. . . Context is everything . . . (Ramo: 2009: 160).

More than anything, what you want to know is when change is going to begin. In Chinese philosophy this sense is known as mastery of incipience, and the skill is often praised as the highest form of wisdom. (Ramo: 2009: 161).

Much of ancient Chinese philosophy suggested that truth emerged not through debate but rather through study, reflection, meditation, and, at long last, insight delivered like lightning. (Ramo, 2009: 212).

17 © BMI-BRSCU

NEW MORTGAGE LOANS AND READVANCES: 1979 – 2008www.strategicforum.co.za

Mortgages Outstanding and Total Credit extended to Private Sector; 1993-2008(Source: SARB, BMI-BRSCU Workings)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

R M

illi

on

s

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Per

cen

atag

e

All monetary institutions: Total credit extended to the private sector

Mortgage Advances

Mortgage Advances as Percentage of Total Credit

What is the Paradigm?Are Mortgages DEBT . . . . .Or are they INVESTMENTS?Perhaps a Paradigm Shift is required?

18 © BMI-BRSCU

New mortgage loans and readvances by month and application: 1993-2009 (September)(Source: SARB, BMI-BRSCU Workings)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1993

/01

1993

/07

1994

/01

1994

/07

1995

/01

1995

/07

1996

/01

1996

/07

1997

/01

1997

/07

1998

/01

1998

/07

1999

/01

1999

/07

2000

/01

2000

/07

2001

/01

2001

/07

2002

/01

2002

/07

2003

/01

2003

/07

2004

/01

2004

/07

2005

/01

2005

/07

2006

/01

2006

/07

2007

/01

2007

/07

2008

/01

2008

/07

2009

/01

2009

/07

R M

illi

on

s (C

urr

ent

Val

ues

)

New mortgage loans and re-advances applied on existing buildings

Gross new mortgage loans and re-advances for construction of buildings

Net new mortgage loans and re-advances applied on vacant land

12 per. Mov. Avg. (New mortgage loans and re-advances applied on existing buildings)

NEW MORTGAGE LOANS AND READVANCES: 01/1993 - 09/2009www.strategicforum.co.za

. . . all of this made banks respond in time-honoured fashion: by cracking down hard on those to whom they had been only too keen to lend in happier times. (Vince Cable: The Storm: 2009)

?

20 © BMI-BRSCU

New mortgage loans and readvances by month for Construction of Buildings: Jan 1993- Sept 2009(Source: SARB, BMI-BRSCU Workings)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1993

/01

1993

/07

1994

/01

1994

/07

1995

/01

1995

/07

1996

/01

1996

/07

1997

/01

1997

/07

1998

/01

1998

/07

1999

/01

1999

/07

2000

/01

2000

/07

2001

/01

2001

/07

2002

/01

2002

/07

2003

/01

2003

/07

2004

/01

2004

/07

2005

/01

2005

/07

2006

/01

2006

/07

2007

/01

2007

/07

2008

/01

2008

/07

2009

/01

2009

/07

R M

illi

on

s (C

urr

ent

Val

ues

)


12 per. Mov. Avg. (Gross new mortgage loans and re-advances for construction of buildings)

NEW MORTGAGE LOANS AND READVANCES: 01/1993 - 09/2009www.strategicforum.co.za

The decline in Mortgage Advances for New Construction was a bit slower initially and took a bit longer to take effect . . . .

21 © BMI-BRSCU

New mortgage loans and readvances by month for Vacant Land: Jan 1993- Sept 2009(Source: SARB, BMI-BRSCU Workings)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1993

/01

1993

/07

1994

/01

1994

/07

1995

/01

1995

/07

1996

/01

1996

/07

1997

/01

1997

/07

1998

/01

1998

/07

1999

/01

1999

/07

2000

/01

2000

/07

2001

/01

2001

/07

2002

/01

2002

/07

2003

/01

2003

/07

2004

/01

2004

/07

2005

/01

2005

/07

2006

/01

2006

/07

2007

/01

2007

/07

2008

/01

2008

/07

2009

/01

2009

/07

R M

illi

on

s (C

urr

ent

Val

ues

)


12 per. Mov. Avg. (Net new mortgage loans and re-advances applied on vacant land)

NEW MORTGAGE LOANS AND READVANCES: 01/1993 – 09/2009www.strategicforum.co.za

The decline in Mortgage Advances for Vacant Land was more catastrophic . . . . And can have UNINTENDED CONSEQUENCES

23 © BMI-BRSCU

New mortgage loans and readvances by month and application: 1993-2009 (September)(Source: SARB, BMI-BRSCU Workings)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1993

/01

1993

/07

1994

/01

1994

/07

1995

/01

1995

/07

1996

/01

1996

/07

1997

/01

1997

/07

1998

/01

1998

/07

1999

/01

1999

/07

2000

/01

2000

/07

2001

/01

2001

/07

2002

/01

2002

/07

2003

/01

2003

/07

2004

/01

2004

/07

2005

/01

2005

/07

2006

/01

2006

/07

2007

/01

2007

/07

2008

/01

2008

/07

2009

/01

2009

/07

R M

illi

on

s (C

urr

ent

Val

ues

)

New mortgage loans and re-advances applied on existing buildings



12 per. Mov. Avg. (New mortgage loans and re-advances applied on existing buildings)

NEW MORTGAGE LOANS AND READVANCES: 01/1993 – 09/2009www.strategicforum.co.za

The decline in Mortgage Advances for Existing Buildings took the knock . . . . And how long will it take to recover?

24 © BMI-BRSCU


Total Mortgage Loans and Readvances by application: 1979-2008(Source: SARB, BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

R M

illi

on

s (

Cu

rre

nt

Va

lue)

-100%

-50%

0%

50%

100%

150%

Gol

d bo

om

SA

SO

L II

SA

SO

L III

Aus

terit

y pa

ckag

e

Rub

icon

spe

ech

Deb

t sta

ndst

ill

Eco

nom

ic r

ecov

ery

Man

dela

's r

elea

se

Dem

ocra

tic E

lect

ion

Tra

nsiti

on to

Dem

ocra

cy

Cur

renc

y co

llaps

e

Wor

ld T

rade

Cen

tre

BN

G H

ousi

ng P

rogr

amm

e

Sub

Prim

e C

risis

Cre

dit C

runc

hDefining Events

Y/Y

Per

cen

atag

e C

han

ge

The decline in Total Mortgage Advances was a massive R140 Billion . . . .3 Times the size of annual New Residential Building Construction!

Did the Banks lose their appetite for

long-term “Debt”?

25 © BMI-BRSCU

New Mortgage Loans and Readvances granted by application: 1979-2008(Source: SARB, BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

R m

illi

on

s (

Cu

rre

nt

Va

lue

)

Construction of buildings On existing buildings On vacant land

Both New and Existing Houses compete for share of wallet.

How long will it take to return to 2007 levels?


26 © BMI-BRSCU

NEW MORTGAGE LOANS AND READVANCES: 2008 VS 2007www.strategicforum.co.za

Mortgage Loans and Readvances by Application: 2008 vs 2007: Current Values(Source: SARB; BMI-BRSCU Workings)

-60% -55% -50% -45% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5%

New mortgage loans and re-advances applied on existing

buildings

Gross new mortgage loansand re-advances for

construction of buildings

Net new mortgage loans andre-advances applied on vacant

land

New Mortgage laons andReadvances for TotalBuildings and Land

Mortgage Loans and Readvances -33.18%4.74%-58.14%-32.36%


buildings

Gross new mortgage loans and re-advances for


Net new mortgage loans and re-advances applied on

vacant land

New Mortgage laons and Readvances for Total Buildings and Land

27 © BMI-BRSCU

Mortgage Loans and Readvances by Application: YTD 2009 vs 2008 (Sept): Current Values(Source: SARB; BMI-BRSCU Workings)

-80% -75% -70% -65% -60% -55% -50% -45% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5%


buildings

Gross new mortgage loans andre-advances for construction of

buildings

Net new mortgage loans andre-advances applied on vacant

land

New Mortgage loans andReadvances for Total Buildings

and Land

Mortgage Loans and Readvances -41.31%-52.36%-74.06%-43.92%


buildings

Gross new mortgage loans and re-advances for


Net new mortgage loans and re-advances applied on vacant

land

New Mortgage loans and Readvances for Total Buildings

and Land

NEW MORTGAGE LOANS AND READVANCES: YTD 2009 VS 2008www.strategicforum.co.za

28 © BMI-BRSCU

THE PROPERTY BUBBLE 2008

29 © BMI-BRSCU

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)

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)


30 © BMI-BRSCU

Paradigm

Re-invention

Scop

e o

f ch

an

ge a

nd

S

cop

e o

f ch

an

ge a

nd

tr

an

sfo

rmati

on

tran

sfo

rmati

on

Critical mass of Investors

(Whole community)

Single Investor (Part of community)

Paradigm

Pioneer

Early adopter

Paradigm shift

LateAdopter

Bandwagon Flocking

Herd behaviourImpact of Change and

transformation

All Countries

(Whole World)

Single

Country

(Part of World)

THE LOCAL PROPERTY THE LOCAL PROPERTY MARKETMARKET

LIMITS TO LIMITS TO GROWTHGROWTH

PARADIGMS PARADIGMS CHALLENGEDCHALLENGED

ALTERNATIVE ALTERNATIVE INVESTMENTSINVESTMENTS

REINVENTIONREINVENTION A Structural A Structural

Change?Change? Self OrganisationSelf Organisation

Order for Free!Order for Free!Property a Property a

preferred preferred Investment!Investment!





THE GLOBAL THE GLOBAL PROPERTY PROPERTY

ENVIRONMEENVIRONMENTNT

DEMISEDEMISE THE THE

PROPERTY PROPERTY BUBBLE?BUBBLE?

