Faltering economy puts your business at risk

Over the last few weeks, this writer has seen more and more headlines of the type that should send shivers up and down the spines of South Africa’s financial and risk advice professionals. For two examples, consider the Daily Maverick’s ‘Capitec CEO warns consumers to live within their means as credit impairments climb by 80%’; and Fin24.com’s ‘Home loan clients taking strain as average instalment rockets by 38% in a year, says Absa’. Are these headlines symbolic of a ‘countdown to Zimbabwe’ moment?

The headlines that make us weak

Read in isolation, they may not forecast much; but if you take a moment to interrogate these and other news items you will discover an economy on its knees, and a country in which consumers and households are struggling to make ends meet. And here, dear reader, we refer to the small segment of the local population that is lucky enough to hold a job in the formal sector. If you do a little more digging, perhaps browsing to an article on TheConversation.com, you will learn that a staggering 47% of South Africans rely on monthly grants to get by, with 18 million permanent grant beneficiaries and around 10 million on the recently introduced social distress grant. Put another way, there are 30 million people that are unlikely to contribute to your practice’s bottom line. 

The question that you should be asking is how much longer you will be able to grow your financial and / or risk advice practice when the number of potential clients continues to shrink. The challenges facing long-suffering domestic consumers are starkly illustrated by Pick n Pay Chair, Gareth Ackerman, during his no-nonsense introduction to the retailer’s 2023 results. It is indeed rare to witness a prominent and respected businessman delivering such a harsh assessment of the country’s socioeconomic prospects. “South Africa is simply not growing at the required rate to ensure improvements in employment and living standards … we need to grow the size of the cake before we try to cut it differently,” Ackerman said. 

Insane stance on Russia and the ICC

Unfortunately, this lacklustre growth is largely due to government’s bungling: from electricity supply; to foreign policy; to municipal infrastructure; to mining; to State Capture prosecutions … you name it, it is a mess! The result is poorer households, stagnant GDP growth and a rising tide of unemployment, among other issues. And it gets worse. “The probability of social unrest relating to food shortages and possible store closures, if blackouts get too high, is now heightened …  faced with the reality of structural economic decline the only meaningful government action seems to be inaction,” Ackerman said, before tearing his hair out over foreign policy. How, he asked, can government risk AGOA and other bilateral agreements through overt support for Russia after its invasion of Ukraine, not to mention its position on the ICC. 

For more on the domestic economic outlook we turned to a recent PwC Economic Outlook publication titled ‘Building businesses resilience against long-term socioeconomic headwinds’. The international professional services firm identified five megatrends that are shaping the global business environment, including climate change, technological disruption, demographic shifts, a fracturing world and social instability. Domestically, they might have added government’s incoherent policymaking as a sixth, but they chose instead to deflect by telling readers that two out of five South African respondents to the 2023 PwC Global CEO Survey “believed their company would no longer be economically viable a decade from today”. Will yours? 

Big words to say your business is ‘screwed’

“Local business leaders are dealing with a confluence of global trends and their domestic manifestations, resulting in an increasingly challenging business environment and impacting profits; there is a consciousness among South Africa’s business leaders that we are living through extraordinary times,” wrote PwC in the introduction to their ‘building business resilience’ report. They also acknowledged that the country’s unemployment rate was on an upward trajectory as structural constraints continue to limit economic growth. Eskom is clearly one such constraint, as is government ineptitude… But PwC focused on constraints that ‘fit’ its megatrends narrative. 

So, climate change is limiting food production (not electricity supply) and technological disruption is contributing to unemployment rather than policy insanity. That said, load shedding and transport infrastructure deterioration were singled out as weighing on domestic GDP growth, with PwC pencilling in a baseline potential real GDP growth for South Africa of 1.3% per annum over the long-term, with unemployment to rise to 35.5% by 2030. This writer reckons PwC is optimistic on both counts since the latest GDP estimate stands at just 0.1% for 2023, and the unemployment rate will spiral higher as the country’s abysmal education outcomes continue apace. 

According to PwC, there is a confluence of crises facing South African business leaders today. They offered the NWU Business School Policy Uncertainty Index in support of this statement, noting an increase to a record level of 71.7 points in the first quarter of 2023. “This indicates that economic and political uncertainty in South Africa is more elevated now than at any time since the index was first published in 2015,” they said. They then rattled off a long list of emergencies including once-in-a-generation risks such as the Russian invasion of Ukraine; double digit inflation in developed economies; the ripple effects of the pandemic on the economy; and the growing frequency and severity of cyberattacks and extreme weather events. 

More ramblings about our poly-crisis world

Are you prepared for this poly-crisis world? According to PwC, while most business leaders are confident in their organisation’s ability to respond to disruptions, their firm’s often lack the foundational elements of resilience they need to be successful. Limiting constraints include “outdated risk management mindsets that seek to master risks by rigidly allocating resources and management attention according to a mix of probability and impact”. To illustrate, they commented on the unanticipated domino effect on domestic and global supply chains following major risk events such as the Ever Given ‘stranding’ and subsequent disruption to the Suez Canal shipping route, and the impact of the April 2022 KwaZulu-Natal flooding on rail and port services in Durban. 

PwC observed: “Traditional business continuity planning would focus on recovering business as usual for the whole system after such events, whereas creating resilience flips that assumption to instead ask: how do we recover some degree of operational capacity immediately and survive a potential catastrophe?” Your best approach is to accept that you cannot possibly understand and identify every potential threat. Instead, you must focus on the risks that might possibly disrupt the most important aspects of your business, and those most crucial to your clients. “Today, these operational risks are many, and load shedding is but one of them,” concluded PwC, before offering some practical tips for domestic businesses to survive the next 10-years. 

Steps to counter the slide…

First, you should empower your employees… Workers who have power and choice are happier, better at their jobs, more innovative and more likely to go the extra mile. Second, embrace transparency and stay blame free to identify weaknesses before it is too late. Third, bring the right people together to be able to view risk through a cross-functional lens. And finally, develop the relevant skills, mindsets and behaviours to respond optimally in times of crisis or disruption. 

Writer’s thoughts:
My apologies if today’s newsletter is a trifle gloomy; but it is long overdue that local business leaders acknowledge the myriad socioeconomic challenges they face. Assuming government is to blame, business leaders must start figuring out how to hold them to account. Are you confident that your business will survive if SA continues on its current socioeconomic glide path? Or are we on a countdown to Zimbabwe? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

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