The falling Rand, together with the worst drought in a century as well as adverse global economic forces mean that South African businesses have their work cut out for them in 2016. It being an election year won’t help matters much as it “results in the focus of government shifting from policy decision-making to electioneering.”
For the majority of owner-managed businesses on the ground, these grim conditions essentially mean that their clients will have less money to spend. Those businesses 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.
Competition among businesses across the board 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 in general are likely to rise.
It’s not all doom and gloom, however! There are still opportunities that businesses who are “well prepared and carefully managed” can take advantage of:
Here are 5 survival tactics for overcoming difficult conditions.
1. Keep your eye on the inevitable business opportunities that downturns bring:
Some of the most enduring businesses in the world were born during recessions. 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.
2. Preparation and planning:
Now is the time to review costs and fine-tune efficiency and productivity. Plans should include more than one scenario, and staff should be drawn into these exercises as this will help manage expectations.
3. Cash-flow management:
This is supremely important. Businesses with weak debtor management systems and leaky budgets will probably not survive.
4. Improve your service:
Increased competition in the coming months means businesses will be tempted to move to other suppliers
5. Join TFS Holdings on the 30th March for our 2016 Business Survival Workshop
Corporate action despite the weak economy.
A weak economy does not mean the lack of significant deals in the corporate landscape. In fact, mergers, acquisitions and joint ventures might be a way to cope with the tough environment. The stage is set for the takeover of SABMiller by Anheuser-Busch InBev to play itself out in South Africa. But the direction of investment is likely to flow outwards in 2016 as local companies and funds intensify their efforts to seek opportunities abroad.
Macroeconomic stability in doubt; The National Budget will be a tightrope performance of balancing prudence with competing demands for limited resources. As the Rand experiences one of its most volatile years in recent history, it is expected that the Reserve Bank will maintain its stance of leaving the value of the currency to be determined by market forces. However, the central bank will respond to the inflationary effects of the weak Rand through interest rate hikes.