THETHEEDGE OF CHAOSEDGE OF CHAOS

CREATIVITYCREATIVITYINNOVATIONINNOVATION

The current and known world The future, unknown


31 © BMI-BRSCU

Paradigm

Re-invention

Scop

e o

f ch

an

ge a

nd

S

cop

e o

f ch

an

ge a

nd

tr

an

sfo

rmati

on

tran

sfo

rmati

on

Critical mass of Investors

(Whole community)

Single Investor (Part of community)

Paradigm

Pioneer

Early adopter

Paradigm shift

LateAdopter

Bandwagon Flocking

Herd behaviourImpact of Change and

transformation

All Countries

(Whole World)

Single

Country

(Part of World)

THE LOCAL PROPERTY THE LOCAL PROPERTY MARKETMARKET

LIMITS TO LIMITS TO GROWTHGROWTH

PARADIGMS PARADIGMS CHALLENGEDCHALLENGED

ALTERNATIVE ALTERNATIVE INVESTMENTSINVESTMENTS









THE GLOBAL THE GLOBAL PROPERTY PROPERTY

ENVIRONMEENVIRONMENTNT

DEMISEDEMISE THE THE

PROPERTY PROPERTY BUBBLE?BUBBLE?

THETHEEDGE OF CHAOSEDGE OF CHAOS

CREATIVITYCREATIVITYINNOVATIONINNOVATION

The current and known world The future, unknown


Individual

BanksPublic

opinion

MinistryTreasury

IMFWorld Bank

Contagion

Many of the most serious threats we face today, from financial crises to terrorism, resemble nothing so much as epidemics: they start small, spread fast, and often breed at the intersection of things that look benign until combined (jet travel and fundamentalism, home mortgages and hedge funds).

Dealing with epidemics requires an unusually clear sighted way of thinking. Good epidemiologists are relentless about asking how and where such CONTAGIONS begin, what they involve, why they are spreading.

Public health officials will tell you the only way to control an epidemic is with a carefully orchestrated approach that works along many lines at once. Deep security is a strategy that makes this possible. (Ramo: 2009: 109)

32 © BMI-BRSCU

BPP & BC Residential Dwellings > 80 m2: 1993-2009 by month: m2 (Dec)(Source: StatsSA; BMI-BRSCU Workings)

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Sq

uar

e M

etre

s

BC RES DWELLINGS > 80 M2: M2 BPP RES DWELLINGS > 80 M2: M2

12 per. Mov. Avg. (BC RES DWELLINGS > 80 M2: M2) 12 per. Mov. Avg. (BPP RES DWELLINGS > 80 M2: M2)

BPP AND BC: DWELLINGS > 80 M2: 1993-2009: M2www.strategicforum.co.za

Downward trend in BC gradually turning below 300 000 m2 per month

Precipitous decline in BPP trend to a level below 300 000 m2 pm AND below BC. (A dangerous situation)

33 © BMI-BRSCU

BPP & BC Residential Flats and Townhouses: 1993-2009 by month: m2 (Dec)(Source: StatsSA; BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Sq

uar

e M

etre

s

BC FLATS AND TOWNHOUSES: M2 BPP FLATS AND TOWNHOUSES: M2

12 per. Mov. Avg. (BC FLATS AND TOWNHOUSES: M2) 12 per. Mov. Avg. (BPP FLATS AND TOWNHOUSES: M2)

BPP AND BC: FLATS AND TOWNHOUSES: 1993-2009: M2www.strategicforum.co.za

Trendline in BPP crossed below trendline in BC

BC Trendline heading towards 150 000 m2 per month

34 © BMI-BRSCU

BPP & BC Total Residential (Including A&A): 1993-2009 by month: m2 (Dec)(Source: StatsSA; BMI-BRSCU Workings)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500,000

1,600,000

1,700,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Sq

ua

re M

etr

es

BC TOTAL RESIDENTIAL: M2 BPP TOTAL RESIDENTIAL: M2

12 per. Mov. Avg. (BC TOTAL RESIDENTIAL: M2) 12 per. Mov. Avg. (BPP TOTAL RESIDENTIAL: M2)

BPP AND BC: TOTAL RESIDENTIAL: 1993-2009: M2www.strategicforum.co.za

Trend in Residential BPP still heading down . . . Following the precipitous decline of Mortgage Advances . . .

BC trend line trending DOWN below 800000

m2 per month

35 © BMI-BRSCU

Residential BPP and BC Cumulative YTD Percentage Change by Month: Jan 1994- Dec 2009M2*1000 (Source: StatsSA; BMI-BRSCU Workings)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Pe

rce

nta

ge

Ch

an

ge

Residential BPP Residential BC 12 per. Mov. Avg. (Residential BPP) 12 per. Mov. Avg. (Residential BC)

BPP AND BC: TOTAL RESIDENTIAL: 1993-2009: M2www.strategicforum.co.za

36 © BMI-BRSCU

BPP & BC Total Non Residential (Including A&A): 1993-2009 by month: m2 (Dec)(Source: StatsSA; BMI-BRSCU Workings)

0

100,000

200,000

300,000

400,000

500,000

600,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Sq

ua

re M

etr

es

BC TOTAL NON RESIDENTIAL: M2 BPP TOTAL NON RESIDENTIAL: M2

12 per. Mov. Avg. (BC TOTAL NON RESIDENTIAL: M2) 12 per. Mov. Avg. (BPP TOTAL NON RESIDENTIAL: M2)

BPP AND BC: TOTAL NON RESIDENTIAL: 1993-2009: M2www.strategicforum.co.za

Trend in Non Res BPP HEADING DOWN below 500 000 m2 pm . . . Slower decline - Maybe because they don’t need Mortgages ?

BC trendline LEVELLING at about 380 000 m2 per month

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BPP AND BC: TOTAL NON RESIDENTIAL: 1993-2009: M2www.strategicforum.co.za

Non Residential BPP and BC Cumulative YTD Percentage Change by Month: Jan 1994-Dec 2009M2*1000 (Source: StatsSA; BMI-BRSCU Workings)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Per

cen

tag

e ch

ang

e

Non Residential BPP Non Residential BC 12 per. Mov. Avg. (Non Residential BPP) 12 per. Mov. Avg. (Non Residential BC)

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BPP & BC Total Building (Including A&A): 1993-2009 by month: m2 (Dec)(Source: StatsSA; BMI-BRSCU Workings)

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500,000

1,600,000

1,700,000

1,800,000

1,900,000

2,000,000

2,100,000

2,200,000

1993

2000

2007

Sq

ua

re M

etr

es

BC TOTAL BUILDING: M2 BPP TOTAL BUILDING: M2

12 per. Mov. Avg. (BC TOTAL BUILDING: M2) 12 per. Mov. Avg. (BPP TOTAL BUILDING: M2)

BPP AND BC: TOTAL BUILDING: 1993-2009: M2www.strategicforum.co.za

Trend in Total BPP < 1 300 000 m2 pm and declining

BC trendline trending down to < 1 200 000 m2 per month

39 © BMI-BRSCU

BPP AND BC: TOTAL BUILDING: 1993-2009: M2www.strategicforum.co.za

Total BPP and BC Cumulative YTD Percentage Change by Month: Jan 1994-Dec 2009M2*1000 (Current Value) (Source: StatsSA; BMI-BRSCU Workings)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Pe

rce

nta

ge

ch

an

ge

Total BPP Total BC 12 per. Mov. Avg. (Total BPP) 12 per. Mov. Avg. (Total BC)

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STRATEGY IN COMPLEX SYSTEMS

The most marked feature of complex systems is a departure from the idea that our world can be reduced to simple models.

The real dynamics of the world make prediction nearly impossible and demand a different way of thinking.

They demolish poor Alan Greenspan’s hope that even forty years of experience is a reliable guide to the future (Ramo, 2009: 17).

To see the world this way, as a ceaselessly complex and adaptive system, requires a revolution. It involves changing the role we imagine

for ourselves, from architects of a system we can control and manage to gardeners in a living, shifting ecosystem. (Ramo:2009: 40)

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Look around to get a clearer picture of the dangers and possibilities that suddenly become visible, the unthinkable made thinkable.

Deep Security: This is a way of seeing, thinking and acting that takes the best ideas from the playbook of revolutionary forces and combines them with demands and responsibilities that our established power places on us.Gobal Immune System: Always ready, capable of dealing with the unexpected, as dynamic as the world itself. (Ramo, 2009: 18).


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Look Holistically instead of narrowly and focus on own resilience instead of everything that looks scary.

Augment the instinct for direct action with the incredible power of an indirect approach.

Resilience: Learning to think in deep security terms means largely abandoning our idea that we can deter the threats we face and, instead, pressing to make our societies more resilient so we can absorb whatever strikes us.

Resilience will be the defining concept of twenty-first century security, as crucial for your fast changing job as it is for the nation.

Resilience is a measure of how much disturbance a system can absorb before it breaks down so fundamentally that it can’t easily return to the way it once was. (Ramo, 2009: 172).


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Resilience:

Allows us to keep learning, to change. It’s a kind of battlefield

courage, the ability to innovate under fire because we’ve prepared in the right way and because we’ve developed the strength to keep moving even when we’re slapped by the unexpected.

In practice this means widening how we interact with the world – the better to learn new skills and make new connections – instead of narrowing to the fewest possible essential threats or policies.

“A management approach based on resilience would emphasise the need to keep options open.

Flowing from this would be not the presumption of sufficient knowledge, but the recognition of our ignorance; not the assumption that future events are expected, but that they will be

unexpected.” (Ramo, 2009: 172).


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Spreading power instead of hoarding it: When you spread power instead of hoarding it, you discover benefits that you couldn’t have imagined in advance – and that sometimes runs contrary to what you expected.

Military historians have studied the bewildering efficiency of armies that swarm like ants, highly decentralised groups that bend, adjust, and attack based on a far better sense of local conditions than any central commander could ever have.

This form of warfare flew in the face of centuries of command and control warfare theory . . .

Swarming: The classic immune-system response. It’s what happens when your blood clots after you slice your finger cutting cucumbers, and it’s what’s going on in your sinuses when you sneeze. (Ramo, 2009: 236).


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This kind of self-organisation, the ability to pull off an “all hands on deck” reaction, exists in many of the most efficient and resilient systems in our world.

This has been a marked feature of life in the information age, when e-mails, telephone calls, and text messages have diminished the effects of geography, put people in closer contact, and in the process, removed the need for much central command and control.

