Rough Waters! Are You Ready?

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South Africa is entering interesting economic times. Although the Minister of Finance is desperately keen to avoid talk of a recession, there are definite signs that the waters will be turbulent, very turbulent in 2016. It’s clear that in the coming months some businesses will sink, and others will flounder and lose their way; but which are those that are rigged to race ahead in this kind of storm? Lets explore the possibilities.

Let’s paint a picture of the times ahead. The economic winds are easy to spot – the Rand/Dollar exchange is the most obvious, having dropped so dramatically over the past six months. This will impact all facets of the economy including food and petrol prices, the cost of imports, and the cost of borrowing. In the long term, our weak Rand will affect inflation, and this will result in structural changes to our import-dependent economy, as consumers and business are forced to find ways to deal with increased costs of imports.

The unrest from communities expressing their frustration with non-delivery of Government services also looks set to escalate. Unrest around municipal elections and students seeking solutions for fee reductions and/or no-fee Universities is also slated to increase. Strikes, worker disagreements, and an increasing sense of ‘them and us’ highlights the lack of understanding between communities and business.

Increases in incidents of racism and racially-based anger also seem likely to rise, because unfortunately people tend to dive to the lowest level when under pressure.

Banks will remain under pressure to lend, but increasingly will only do so when their risk is minimal, so small businesses will really struggle to access finance. As the economy slows, the instances of banks recalling overdraft facilities is also likely to increase, putting frantic pressure on businesses that lack cash reserves. Tumultuous climate effects such as droughts, floods and storms will add to insurance costs, and will change the way we address such risks in our daily business and personal lives.

So given all these negative indicators, is it all doom and gloom for entrepreneurs? Should we just pack it in now? Absolutely not! The upside – and there is always an upside – is that the exchange rate makes export and import-substitution businesses very attractive right now. Entrepreneurs and flexible businesses are already mobilising resources to identify export opportunities, and expanding operations to take advantage of the favourable rate.

New opportunities include in-bound tourism, export of goods and services, and local manufacturing to replace imports, which is very exciting and positive for local job creation. Large-scale projects such as local manufacture of solar panels, that seemed unrealistic a few months ago, now look increasingly attractive.

The drought is resulting in a rapid increase in the demand for water, energy and waste/recycling solutions, many of which are ideal opportunities for smaller businesses. In addition, the upside of community upheaval is that Government is increasingly keen to solve these wide-scale challenges, so construction in the public sector is likely to rise.

Whilst no one knows the exact nature of the future, despite many challenges there is certainly considerable opportunity ahead. In ‘The Weak Rand’ John Demartini writes on the matter: “The current economic crisis is forcing South Africans out of their comfort zones, and this is also a blessing in disguise. The very challenges that come from being outside of their comfort zones can make them re-engage with a more meaningful life and look for high priority solutions.”

Will you be a courageous sailor and identify how to use these strong winds to sail ahead of the storm and enter new markets? Or will you take a more conservative approach, and put quickly into harbour where you can protect your assets, reduce costs and try and wait for the storm to pass? The choice is yours…

Text by Cathy Wijnberg, CEO of Fetola
Image by John Hishin