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 Hard times ahead, but also great opportunities

 

 Business owners who steered their enterprises through the financial crash that started in 2008 may experience a familiar dread when they look at the storm clouds gathering on the 2016 business horizon. It is going to be a big one, says Nazeem Martin, Managing Director of Business Partners Limited (BUSINESS/PARTNERS).

But those survivors also know that during an economic downturn a surprising number of opportunities present themselves to businesses that are well prepared and carefully managed – and that storms do pass eventually, even those as bad as the one that seems to be building up.

A number of factors point towards the possibility that 2016 may be at least as rough for business owners as 2008 and 2009, and perhaps more so, says Martin. Like then, the South African economy is at the mercy of adverse global economic forces. Growth in China is at a 25-year low, and with it the prices of commodities. Europe is still struggling to recover from the last crash, and is sorely tested by the worst refugee crises since the Second World War. Even positive developments seem to conspire against us: the recovery of the US economy is pushing up interest rates there, pulling investments away from emerging markets such as ours.

At home, South Africa’s worst drought in a century is bound to ignite high food inflation, which will be intensified by the fall in the rand. Unlike the 2008 crash, we have no growth spur such as hosting the Soccer World Cup to look forward to, and the state has no more fiscal reserves to spend in order to boost the economy.

2016 is also an election year, which makes governing politicians nervous of losing votes. They “go into hibernation”, stop making policy decisions and focus on electioneering. In all democracies, this tends to put a damper on any policy response that a government may try to boost the economy, such as softening the labour laws.

Labour volatility is likely to continue this year with the rise of non-Cosatu unions in the mining sector and the break-away of the metal-worker union Numsa from Cosatu. The continued rise in inequality won’t help, and will drive wider social upheaval such as the student protests against high university fees.

Add to all of this South Africa’s propensity to score own goals – think load shedding and finance minister shedding – and it starts to look as if 2016 will rival the great recession of 2008.

For almost all owner-managed businesses on the ground, these grim conditions essentially mean that their clients will have less money to spend, says Martin. Those that service households will find their clients’ disposable income knocked by inflation, stagnant wages and rising interest rates. Businesses in corporate supply chains will feel the effect of shrinking budgets as corporations cut costs and put growth plans on the back burner. The same goes for businesses that service government – budgets are being revised and the chances of the long-awaited infrastructure build plans by government rolling out this year are remote.

Across the board, competition among businesses will increase as they chase a shrinking amount of disposable income. Pressure from staff for increased wages to cope with food inflation will add to the discomfort, and input costs generally are likely to rise.

What are businesses to do in such conditions? Martin proposes a set of four survival tactics.

The first is preparation and planning. Now is the time to review costs and fine-tune your efficiency and productivity. Plans should include more than one scenario, and drawing your staff into these exercises will help to manage their expectations.

Second, cash flow management becomes supremely important. Businesses with weak debtor management systems and leaky budgets will probably not survive.

Third, delight your clients with improved service. Increased competition in the coming months means they will be tempted to move to other suppliers.

The fourth survival method, and by no means the least, is not to lose sight of the inevitable business opportunities that downturns bring. Some of the most enduring businesses in the world were born during recessions, says Martin. Even the terrible drought South Africa is experiencing has an upside for some businesses, such as those selling water-saving devices. Tunnel farmers who produce food under controlled conditions have a great market to look forward to in the coming year, for example.

Many businesses that remain standing will experience an increase in the number of enquiries from potential customers who had previously used the services of competitors who succumbed to the downturn. Martin warns that such opportunities should be handled carefully, with long-term growth in mind. Business that exploit such a windfall opportunistically with heavy prices and shoddy service, will find that their clients leave in droves as soon as the good times return.

And return they will, says Martin. Meanwhile, South Africa remains a land of opportunity for the entrepreneurially minded. “We have enough going for us. We have the people, we have the skills, and we have enough entrepreneurs to tide us over,” he says.

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