Take, for example, what economists call “peer production” which is the previously unimagined economic twitch for sharing work that has built Wiki-pedia, file-sharing systems like BitTorrent . . ., or “open source systems” like Ubuntu and Linux. (Ramo, 2009: 240).


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Once users step into active engagement, the dynamics of the system shift forever: users stop being consumers and become participants. This pushes the opportunity for innovation to the edges of a network, where users reside, instead of leaving it in the hands of some slow-moving, committee oriented, centralised manufacturing centre. (Ramo, 2009: 240).

What Jean Monnet, one of the most masterful strategists of the

last century, wrote in 1951 is true today: “World peace cannot be safe-guarded without the making of efforts proportionate to the dangers which threaten it.”

The more peers we can bring online for the business of saving the world, the easier the effort will be, and in a sense, the stronger we will each be. (Ramo: 2009: 240)


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One morning in July 2007, the investor Bill Browder woke up in his vacation house in the south of France. It was his habit to write a letter to investors in his $2 billion Hermitage fund once a month.

Hermitage was a fund that invested in one of the most unstable markets in the world – Russia – and Browder’s ups and downs there had made him a legend in the world of investing.

Browder’s investment model was to buy shares in the most corrupt, worst run Russian companies and then press them to change.

Working in Russia over the years had accustomed Browder to

the fact that markets could snap in ways that are largely unimaginable. (Ramo: 2009: 55)


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In that summer of 2007 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 began stockpiling cash, reducing his exposure to stocks as much as he could, and moving his investor’s money into any safe haven he could find. (Ramo: 2009: 56,57)


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Errol Kruger saw the crash coming early. Back in July 2005, when our Banks were enjoying big profits, Kruger called up the CEO’s of the five major Institutions – ABSA, Nedbank, Standard Bank, FirstRand and Investec – and cautioned he will be “pulling the handbrake” on expansions and acquisitions. To him, the economy was showing early signs of overheating . . . And he warned that SA’s financial institutions were at stage 7 of the banking cycle and not stage 4 as they thought.“I didn’t want to be a pessimist, But I told them I could see a crisis coming, and they should expect a tougher stance, and increased activities from my office that are appropriate to stage 7 – activities which they might think are extremely bureaucratic.”

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STRATEGY IN COMPLEX SYSTEMS: ECONOMY

Demand and Supply Equilibrium

COINCIDE WITH ECONOMICDOWNSWING


11111111

12121212COMMODITIESCOMMODITIES

CASHCASH

BONDSPROPERTYBONDSPROPERTY

EQUITIESPROPERTYEQUITIESPROPERTYEQUITIESEQUITIES

BONDSBONDS

COINCIDE WITH ECONOMICUPSWING


(Based on the Barings Liquidity Model : The Economist : 19 Nov. 1994)

What did we see in July 2007?

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11111111


CASHCASH



BONDSBONDS




What did we see in July 2007?With borrowers starting to default on housing debts in the US, bond markets there and in Europe are trembling. More bad news about

sub-prime mortgages could create global panic and our bond market would be affected. (Business Day, 6 July 2007)

Which leaves us with the least sexy asset class of all —

cash. But boy, isn’t it a comfy thought right now? It gives consistent returns, albeit small ones, and we can anticipate fairly accurately interest rates with Reserve Bank governor Tito Mboweni, controlling the reins. (Business Day, 6 July 2007)

“Why didn’t we all see the crisis coming? Seemingly the Banks did.”


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11111111


CASHCASH



BONDSBONDS




What did we see in July 2007?

Why were we all taken so completely by surprise?

(July 2007)


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WHEN TO HOLD

6

9 3

12

GROWTH MARKET

Saturated MarketFunding Available

Increasing Dividends

Increasing Absorption

Rent ConcessionExcess Funding

Tightened Funding

Reduced Funding

RECESSION

RECOVERY DECLINE

(July 2007)

EQUITIES PROPERTY

COMMODITIES

CASH

BONDS PROPERTY

“. . . the failure of collective imagination of many bright people”.

What the economists lacked was the imagination to see that it could all explode into a crisis. They preferred to believe that trends would continue . . .

“The signs were there. Did we ACT rapidly enough?”

But it wasn’t just a failure of imagination. It was a failure of courage. It takes a brave soul to foresee the worst, and go out and warn people. . . .

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The Fact that science explains so little demands constant radicalism, the sort of creative imagining that has inspired great scientific leaps throughout history. (Ramo: 2009: 62)

Queen Elizabeth put the greatest minds in the land on the spot recently. Touring the London School of Economics (LSE), she asked: “Why did nobody see the crisis coming?”

The assembled professors were stumped. Not one of them could come up with an answer.

After the Queen returned to Buckingham Palace, the professors put their heads together and penned a letter to Her Majesty explaining that it was “the failure of collective imagination of many bright people”. We are not told what the queen thought of this explanation. But it certainly did not satisfy her subjects, for whom her question hit a big nail smack on the head. Why were we all taken so completely by surprise? What did imagination have to do with it?

Actually, the economists’ response was not that far off the mark. The reality is that many people knew and understood what was going on in the financial markets two or three years ago. They could see the upward spiral of asset prices, the miss-pricing of risk, the greed that was driving through bad deals, and the opacity of a system barely anyone could understand.


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This is all well documented in official reports on the state of the financial world at the time. What the economists lacked was the imagination to see that it could all explode into a crisis. They preferred to believe that trends would continue, that somehow the world would muddle through, a very human failing but one that economists should be trained to resist.

But it wasn’t just a failure of imagination. It was a failure of courage. It takes a brave soul to foresee the worst, and go out and warn people. The risk of making a fool of yourself is high, and reputation is everything in the world of economic forecasting.

The inclusion of the phrase “collective imagination” in the professors’ letter is also revealing. It implies that they were all in it together, forming a consensus, reinforcing each others’ failure to use their imaginations. This is rather depressing because it narrows the scope for independence, for flashes of genius, for the great insights of free thinkers.

What all this tells us is that psychology plays a key part in economics. It is not just a matter of analysing numbers but of training the mind to overcome the horror of what they might be telling you, and extract the true message, even if it deviates totally from the past and from economic theory. (David Lascelles, Senior Fellow of the Centre for the Study of Financial Innovation in London, and a former banking editor of the Financial Times)


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11111111

12121212

COMMODITIESCOMMODITIES

CASHCASH



BONDSBONDS




January 2010

What do we see in Jan 2010?

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WHEN TO HOLD

6

9 3

12

BOOM MARKET

Saturated MarketFunding Available

Increasing Dividends


Rent ConcessionExcess Funding

Tightened Funding

Reduced Funding

RECESSION

RECOVERY DECLINE

CASH

BONDS PROPERTY

EQUITIES PROPERTY

COMMODITIES


January 2010

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Severe

Glo

bal R

ecessio

nS

evere

Glo

bal R

ecessio

n

Scenario: Long FreezeScenario: Long Freeze• Recession lasts more than 5 years, as in Recession lasts more than 5 years, as in Japan in 1990’sJapan in 1990’s• Ineffective regulatory, fiscal and monetary Ineffective regulatory, fiscal and monetary policypolicy• All geographies stagnateAll geographies stagnate• Defensive leverage ratios, with restrictive Defensive leverage ratios, with restrictive credit flows and trading in illiquid marketscredit flows and trading in illiquid markets• Significant government involvement in Significant government involvement in allocation of creditallocation of credit• Very slow recovery of trade and capital Very slow recovery of trade and capital flowsflows• Globalisation goes into reverseGlobalisation goes into reverse• Attitudes become much more defensive and Attitudes become much more defensive and nationalisticnationalistic

Scenario: Stalled GlobalisationScenario: Stalled Globalisation• Moderate recession of 1 to 2 years followed Moderate recession of 1 to 2 years followed by slow economic growthby slow economic growth• Regulatory regime holds system together Regulatory regime holds system together but with significant drag on economy (eg. but with significant drag on economy (eg. Higher cost of intermediation)Higher cost of intermediation)• Overly safe leverage ratiosOverly safe leverage ratios• Significant government involvement in Significant government involvement in allocation of creditallocation of credit• Significantly higher cost of capitalthan Significantly higher cost of capitalthan before the crisesbefore the crises• Globalisation stallsGlobalisation stalls• Attitudes become more defensive and Attitudes become more defensive and nationalisticnationalistic

Scenarios: Hard, Harder, Hardest, Scenarios: Hard, Harder, Hardest, UNTHINKABLEUNTHINKABLE Times Times

Scenario: Regenerated global Scenario: Regenerated global momentummomentum• Moderate recession of 3 to 4 quartersModerate recession of 3 to 4 quarters, , followed by strong economic growthfollowed by strong economic growth• New effective regulatory regimeNew effective regulatory regime• Safe leverage ratios reached, leading to Safe leverage ratios reached, leading to rapid expansion of trading and lending rapid expansion of trading and lending volumesvolumes• Cost of capital recovers to historic levelsCost of capital recovers to historic levels• Trade and capital flows recover quicklyTrade and capital flows recover quickly• Globalisation stays on course, developed Globalisation stays on course, developed and emerging economies remain linkedand emerging economies remain linked• Attitudes rebound, become positiveAttitudes rebound, become positive

Scenario: Battered but ResilientScenario: Battered but Resilient• Prolonged recession of 18 months or moreProlonged recession of 18 months or more• New effective regulatory regimeNew effective regulatory regime• Recovery generated by effective fiscal, Recovery generated by effective fiscal, monetary policies led by selected geographies monetary policies led by selected geographies (eg. China, Middle East, United States)(eg. China, Middle East, United States)• Safe leverage ratios reached, leading to Safe leverage ratios reached, leading to slow resumption of trading and lending slow resumption of trading and lending volumevolume• Moderate recovery of trade and capital Moderate recovery of trade and capital flowsflows• Globalisation gradually gets back on courseGlobalisation gradually gets back on course• Attitudes slowly reboundAttitudes slowly rebound

Global credit and Capital markets reopen and recoverGlobal credit and Capital markets reopen and recover

mod

era

te G

lob

al R

ecessio

nm

od

era

te G

lob

al R

ecessio

n

(Source: The three Keys to success in uncertain times: Business Flexibility, Awarenes and Resilience: www.gibsreview.co.za)(Source: The three Keys to success in uncertain times: Business Flexibility, Awarenes and Resilience: www.gibsreview.co.za)

