If there is one thing the economic and political uncertainty of the past six years has taught South African companies, it is that returning to the ‘business as usual’ of bygone years is no longer an option. With the major challenges facing our country and indeed, our planet, companies have had to innovate and take on more risk if they wish to remain competitive. In the year ahead, this trend is set to continue – and companies may even need to dramatically change their business models as they seek new opportunities for growth in a fast-changing world.
On the political front
With municipal elections coming up later this year, we are likely to see a continuation of the political volatility marking the past few years in South Africa, with major election battles likely in the big metros of Johannesburg, Pretoria and Port Elizabeth. We can expect a lot of political posturing in the lead-up to the elections, especially by the EFF, which is likely to try and win support by leading service delivery protests, creating instability and causing disruption.
The ANC is under severe pressure on a variety of fronts, especially after the events surrounding the sudden axing of former Finance Minister Nhlanhla Nene late last year, and is losing supporters to both the EFF and the DA. Attempts to retain support for the ANC may lead to populist but ill-considered and unsustainable decisions by the government, with potentially negative economic consequences, for example the introduction of a much higher national minimum wage.
In light of recent events we can also expect to see an increase in political noise around the succession of President Jacob Zuma. There are some who suggest that this may even take place during 2016, considering how controversial he is and depending on the outcome of local government elections. The two most likely candidates are Deputy President Cyril Ramaphosa and African Union chairperson Dr Nkosazana Dlamini-Zuma. Although most business leaders would like to see Ramaphosa become President, he does not appear to have sufficient support within the ANC to be a serious contender. Dlamini-Zuma, on the other hand, is backed by the ‘Premier league’ – the Premiers of Mpumalanga, Limpopo and the Free State. There is also a third option, although unlikely to be taken seriously, especially in light of the recent backlash against the sacking of Nhlanhla Nene – although our constitution limits Zuma to two terms as president, it is not impossible that he may serve a third term as president of the ANC, in which case he could continue to be the power behind whoever is on the throne.
Internationally, developments in both Syria and Iran may keep the situation in the Middle East uncertain and volatile for some time. The migration of thousands of Syrian refugees is likely to continue during 2016, which will impact global economic activity as well as security arrangements in many countries. In Iran, sanctions relief has already been set in motion, but this could lead to further instability in the Middle East as countries such as Saudi Arabia and Iraq may balk at the downward pressure on the oil price that could potentially follow.
Uncertainty is also the watchword on the economic front for at least the next year. South Africans will continue to feel the pinch with rising inflation, possible interest rate hikes, low economic growth and likely downgrades by major credit-rating firms.
Even though oil prices have decreased dramatically, the rand/dollar exchange rate has resulted in local fuel prices remaining largely unchanged. The fuel price, higher import prices, increased food prices resulting from the crippling drought affecting large swathes of our country, and the possible introduction of an increased national minimum wage will all impact inflation. The SA Reserve Bank (SARB) is likely to react by raising interest rates, albeit in a controlled manner.
The SARB has predicted economic growth of around 1.4% for South Africa over the next year – a figure slightly more optimistic than the 1% put forward by most leading private sector economists. A downgrade of South African debt to junk status would have a further negative impact on economic growth by driving up both government and private sector borrowing costs and discouraging foreign investment.
In reaction to this challenging economic environment, a number of local companies have combined forces to take advantage of the resulting economies of scale and to earn revenue in currencies outside South Africa’s borders. An example is the recent AB InBev and SABMiller mega-merger to exploit the potential in Asian and African markets. Local retailers who have hedged their bets and expanded internationally include Truworths (currently in the process of buying a large stake in UK footwear retailer Office Retail) and Woolworths (which took over David Jones in Australia in 2014). This trend is set to gain momentum over the next year. Many companies will also continue to be part of the African growth story and take advantage of opportunities in fast-growing economies elsewhere on the continent.
The influx of international companies into South Africa is also likely to continue, however. Despite the challenges facing our country, South Africa remains a healthy (albeit rather messy) democracy with a strong constitution, dynamic institutions and mostly sturdy infrastructure, all of which serve to maintain stability over the longer term. South Africa is also still seen as a springboard or gateway for these companies to expand from here into the rest of Africa.
The #feesmustfall student protest is expected to remain dominant this year. Last year, the students achieved their aim of a zero increase in tuition fees, and this year, are likely to campaign for free education. The student movement – which was essentially about the transformation of higher education institutions and not just tuition fees – highlighted the fact that South Africa’s future leadership generation needs to be taken seriously. They are the sector of our society most likely to drive real change in our country.
A further positive consequence of the #feesmustfall protest is the social cohesion it brought about between young people with very different backgrounds and life experiences. We are likely to see an increase in debates around different lifestyles and levels of privilege in the months to come, as well as an increased awareness around the questions: What is a South African? What is our common identity?
Disrupting business models
New technologies will continue to disrupt the way business is traditionally done. We will see an increase in telecommuting in response to higher travel costs and technological advances such as high-speed internet. The growth in the number of companies capitalising on the new ‘sharing economy’ – of which Uber and Airbnb are leading examples – is set to continue. Digital advances will continue to place demands on company business models, and companies will need to recruit digital leaders with the power and influence to help align these models to the rapid changes digital technology is ushering in.
Companies also need to be aware of how mechanisation is impacting their industries. Robotics are leading to increased mechanisation of production, especially in the agriculture, mining and manufacturing sectors. South African companies will need to adapt rapidly if they don’t want to be left behind. To prevent unemployment figures rising as a result, upskilling of people for redeployment in the service industry, for example, is an urgent imperative. Sectors which could potentially absorb jobs lost as a result of mechanisation include the information technology, business process outsourcing, tourism and film industries.
The last word
The world is a vastly different place to what it was a few years ago. Potentially game-changing global and local trends have altered the way many companies do business. No one can predict what will happen next, but it is safe to assume that challenges on the economic, political, social and technological front will continue to force business to adapt to ensure future success. These challenges will also create unique opportunities for growth, however. South Africa is still moving forward, and companies that – despite disruptive environments – remain positive about their future in this country, and seek out and find these opportunities, cannot fail to come out on top in the long run.
Michael Drew, Partner & Head Technology & IT Services at Odgers Berndtson in London, talk...
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