South African entrepreneurs that managed to steer their enterprises through the financial crash that began in 2008 may well be experiencing a familiar dread when they look at the storm clouds gathering on the 2016 business horizon.
This is according to Nazeem Martin, managing director of risk finance firm Business Partners, who says there are a number of factors pointing towards the possibility 2016 may be as tough for business owners as 2008 and 2009 were.
“Similar to the situation in 2008, the South African economy is at the mercy of adverse global economic forces,” Martin said.
“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 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.”
Locally, Martin said South Africa’s worst drought in a century was 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,” he said.
With 2016 also being an election year, challenges are multiplied as this results in the focus of government shifting from policy decision-making to 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,” Martin said.
Essentially, these grim conditions mean a startup’s 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,” Martin said.
“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,” he said.
Martin, however, stresses that during an economic downturn a surprising number of opportunities present themselves to businesses that are well prepared and carefully managed.
“Many businesses that remain standing during this period 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,” he said.
Such opportunities should be handled carefully and with long-term growth in mind.
“Businesses that exploit such a windfall opportunistically with heavy prices and poor service, will find that their clients leave in droves as soon as the good times return,” Martin said.
Business owners should remain positive and practice their survival tactics as the ‘good times’ will return, he said.
“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 during this storm.