Global credit and Capital markets close down and remain Global credit and Capital markets close down and remain volatilevolatile


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Low Low High HighPOWERPOWER

INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

h

Hig

h

PLAYERSPLAYERSDemand creatorsDemand creatorsFuture orientedFuture orientedProactiveProactiveInnovativeInnovativeEntrepreneurialEntrepreneurialRisk TakersRisk Takers

RESERVESRESERVESDemand RespondersDemand RespondersCurrent orientationCurrent orientationReactiveReactiveResponsiveResponsiveService orientedService orientedRisk ManagersRisk Managers

ONLOOKERSONLOOKERSDemand observersDemand observersPast orientationPast orientationPassivePassiveRisk AvoidersRisk Avoiders

REFEREESREFEREESDemand FacilitatorsDemand FacilitatorsCurrent orientationCurrent orientationReactiveReactiveResponsiveResponsiveMediatingMediatingGatekeepersGatekeepersRisk AverseRisk Averse

BYSTANDERS ACTORSBYSTANDERS ACTORS

STRATEGY IN COMPLEX SYSTEMSBuilding Industry Stakeholder AnalysisBuilding Industry Stakeholder Analysis

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LEV

EL O

F I

NTER

ES

T (

STA

KE)

LEV

EL O

F I

NTER

ES

T (

STA

KE)

UN

AFEC

TED

UN

AFEC

TED

STA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh

PLAYERSPLAYERSCommittedCommittedIn the KnowIn the Know

RESERVESRESERVESInvolvedInvolvedKeep InformedKeep Informed

CROWDCROWDInterestedInterestedMinimal EffortMinimal Effort

REFEREESREFEREESConcernedConcernedKeep SatisfiedKeep Satisfied



62 © BMI-BRSCU

INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh



PLAYERSPLAYERSProperty Entrepreneurs, Property Entrepreneurs, developers, developers, Public Sector,Public Sector,FINANCIAL FINANCIAL INSTITUTIONSINSTITUTIONS(Mortgage Origination, (Mortgage Origination, Approval, Approval, Advances)Advances)

RESERVESRESERVESArchitects, Specifiers,Architects, Specifiers,Manufacturers, Manufacturers, Distributors,Distributors,Contractors,Contractors,FINANCIAL FINANCIAL INSTITUTIONSINSTITUTIONSDeposits, Repayments, Deposits, Repayments, Insurance) Insurance) CROWDCROWDLabour, Labour, Unions,Unions,Consumer bodies,Consumer bodies,FINANCIAL FINANCIAL INSTITUTIONSINSTITUTIONS(Property Values, Property (Property Values, Property reports (HPI), Statistics)reports (HPI), Statistics)

REFEREESREFEREESGovt Prov-, Local-Govt Prov-, Local-Authorities, CIDB, NHBRC, Authorities, CIDB, NHBRC, SABS, Agrement Board, SABS, Agrement Board, MBA’S, SARB, State MBA’S, SARB, State Tender Board,Tender Board,FINANCIAL FINANCIAL INSTITUTIONS INSTITUTIONS (Valuations, LTV ratios, (Valuations, LTV ratios, Mortgage Rate, term, Mortgage Rate, term, Affordability)Affordability)


Financial Institutions have INORDINATE Power and Interest. They play in all the quadrants of the Stakeholder Matrix and are SIMULTANEOUSLY PLAYERS, RESERVES, REFEREES and CROWD.They make the rules of the game and influence every facet of it.

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How can we create an environment that gives us the leverage to influence the Banks?“Are we making the same

mistake again, not to see a crisis in the making?”

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Relationships and tools that can be used to manipulate a crisis have to be prepared for years – sometimes decades – in advance.

This reflects (Holling’s) belief that in a changing eco system the persistence of relationships matters more than anything else.

That’s a reason that the re-acquiring of habits of international cooperation in everything from food aid to nuclear energy is so essential.

It lets us begin to rebuild the webs of contacts, influence, and leverage to shape the environment around problems that we’ll never be able to attack directly. (Ramo: 2009: 214)

65 © BMI-BRSCU

Building Industry Stakeholder AnalysisBuilding Industry Stakeholder Analysis


INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh

PLAYERSPLAYERSProperty Entrepreneurs, Property Entrepreneurs, Property developers,Property developers,Public Sector,Public Sector,Building IndustryBuilding Industry

RESERVESRESERVESArchitects, Specifiers,Architects, Specifiers,Manufacturers, Manufacturers, Distributors,Distributors,Contractors, Financial Contractors, Financial Institutions,Institutions,Building IndustryBuilding Industry

CROWDCROWDLabour, Labour, Unions,Unions,Consumer bodies,Consumer bodies,Building IndustryBuilding Industry

REFEREESREFEREESGovt, Provincial, Local-Govt, Provincial, Local-AuthoritiesAuthoritiesCIDB, NHBRC, SABS, CIDB, NHBRC, SABS, Agrement Board, MBA’S,Agrement Board, MBA’S,SARB, State SARB, State Tender Tender Board,Board,Building IndustryBuilding Industry


Think “outside the box”. Change the “rules of the game”.Become a PRO-ACTIVE PLAYER in each of the quadrants of the Stakeholder Matrix.


How can we create an environment that gives us the leverage to influence the Banks?

66 © BMI-BRSCU

Building Industry Stakeholder AnalysisBuilding Industry Stakeholder Analysis


INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh

PLAYERSPLAYERSProperty Entrepreneurs, Property Entrepreneurs, Property developers,Property developers,Building IndustryBuilding Industry(Mortgage Origination, (Mortgage Origination, Approval, Advances)Approval, Advances)

RESERVESRESERVESArchitects, Specifiers,Architects, Specifiers,Manufacturers, Manufacturers, Distributors, Financial Distributors, Financial Institutions.Institutions.Building IndustryBuilding Industry(Contractors, Deposits, (Contractors, Deposits, Repayments, Insurance)Repayments, Insurance) CROWDCROWDLabour, Labour, Unions,Unions,Consumer bodies,Consumer bodies,Building IndustryBuilding Industry(Property Values, Property (Property Values, Property reports (HPI), Statistics)reports (HPI), Statistics)

REFEREESREFEREESGovt, Prov-, Local-Govt, Prov-, Local-AuthoritiesAuthoritiesCIDB, NHBRC, SABS, CIDB, NHBRC, SABS, Agrement Board, MBA’S,Agrement Board, MBA’S,SARB, State Tender SARB, State Tender Board,Board,Building IndustryBuilding Industry (Valuations, LTV ratios, (Valuations, LTV ratios, Mortgage Rate, term, Mortgage Rate, term, Affordability, Quality)Affordability, Quality)



Develop an Igniting Vision and a Grand Strategy: Promote Building as the engine for growth, nation building and wealth creation through Property Ownership.

Develop an Igniting Vision and a Grand Strategy: Promote Building as the engine for growth, nation building and wealth creation through Property Ownership.

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Productive capacity

Alliances,Joint

Ventures

Cross functional

Networking

Enterprise Development,

BEE

Skills Training and Developmen

t

Leadership,Lobbying,Advocacy

Modeling cooperative behaviour

REINVENTION

The Hot Spot Scenario: mapping emergence(Based on Gratton: 2007: 145)

Building: The Engine for Growth and Wealth Creation. Property a preferred investment

Management Training and Development

BUSINESS

Government Labour


68 © BMI-BRSCU

Productive capacity

Alliances,Joint

Ventures

Cross functional

Networking

Enterprise Development,

BEE

Skills Training and Developmen

t

Leadership,Lobbying,Advocacy

Modeling cooperative behaviour

REINVENTION

The Hot Spot Scenario: mapping emergence(Based on Gratton: 2007: 145)

Building: The Engine for Growth and Wealth Creation. Property a preferred investment

Management Training and Development

BUSINESS

Government Labour

Who in the building and property industry is driving a vision of any description? Is there even a vision at all?

Who will appropriate the role to champion the cause to promote nation-building through home-ownership, property as a preferred investment and building as an engine for growth and wealth-creation? And WHO WILL ADVOCATE THE HOPES AND DREAMS of millions of homeowners (and that of an industry that employs over one million people)?

STRATEGY IN COMPLEX SYSTEMSThe more peers we can bring online for the business of saving the world, the easier the effort will be, and in a sense, the stronger we will each be. (Ramo: 2009: 240)

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We have concluded that it is not one single body or institution or company that should develop and drive an igniting vision for the building industry.

The industry COLLECTIVELY must take ACCOUNTABILITY to develop an igniting vision of Nation Building through Home Ownership, Property as a Preferred Investment and Building as an Engine for Growth and Wealth Creation.

We envision that every major organisation in the Building Industry from Development to Manufacturing, to Distribution, to Contracting and Finance should adopt this overarching vision and customise it for their

own vision (see example of Claybrick.org overleaf).

Then the Building and Property Industry will indeed become a HOT SPOT industry driven by an igniting vision, a collaborative mind-set, cross boundary networking and the productive capability to make South Africa a Winning Nation. Then a repetition of the sub-prime crisis will not catch a cooperating industry unawares.


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NATIONAL ISSUES

GROWTH WEALTHEMPLOYMENT PROPERTY

CLAYBRICK.ORG’S ROLE

INVESTMENT ENVIRONMENT

MARKETING LOGISTICS

VISIONBuilding is the engine for growth and wealth creation through Property Ownership and Clay brick is the preferred Partner for good as the green walling solution of choice.

MANUFACTURING

CLAYBRICK FOR GOOD

MISSIONDeveloping and growing competitive awareness, knowledge and support of burnt clay masonry and maintaining consistent standards in the environmentally friendly production of clay brick for good value and performance in building.

INCREASED MARKET SHARE

REINVENTION

INCREASED MARKET SHARE

REINVENTION

NARROW FOCUS ON

CLAY STOCKBRICK

NARROW FOCUS ON

CLAY STOCKBRICK

BROAD FOCUS ON NATIONAL

ISSUES

BROAD FOCUS ON NATIONAL

ISSUESVALUESCB has an igniting vision, a culture, or mind set of co-operation, collaboration and cross-boundary networking; and a production capability to facilitate delivery of fit for purpose products and solutions and based on the ethical values and code of conduct of:• Respect• Responsibility• Honesty• Integrity• Accountability• Collaboration

Overarching vision aligned with National Issues, adapted and customised by Claybrick.org for their own vision and values.


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STRATEGY IN COMPLEX SYSTEMS: RESIDENTIAL

UNDERSUPPLYDemand exceeds supplyPrices increaseBuyer resistance developsMarket tightens

OVERSUPPLYSupply exceeds demandCompetition increasesPrices moderateMarket loosens

RECESSIONReduced Funding Less construction

Tightened Funding

OverbuildingRent ConcessionSaturated Market

DECLINE

RECOVERY Increasing rents Stabilising rents


BOOM MARKET Funding Available

Increasing constructionExcess funding

Legend:AH - Affordable HousingDH<80 – Dwelling Houses < 80 m2DH>80 – Dwelling Houses > 80 m2F&TH – Flats & TownhousesA&A – Additions & Alterations

AH

F&TH

DH>80

DH<80

AA

Demand and Supply EquilibriumRESRES

11111111

12121212

72 © BMI-BRSCU

6

9 3

12

BOOM MARKET

Saturated Market

Increasing Construction

Funding Available

Increasing Rents

Stablizing Rents


Overbuilding

Rent Concession

Excess Funding

Tightened Funding

Less Construction

Reduced Funding

RECESSION

RECOVERY DECLINEDH<80

DH>80

F&TH

AH

AA


RESRES

73 © BMI-BRSCU

House Price Trends: Nominal and Real: Jan 2000-Dec 2009Houses of 80-400 m2, up to R3,1 Million(Source: ABSA, BMI-BRSCU Workings)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

31-J

an-2

000

30-A

pr-2

000

31-J

ul-2

000

31-O

ct-2

000

31-J

an-2

001

30-A

pr-2

001

31-J

ul-2

001

31-O

ct-2

001

31-J

an-2

002

30-A

pr-2

002

31-J

ul-2

002

31-O

ct-2

002

31-J

an-2

003

30-A

pr-2

003

31-J

ul-2

003

31-O

ct-2

003

31-J

an-2

004

30-A

pr-2

004

31-J

ul-2

004

31-O

ct-2

004

31-J

an-2

005

30-A

pr-2

005

31-J

ul-2

005

31-O

ct-2

005

31-J

an-2

006

30-A

pr-2

006

31-J

ul-2

006

31-O

ct-2

006

31-J

an-2

007

30-A

pr-2

007

31-J

ul-2

007

31-O

ct-2

007

31-J

an-2

008

30-A

pr-2

008

31-J

ul-2

008

31-O

ct-2

008

31-J

an-2

009

30-A

pr-2

009

31-J

ul-2

009

31-O

ct-2

009

Ran

d

Nominal House Prices Real House Prices (2000 Prices)


74 © BMI-BRSCU

Absa House Price Index Houses of 80-400m², up to R3,1 million(Source: ABSA, BMI-BRSCU Workings)

-15

-10

-5

0

5

10

15

20

25

30

35

40

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

%

Nominal y/y % change Real y/y % change


75 © BMI-BRSCU

UNDERSUPPLYDemand exceeds supplyPrices increaseBuyer resistance developsMarket tightens

OVERSUPPLYSupply exceeds demandCompetition increasesPrices moderateMarket loosens


OfficesShops

IWH

PNR

RECESSIONReduced Funding Less construction

Tightened Funding

OverbuildingRent ConcessionSaturated Market

DECLINE

RECOVERY Increasing rents Stabilising rents


What do we see in Jan 2010?

STRATEGY IN COMPLEX SYSTEMS: NON RES

NON RESNON RES

11111111

12121212

Funding AvailableIncreasing construction

Excess fundingGROWTH MARKET

76 © BMI-BRSCU

6

9 3

12

BOOM MARKET

Saturated Market

Increasing Construction

Funding Available

Increasing Rents

Stablizing Rents


Overbuilding

Rent Concession

Excess Funding

Tightened Funding

Less Construction

Reduced Funding

RECESSION

RECOVERY

Offices

Shops

I&WH

Public NR

DECLINE

STRATEGY IN COMPLEX SYSTEMS: NON RES

77 © BMI-BRSCU

STRATEGY IN COMPLEX SYSTEMS: BUILDING

INVESTMENT IN BUILDING: 2009-2011: R MILLION (CONSTANT 2008 PRICES)

2008 2009 2010 2011PRIVATE RESIDENTIAL R*Million R*Million Change (%) R Million Change (%) R Million Change (%)

Dwelling-houses < 80 m2 3,802 2,976 -9.76% 2,942 -1.11% 3,471 17.98% Dwelling-houses > 80 m2 22,683 17,752 -9.76% 17,555 -1.11% 20,711 17.98% Townhouses & Flats 16,121 11,515 -12.54% 12,667 10.00% 15,200 20.00% Other (Incl. hotels & casinos) 806 1,152 -5.66% 921 -20.00% 921 0.00% Additions & alterations 10,824 11,976 4.94% 10,824 -9.62% 10,364 -4.26%PUBLIC RESIDENTIAL Affordable Housing 14106 9998 -4.38% 11,916 19.19% 13,381 12.29% Public authorities. 7,139 7,139 2.72% 6,909 -3.23% 6,679 -3.33% Public corporations 138 69 7.14% 92 33.33% 115 25.00%TOTAL RESIDENTIAL 75621 62,576 -5.53% 63,827 2.00% 70,842 10.99%PRIVATE NON-RESIDENTIAL Offices 9,212 10,364 7.58% 8,694 -16.11% 8,291 -4.64% Shops 9,097 9,212 0.43% 8,636 -6.25% 8,406 -2.67% Industrial & warehouse 9,097 10,364 -0.64% 9,212 -11.11% 8,636 -6.25% Other 1,382 1,612 -3.71% 1,497 -7.14% 1,520 1.54% Additions & Alterations 9,212 10,364 -5.58% 9,212 -11.11% 8,636 -6.25%PUBLIC NON-RESIDENTIAL Public Authorities 19,576 20,727 0.36% 20,497 -1.11% 18,424 -10.11% Public Corporations 5,067 4,376 15.78% 4,030 -7.89% 4,261 5.71%TOTAL NON RESIDENTIAL 62,643 67019 1.05% 61,779 -7.82% 58,175 -5.83% Unrecorded Res Adds and Alts 27,239 30,137 4.94% 27,239 -9.62% 26,080 -4.26% Unrecorded Non Res Adds and Alts 9,817 11,044 -5.58% 9,817 -11.11% 9,203 -6.25%GRAND TOTAL 175,319 170776 -1.27% 162,662 -4.75% 164,300 1.01%

78 © BMI-BRSCU

INVESTMENT IN BUILDING: 2009-2011: M2*10002008 2009 2010 2011

PRIVATE RESIDENTIAL M2*1000 M2*1000 Change (%) M2*1000 Change (%) M2*1000 Change (%) Dwelling-houses < 80 m2 1,631 1,471 -9.76% 1,455 -1.11% 1,717 17.98% Dwelling-houses > 80 m2 5,628 5,079 -9.76% 5,023 -1.11% 5,926 17.98% Townhouses & Flats 3,403 2,976 -12.54% 3,274 10.00% 3,929 20.00% Other (Incl. hotels & casinos) 298 281 -5.66% 225 -20.00% 225 0.00% Additions & alterations 3,450 3,620 4.94% 3,272 -9.62% 3,133 -4.26%PUBLIC RESIDENTIAL Public authorities. 5171 4944 -4.38% 5,893 19.19% 6,617 12.29% Public authorities. 3437 3531 2.72% 3,417 -3.23% 3,303 -3.33% Public corporations 32 34 7.14% 46 33.33% 57 25.00%TOTAL RESIDENTIAL 23049 21,937 -4.83% 22,603 3.04% 24,905 10.18%PRIVATE NON-RESIDENTIAL Offices 2,172 2,336 7.58% 1,960 -16.11% 1,869 -4.64% Shops 2,271 2,281 0.43% 2,138 -6.25% 2,081 -2.67% Industrial & warehouse 3,524 3,501 -0.64% 3,112 -11.11% 2,917 -6.25% Other 452 435 -3.71% 404 -7.14% 410 1.54% Additions & Alterations 2,726 2,573 -5.58% 2,287 -11.11% 2,145 -6.25%PUBLIC NON-RESIDENTIAL Public Authorities 5,506 5,525 0.36% 5,464 -1.11% 4,911 -10.11% Public Corporations 1,007 1,166 15.78% 1,074 -7.89% 1,136 5.71%TOTAL NON RESIDENTIAL 17,657 17818 0.91% 16,440 -7.74% 15,470 -5.90% Unrecorded Res Adds and Alts 8,681 9,110 4.94% 8,234 -9.62% 7,884 -4.26% Unrecorded Non Res Adds and Alts 2,904 2,742 -5.58% 2,438 -11.11% 2,285 -6.25%GRAND TOTAL 52,291 51,607 -1.31% 49,715 -3.67% 50,544 1.67%


79 © BMI-BRSCU


The market for major Building Product Groups by value: 2008 (Source: BMI-BRSCU)

6.23%

1.92%

7.53%

1.80%

1.91%

8.92%

15.84%

6.29%

10.84%

2.26%

1.62%

2.41%

1.09%

2.83%

1.84%

0.43%

3.86%

4.63%

0.85%

0.40%

6.11%

9.49%

0.91%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Roofing and Vertical Cladding

Ceilings and Partitioning

Walling

Paving

Wall Tiles

Flooring

Cement

Aggregate and Sand

Reinforcing Steel and Sections

Sanware

Taps, Mixers and Fittings

Plumbing Pipes and Fittings

Geysers

Glass and Mirrors

Doors

Garage Doors

Frames

Roof Trusses

Windowsills, Fasciaboards and Bargeboards

Rainwater Goods

Decorative Paint

Flatboard (PB, MDF, Other)**

Insulation

Total value of major Building Product Groups = R84,29 Billion in 2008.

Major Building Product Groups account for 47,18% of Total Building and

Construction Materials and 28,31% of Total Investment in Building and Construction.

80 © BMI-BRSCU


DEMAND FOR MAJOR BUILDING PRODUCT GROUPS BY TYPE OF RES AND NON RES BUILDING: 2008 (R MILLION)

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%

PRIVATE RESIDENTIAL

- Dwelling Houses < 80m2

- Dwelling houses > 80m2

- Townhouses and Flats

- Other (Including Hotels)

- Additions and Alterations

Sub-total

PUBLIC RESIDENTIAL

- Affordable Housing

- Public Authorities

- Public Corporations

Sub-total

- Unrecorded Res Additions and Alterations (EQ UNITS)

TOTAL RESIDENTIAL

BUILDING TYPE : NON RESIDENTIAL

- Offices

- Shops (Commercial)

- Industrial

- Other (Including Casinos)

- Recorded Additions and Alterations

TOTAL PRIVATE NON RESIDENTIAL SEGMENT

- Unrecorded Non Res Additions and Alterations

TOTAL PUBLIC NON RESIDENTIAL SEGMENT

TOTAL NON RESIDENTIAL SECTOR

81 © BMI-BRSCU




R131 947 MILL

CONTRACTOR (50,8%)


R61 921 MIO



R59 971 MIO

LABOUR (40%)

R121 892 MIO

LABOUR (40%)

R121 892 MIO





R181 634 MIO


R108 980 MILLION


R108 980 MILLION


R18 163 MILLION


R45 408 MILLION


R45 408 MILLION


R9 081 MILLION


R9 081 MILLION

SPECIALIST SHOP(5%)

R9 081 MILLION

SPECIALIST SHOP(5%)

R9 081 MILLION


R27 245 MILLION


R27 245 MILLION


R12 775 MILLION


R67 019 MILLION


R41 181 MILLION

* 2008 Prices** Residential and Non Residential


R62 576 MILLION

CURRENT REALITY OF BUILDING & CONSTRUCTION: CURRENT REALITY OF BUILDING & CONSTRUCTION: 2009*2009*


82 © BMI-BRSCU




R152 480 MILL

CONTRACTOR (50,8%)


R61 921 MIO



R59 971 MIO

LABOUR (40%)

R121 083 MIO

LABOUR (40%)

R121 083 MIO





R181 625 MIO


R108 975 MILLION


R108 975 MILLION


R18 163 MILLION


R45 406 MILLION


R45 406 MILLION


R9 081 MILLION


R9 081 MILLION

SPECIALIST SHOP(5%)

R9 081 MILLION

SPECIALIST SHOP(5%)

R9 081 MILLION


R27 243 MILLION


R27 243 MILLION


R12 775 MILLION


R61 330 MILLION


R41 181 MILLION

** 2009 Prices** Residential and Non Residential


R47 717 MILLION

CURRENT REALITY OF BUILDING & CONSTRUCTION: CURRENT REALITY OF BUILDING & CONSTRUCTION: 2009**2009**


83 © BMI-BRSCU

The Major GAMEBREAKING POTENTIAL lie in the following areas:

An igniting vision of nation-building through home-ownership, property as a preferred investment and building as an engine for growth and wealth-creation;

Interest Rates falling further by 2-3 percentage points;

The Banks relaxing their stringent lending criteria and promoting Home Ownership as an Engine for Growth and Wealth Creation;

Return of Investor Confidence, Banks first and then Consumers;

Property a preferred Investment. (Source: BMI-BRSCU)


84 © BMI-BRSCU


The Major GAMEBREAKING POTENTIAL lie in the following areas:

An igniting vision of nation-building through home-ownership, property as a preferred investment and building as an engine for growth and wealth-creation;

Interest Rates falling further by 2-3 percentage points;

The Banks relaxing their stringent lending criteria and promoting Home Ownership as an Engine for Growth and Wealth Creation;

Return of Investor Confidence, Banks first and then Consumers;

Property a preferred Investment. (Source: BMI-BRSCU)

Retail Motor Industry chief executive Jeff Osborne is calling on South Africa’s banks to open the credit taps and on government to play its role by reducing the prime interest rate by a meaningful 2 percent.

The umbrella body is the lead voice in the automotive industry, the largest manufacturing sector in the SA economy. With 7250 members, the RMI is also the major employer representative of the Motor Industry Bargaining Council. (Bus. Report, 26 November 2009)

“. . . They (the Banks) do hold the key to economic recovery and to the survival of small businesses. Although we are seeing the return of some stability in the market, there will be no real recovery until stable consumers can access credit.” (Bus. Report, 26 November 2009)

85 © BMI-BRSCU

The Major GAMEBREAKING POTENTIAL lie in the following areas: In order to achieve this a collaborative culture is required based on trust and cross boundary networking and dynamic Public, Private Sector Partnerships that can deliver on Infrastructure, Housing, Health, Education, Safety and Security et al and make South Africa a Winning Nation and a World model of Nation Building and Reconciliation. (Source: BMI-BRSCU)


86 © BMI-BRSCU

Investment ClimateInvestment Climate

The STRATEGIC FORUMSTRATEGIC FORUM ScenariosFOR THE BUILDING INDUSTRY: 2008-2020

BOUYANT GROWTH> 5 % PA

GDFI > 25 % OF GDP

SUBSIDIES3 - 5 % OF BUDGET

AVERAGE GROWTH 2 - 5 % PA

GDFI 20 - 25 %OF GDP


LOW GROWTH0 - 2 % PA

GDFI 15 - 20 %OF GDP


NEGATIVE GROWTH< 0 % PA

GDFI < 15 %OF GDP

SUBSIDIES< 1 % OF BUDGET

NO

CO

NF

IDE

NC

E

L

OW

A

VE

RA

GE

HIG

H C

ON

FID

EN

CE

Ris

k A

vo

ida

nc

e

Ris

k A

ve

rsio

n

Ris

k T

ole

ran

ce

R

isk

Ta

kin

g

PROPERTY A POOR INVESTMENT / AVERAGE / GOOD / A PREFERRED INVESTMENTParadigm Regression Paradigm Paralysis Paradigm Shift Paradigm Reinvention

HIGH ROAD HIGH ROAD COLUMBUS SCENARIOCOLUMBUS SCENARIO

Property a PREFERRED InvestmentHome Ownership PREFERRED

BUOYANT GROWTHBacklogs eliminated by 2015

UPPER MIDDLE ROAD UPPER MIDDLE ROAD APOLLO SCENARIOAPOLLO SCENARIO

Property a GOOD InvestmentHome Ownership DESIRED

AVERAGE GROWTH Erosion of Backlogs

LOWER MIDDLE ROADLOWER MIDDLE ROAD SOYUZ SCENARIOSOYUZ SCENARIO

Property an AVERAGE InvestmentHome Ownership QUESTIONED

LOW GROWTHKeeping pace with Population

LOW ROAD LOW ROAD CHALLENGER SCENARIOCHALLENGER SCENARIO

Property a POOR InvestmentHome Ownership AVOIDED

NEGATIVE GROWTHIncreasing BACKLOGS

Inve

sto

r C

on

fid

ence

Inve

sto

r C

on

fid

ence

MAKING SENSE OF THE FUTUREwww.strategicforum.co.za

Trends in the Building Industry are inextricably responsive to, and influenced by INVESTMENT

CLIMATE, INVESTOR CONFIDENCE and PROPERTY DELIVERY.

Trends in the Building Industry are inextricably responsive to, and influenced by INVESTMENT

CLIMATE, INVESTOR CONFIDENCE and PROPERTY DELIVERY.

Property

delivery

Property

delivery

87 © BMI-BRSCU

THE STRATEGIC FORUM: EARLY SIGNS OF CHANGEwww.strategicforum.co.za

MFA COMPOSITE LEADING INDICATOR FOR THE SOUTH AFRICAN BUILDING INDUSTRY

0

10

20

30

40

50

60

70

80

90

100

| 70 | 71 | 72 | 73 | 74 | 75 | 76 | 77 | 78 | 79 | 80 | 81 | 82 | 83 | 84 | 85 | 86 | 87 | 88 | 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | 20 | 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | 10 |

Source: FNB / BER; SARB; MFA DATABASE

PE

SS

IMIS

M <

50

> O

PT

IMIS

M

OPTIMISM

PESSIMISM

88 © BMI-BRSCU


89 © BMI-BRSCU


90 © BMI-BRSCU


91 © BMI-BRSCU

TRANSFER DUTY PAID ANNUAL PERCENTAGE CHANGE in REAL TERMS

-60

-40

-20

0

20

40

60

80

| 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | 20 | 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | 10 |

Source: DEEDS OFFICE; TREASURY; SARB; MFA DATABASE

AN

NU

AL

PE

RC

EN

TA

GE

CH

AN

GE

DEMOCRATIC ELECTIONS

ASIAN FINANCIALCRISIS

THE SHADED AREAS REPRESENT THE UPSWING PHASES OF THE BUSINESS CYCLE

ARROWS HIGHLIGHT CYCLICAL LEAD TIMES

ThresholdsSharplyReduced

GLOBAL CRISIS

NCA

Observe the recurring pattern in the cyclical leading indicator of the residential property market …


92 © BMI-BRSCU

Declin

eD

eclin

e

Property a POOR InvestmentProperty a POOR Investment• Industry has no leadership, no vision, muddles along;Industry has no leadership, no vision, muddles along;• Competition fierce, no cooperation;Competition fierce, no cooperation;• Industry operates in SILOS, adversarial and Industry operates in SILOS, adversarial and confrontational;confrontational;• Confidence very low;Confidence very low;• Private Sector Investment < 50%% of Total Private Sector Investment < 50%% of Total Investment in Building; Investment in Building; • CPI > 12%;CPI > 12%;• Real Interest Rates > 10%;Real Interest Rates > 10%;• Building Industry growth negative;Building Industry growth negative;• Construction Industry growth negative;Construction Industry growth negative;• FTHB Subsidies < 1% of Budget;FTHB Subsidies < 1% of Budget;• Infrastructure spend inadequate;Infrastructure spend inadequate;• GFCF < 15% of GDP;GFCF < 15% of GDP;• Investment in Building and Construction < 25% of Investment in Building and Construction < 25% of GFCFGFCF

Property a GOOD InvestmentProperty a GOOD Investment• Industry has good leadership, some vision, well Industry has good leadership, some vision, well intended;intended;• Confidence fairly low;Confidence fairly low;• Private Sector Investment 60-75% of Total Inv in Private Sector Investment 60-75% of Total Inv in Bldng; Bldng; • CPI > 6% < 10%;CPI > 6% < 10%;• Real Interest Rates > 5% < 7,5%;Real Interest Rates > 5% < 7,5%;• Building Industry growth 3,5% - 6,5%;Building Industry growth 3,5% - 6,5%;• Construction Industry growth 5% - 7,5%;Construction Industry growth 5% - 7,5%;• FTHB Subsidies < 2,5% of Budget;FTHB Subsidies < 2,5% of Budget;• Infrastructure spend R500 - R780 Billion by 2015;Infrastructure spend R500 - R780 Billion by 2015;• GFCF 20% - 25% of GDP;GFCF 20% - 25% of GDP;• Investment in Building and Construction 25% - 50% Investment in Building and Construction 25% - 50% of GFCFof GFCF

Scenarios: Property Preferred, Good, Average, Poor Scenarios: Property Preferred, Good, Average, Poor Investment Investment

Property PREFERRED InvestmentProperty PREFERRED Investment• Industry has strong leadership and an igniting vision; Industry has strong leadership and an igniting vision; • High Confidence;High Confidence;• Private Sector Investment 75-80% of Total Private Sector Investment 75-80% of Total Investment in Building; Investment in Building; • CPI in 3-6% range;CPI in 3-6% range;• Credit readily available;Credit readily available;• Real Interest Rates < 5%;Real Interest Rates < 5%;• Building Industry growth > 6,5% pa;Building Industry growth > 6,5% pa;• Construction Industry growth > 7,5% pa;Construction Industry growth > 7,5% pa;• FTHB Subsidies 2,5-5% of Budget (R350 Billion by FTHB Subsidies 2,5-5% of Budget (R350 Billion by 2020);2020);• Infrastructure spend of R780 Billion pa by 2015;Infrastructure spend of R780 Billion pa by 2015;• GFCF > 25% of GDP;GFCF > 25% of GDP;• Investment in Building and Construction > 50% of Investment in Building and Construction > 50% of GFCFGFCF

Property an AVERAGE InvestmentProperty an AVERAGE Investment• Industry has mediocre leadership, lacks vision;Industry has mediocre leadership, lacks vision;• Confidence low;Confidence low;• Private Sector Investment 50% - 60% of Total Private Sector Investment 50% - 60% of Total Investment in Building; Investment in Building; • CPI 10% - 12%;CPI 10% - 12%;• Real Interest Rates 7,5% - 10%;Real Interest Rates 7,5% - 10%;• Building Industry growth < 3,5%;Building Industry growth < 3,5%;• Construction Industry growth < 5%;Construction Industry growth < 5%;• FTHB Subsidies 1% - 2,5% of Budget;FTHB Subsidies 1% - 2,5% of Budget;• Infrastructure spend R300 – R500 Billion by 2015;Infrastructure spend R300 – R500 Billion by 2015;• GFCF 15% - 20% of GDP;GFCF 15% - 20% of GDP;• Investment in Building & Construction 15% - 25% of Investment in Building & Construction 15% - 25% of GFCFGFCF

Credit and Capital markets openCredit and Capital markets open

Gro

wth

Gro

wth

(Source: The three Keys to success in uncertain times: Business Flexibility, Awarenes and Resilience: www.gibsreview.co.za)(Source: The three Keys to success in uncertain times: Business Flexibility, Awarenes and Resilience: www.gibsreview.co.za)

Credit and Capital markets closedCredit and Capital markets closed


93 © BMI-BRSCU

Total Mortgage Advances: 2002 - 2008The Strategic Forum Scenarios: 2009-2020(Source: SARB; MFA DATABASE, BMI-BRSCU Workings)

4576

62

2986

51

2500

00

3000

00 3300

00

3900

00 4300

00

4900

00

4000

00

3500

00 3900

00

4500

00

5000

00

5200

00

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

750,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

R M

illi

on

s (C

on

stan

t 20

08 V

alu

es)

New York Scenario: 2008-2020

London Scenario: 2008-2020

Sao Paolo Scenario: 2008-2020

Harari Scenario: 2008-2020

Sao Paolo Scenario:2002-2020

Sao Paolo Scenariois Current

Most likely future Scenario


94 © BMI-BRSCU

Total Mortgage Advances: 2002 - 2008The Strategic Forum Scenarios: 2009-2020(Source: SARB; MFA DATABASE, BMI-BRSCU Workings)

4576

62

2986

51

2500

00

3000

00 3300

00

3900

00 4300

00

4900

00

4000

00

3500

00 3900

00

4500

00

5000

00

5200

00

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

750,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

R M

illi

on

s (C

on

stan

t 20

08 V

alu

es)

New York Scenario: 2008-2020

London Scenario: 2008-2020

Sao Paolo Scenario: 2008-2020

Harari Scenario: 2008-2020

Sao Paolo Scenario:2002-2020

Sao Paolo Scenariois Current

Most likely future Scenario

Mortgage Advances MAY return to 2006 levels by 2020. . .

But . . . Do we see signs that the Banks have LOST their appetite for Mortgage Loans?

In July 2007 Browder’s Hermitage Fund recognised an auction of debt from leveraged buy-out deals that failed to draw enough bidders for what it was: a sign that the world had run out of the ability to absorb new debt. (Ramo: 2009: 55)


95 © BMI-BRSCU

It has been reported that SA Banks could be short as much as R600 Billion in liquid assets to restore ratios to their required levels in terms of the December Basel 2 consultative documents.

For SA Banks the liquidity proposals could result in weaker asset growth and a shift away from longer-dated, lower margin business such as mortgages.

“A push to increase retail savings relative to assets implies slower asset growth or a shift towards greater incentives for retail savings,” says an industry source. (FM, 12 February 2010: Risk and Rewards: 37)


96 © BMI-BRSCU

Once a system tumbles off a ledge and goes catastrophically bad, it is very hard to return it to its earlier state; usually it is impossible.

Scientists call this “hysteresis” which comes from the Greek word hysterien, which means “to be late” – as in, once a system cascades like this it is too late to do anything about it.

What happened to the US investment banking business in the summer of 2008 was a cascade of this sort. None of those firms, packed with money though they were, had nearly enough resilience to bend under the force of the sudden – if self-inflicted – financial shock they received.

The snapped ruler remained snapped forever. (Ramo: 2009: 172)


97 © BMI-BRSCU

Total Mortgages Outstanding: 1994-2008Lower Middle Road Scenario: 2009-2020

(Source: SARB, MFA, BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

R M

illio

ns

(C

on

sta

nt

20

08

Va

lue

s)

Total Mortgages Outstanding Total Assets Mortgaged


98 © BMI-BRSCU

Total Mortgages Outstanding: 1994-2008Lower Middle Road Scenario: 2009-2020

(Source: SARB, MFA, BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

R M

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(C

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20

08

Va

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Total Mortgages Outstanding Total Assets Mortgaged

Banks will no doubt survive (too big to fail?) .. . . But . . . Will Homeownership for the average citizen?Will Property as a preferred Investment?Will the Building Industry?Will society ACCEPT THEIR FATE TO BE RENTERS WHILE THE RICH AND PRIVILEGED ARE THE LANDED GENTRY?Will NON DELIVERY lead to UNINTENDED CONSEQUENCES . . . TOO UNTHINKABLE TO CONTEMPLATE?


99 © BMI-BRSCU

INVESTMENT IN BUILDING 1946-2008: R MILLIONSLOWER MIDDLE ROAD SCENARIO: 2010-2020(source: SARB, StatsSA, MFA, BMI-BRSCU Workings)

y = 26562e0.024x

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1946

1947

1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

R M

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S (

2008

VA

LU

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-20%

-15%

-10%

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DEFINING EVENTS

1984 PEAK LEVEL


100 © BMI-BRSCU

INVESTMENT IN CONSTRUCTION: 1946-2008LOWER MIDDLE ROAD SCENARIO: 2009-2020(Source: SARB, MFA, BMI0BRSCU Workings)

y = 19259e0.0247x

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Fre

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20%

30%

40%

50%

1946

1947

1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

DEFINING EVENTS

1980 PEAK LEVEL


101 © BMI-BRSCU

SECTOR AND SEGMENT AVE Weight 1993-2008 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2009-2020 Average

PRIVATE RESIDENTIAL Dwelling-houses < 80 m2 7.31 2243 2406 2694 3688 3911 3927 3297 2976 2942 3471 3802 4133 4298 3967 3687 3491 3538 3832 4090 44,228 3,686 Dwelling-houses > 80 m2 43.62 13379 14355 16071 22002 23334 23427 19671 17752 17555 20711 22683 24655 25642 23669 22269 20767 20725 22099 23213 261,738 21,812 Townhouses & Flats 23.58 4710 6918 8498 12846 14585 13703 13167 11515 12667 15200 16121 17273 18424 17273 13640 13004 13269 14467 15539 178,393 14,866 Other (Incl. hotels & casinos) 2.43 1437 944 1409 617 716 983 1221 1152 921 921 806 864 921 864 530 500 505 546 581 9,111 759 Additions & alterations 23.07 6430 6824 7485 12227 12494 12559 11412 11976 10824 10364 10824 11515 12667 11515 12846 12254 12511 13648 14668 145,611 12,134

Sub-Total 100.00 28199 31448 36158 51381 55041 54598 48767 45370 44909 50667 54237 58440 61952 57288 52972 50016 50548 54591 58090 639080 53,2570

PUBLIC RESIDENTIAL 0 Affordable Housing 7826 7759 7471 6633 8448 9443 10456 9998 11916 13381 14106 14970 16121 16697 15437 14151 14579 14794 15008 171,158 14,263 Public authorities. 0.97 6202 6382 5677 3673 4258 4519 6951 7139 6909 6679 7139 8291 8406 9097 8411 7890 8008 8531 8988 95,490 7,957 Public corporations 0.03 60 25 23 7 5 12 64 69 92 115 138 207 161 127 117 110 112 119 125 1,492 124

0Sub-Total 1.00 14088 14166 13171 10313 12711 13973 17471 17206 18917 20175 21384 23468 24689 25921 23966 22150 22699 23444 24121 268,140 22,345

0TOTAL RESIDENTIAL: 2002-2007 AND SOYUZ SCENARIO: 2008-2015 42286 45614 49329 61694 67751 68571 66238 62576 63827 70842 75621 81908 86641 83209 76937 72166 73247 78036 82211 907,220 75,602

Growth 7.87% 8.14% 25.07% 9.82% 1.21% -3.40% -5.53% 2.00% 10.99% 6.75% 8.31% 5.78% -3.96% -7.54% -6.20% 1.50% 6.54% 5.35% 31.38%PRIVATE NON-RESIDENTIAL Offices 20.05 4311 3283 3210 4265 5242 7333 9634 10364 8694 8291 9212 9673 9903 10364 8773 7740 7266 7171 7098 104,549 8,712 Shops 20.04 3019 4004 5834 6022 7312 7676 9173 9212 8636 8406 9097 10133 11515 12667 11405 10999 11302 12233 13310 128,917 10,743 Industrial & warehouse 25.29 5373 4554 6373 7529 9111 11801 10431 10364 9212 8636 9097 9673 11515 13818 12283 11610 11706 12444 13310 133,668 11,139 Other 7.56 2697 2351 1789 1304 1584 2061 1674 1612 1497 1520 1382 1497 1497 1727 1426 1222 1110 1055 998 16,543 1,379 Additions & Alterations 27.06 7655 6990 7301 5972 7220 9323 10976 10364 9212 8636 9212 9903 10364 11515 9980 9166 8981 9280 9649 116,263 9,689

0Sub-Total 100.00 23056 21183 24507 25092 30469 38194 41888 41916 37252 35490 38000 40879 44794 50091 43867 40738 40365 42183 44365 499,941 41,662

PUBLIC NON-RESIDENTIAL Public Authorities 0.82 10320 14009 14806 12286 17529 18355 20654 20727 20497 18424 19576 20727 20912 21073 18935 17465 17188 17839 18632 231,996 19,333 Public Corporations 0.18 2494 2411 1985 2062 1087 2457 3779 4376 4030 4261 5067 5758 6909 7370 6653 6297 6357 6766 7246 71,089 5,924

Sub-Total 1.00 12814 16421 16792 14348 18616 20813 24433 25103 24527 22685 24643 26485 27821 28443 25588 23762 23545 24605 25878 303,085 25,2570

TOTAL NON-RESIDENTIAL: 2002-2007 AND SOYUZ SCENARIO: 2008-2015 35870 37603 41298 39440 49085 59006 66321 67019 61779 58175 62643 67364 72615 78534 69455 64500 63910 66788 70243 803026 66,919Growth 4.83% 9.83% -4.50% 24.46% 20.21% 12.40% 1.05% -7.82% -5.83% 7.68% 7.54% 7.79% 8.15%

TOTAL INVESTMENT IN BUILDINGS: 2002-2007 AND SOYUZ SCENARIO: 2008-202010000.00% 78156 83218 90627 101134 116836 127577 132559 129595 125606 129017 138264 149272 159256 161743 146392 136667 137156 144824 152454 1710246 142,520

Growth 6.48% 8.90% 11.59% 15.53% 9.19% 3.90% -2.24% -3.08% 2.72% 7.17% 7.96% 6.69% 1.56% -9.49% -6.64% 0.36% 5.59% 5.27% 17.64%Investment in Residential and Non Residential Unrecorded Additions and Alterations: 2002 - 2006 and Soyuz Scenario: 2007 - 2015 (2006 Values)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2009-2020 Average Residential Unrecorded Additions and Alterations 16181 17172 18836 30769 31441 31603 28717 30137 27239 26080 27239 28978 31876 28978 24595 22865 23135 24328 25340 320,790 26,733Non Residential Unrecorded Additions and Alterations 8158 7448 7780 6364 7694 9934 11696 11044 9817 9203 9817 10553 11044 12271 10634 9767 9570 9889 10282 123,890 10,324TOTAL Unrecorded Additions and Alterations: 2002-2006 and Soyuz Scenario: 2007-201524339 24621 26615 37132 39135 41538 40413 41181 37056 35283 37056 39531 42919 41249 35230 32633 32705 34217 35622 444,681 37,057

Growth 1.16% 8.10% 39.52% 5.39% 6.14% -2.71% 1.90% -10.02% -4.78% 5.02% 6.68% 8.57% -3.89% -14.59% -7.37% 0.22% 4.62% 4.11% -13.50%Investment in Construction by Sector : 2002 - 2007 and Freeway Scenario by Sector : 2008 - 2015 (2007 Values)SECTOR AND SEGMENT Weights 2008 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2009-2020 Average Roads Streets, Bridges etc 0.27 8386 9444 10177 11914 16613 25120 33067 36285 33612 34524 38989 41717 43542 38468 34286 31285 31469 33899 35963 434,041 36,170 Waterworks 0.09 3721 4042 4307 5001 6568 8541 11230 11875 11224 11310 11697 13666 13750 12939 11746 10920 11196 12297 13306 145,926 12,161 Sewerage 0.05 1850 1989 2141 2454 3245 5024 5615 6267 5546 5357 5848 6833 6493 5595 5079 4722 4841 5318 5754 67,655 5,638 Other Construction Works 0.25 12769 16983 18428 19478 20645 26125 31196 32327 30611 30953 35090 35963 39723 37769 34286 31876 32679 35894 38840 416,009 34,667 Private Sector 0.35 15219 16654 17540 18764 23174 35671 43674 45192 39050 36905 38339 45673 49272 45112 41588 39254 40849 45532 49988 516,754 43,063TOTAL INVESTMENT IN CONSTRUCTION: 2002-2007 AND FREEWAY SCENARIO: 2008-20201.00 41945 49112 52592 57610 70245 100482 124782 131947 120042 119050 129963 143852 152781 139883 126986 118058 121034 132939 143852 1,580,386 131,699

Growth 17.09% 7.09% 9.54% 21.93% 43.04% 24.18% 5.74% -9.02% -0.83% 9.17% 10.69% 6.21% -8.44% -9.22% -7.03% 2.52% 9.84% 8.21% 9.02%TOTAL INVESTMENT IN BUILDING AND CONSTRUCTION: 2002-2007 AND SOYUZ AND FREEWAY SCENARIOS: 2008-2015144440 156950 169835 195876 226216 269597 297754 302722 282704 283350 305282 332655 354956 342875 308608 287357 290895 311980 331928 3735312 311,276Growth 8.66% 8.21% 15.33% 15.49% 19.18% 10.44% 1.67% -6.61% 0.23% 7.74% 8.97% 6.70% -3.40% -9.99% -6.89% 1.23% 7.25% 6.39% 9.65%* Including Unrecorded Additions and Alterations

INVESTMENT IN BUILDINGS, 2002 TO 2008 (Calendar Years): RAND MILLIONS (At Constant 2008 Prices). Basic data: SARB, Stats SA, MFA DATABASE. (Revised April 2008): LOWER MIDDLE ROAD SOYUZ SCENARIO: 2009-2020


102 © BMI-BRSCU

It is hoped that business leaders will also find their voices to speak out boldly. In this regard, the recent comments by Dr Johann Rupert to the Anton Rupert memorial lecture, was enlightening.

“I’ve kept my word to Mamphela Ramphele, who said that whites should start speaking out a little bit without having the fear of being branded racists.”

Quoting from his own experience he went on to say that even “Big Business with Government” meetings were orchestrated “powerpoint exchanges”. It was not frank dialogue.

“And whenever any of us wanted to speak out our fellow businessmen made sure that we were kept quiet. So even the business leaders were very reluctant to criticise, preferring the lobbying route.” (Business Times, 26 October 2008).

TIPPING POINT LEADERSHIPwww.strategicforum.co.za

103 © BMI-BRSCU


104 © BMI-BRSCU


Ramphele said it was astounding that SA’s business sector had remained largely silent, even on failures that directly affected it.

This included the system of 23 sectoral education and training authorities (Setas), funded by a levy of 1% of payroll for businesses with an annual turnover of more than R500 000, that was “clearly not working”. (Business Day, 3 December 2008)

The Setas, the labour department’s near-destruction of SA’s working apprenticeship system and SA’s further education and training (FET) colleges were producing “unemployable” graduates. This was because there was not enough synergy between the college curricula and industry needs.

“The private sector is too scared to upset (the government) ... but its silence is creating the seeds of social instability. Our people can’t read, write, or be usefully engaged,” she said. (Business Day, 3 December 2008)

105 © BMI-BRSCU


“We need more civil society mobilisation. We can’t let people lie to us about what they are going to do with our taxes, and keep on voting for them.”

What SA required was strong leadership of the enabling kind, instead of the traditional authoritarian kind, Ramphele said. The country’s leadership needed to create a milieu in which South Africans could commit to tackling the country’s dilemmas collaboratively. (Business Day, 3 December 2008)

(Other) conundrums included how to develop a professional, performance-based, civil service; how to create an inclusive society while redressing lingering historical imbalances; and how to deal with the “huge” unintended consequences of some of the government’s “very good” policies.

These policies included black economic empowerment (BEE), and the mass dismissal of white professionals from the civil service, particularly the country’s engineers. (Business Day, 3 December 2008)

106 © BMI-BRSCU

Having made sense of the future of the Building Industry System in

The Age of the Unthinkable

We Take a Stand and Declare the Possibilityof an igniting Industry Vision of nation building through homeownership, property as a preferred investment and

building as an engine for growth and wealth creation.

Leaders make the impossible happen!

THE STRATEGIC FORUMwww.strategicforum.co.za

BMI




Reg. No. 2002/105109/23

•BMI




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