South Africa will continue to climb a rocky road in the year ahead, with major challenges facing our country on a number of fronts. It is certainly not all doom and gloom however. As the world economy gradually recovers, the knock-on effect will create unique opportunities for growth – provided companies are cognisant of potentially game-changing global trends and are willing to adapt their business models in a fast-changing world.
The oil price will continue to have a massive impact on our economy. Now under $50 per barrel, we can expect oil prices to remain low for at least the first half of the year. Companies benefiting from lower operational costs should not become exuberant too quickly, however, since uncertainty remains the watchword. No-one knows what will happen next, but the oil price is sure to climb back up at some time in the next 18 months.
The world is slowly – albeit unevenly – emerging from a severe economic downturn which has lasted six years. The US GDP is now growing at a fairly healthy rate of 5%, and the recovery of the world’s largest economy will lead to opportunities resulting from the knock-on effect on the rest of the world. There will be more demand for manufactured goods from China, for example, and China’s increased demand for raw materials will in turn affect supplier countries like South Africa.
Companies should not be under the illusion that they can return to the ‘business as usual’ of six years ago, however. The world is a vastly different place – for one, the gap between the world’s rich and poor has widened dramatically. A recent study by Oxfam suggests that by 2016, the richest 1% of people will own more than 50% of the world’s wealth. This reinforces the need for companies to understand who their customers are and adapt their business models accordingly. Are they catering to the luxury market or the mass market? Companies unable to identify their target market will continue to struggle.
The African growth story
One of the biggest opportunities for South Africa in the years ahead is to continue being part of the African growth story. More and more local companies are looking for new markets in sub-Saharan Africa. A key challenge is how to take advantage of opportunities in fast-growing economies like Zambia, Angola, Mozambique, Kenya, Ethiopia and Tanzania. Doing business in Africa remains risky, but companies that are not already expanding across the continent should certainly start doing so now if they want to move beyond a maturing South African market.
Political uncertainty in a healthy democracy
We can expect to have some disruption and political noise in the lead-up to the municipal elections next year. The Economic Freedom Fighters (EFF) is here to stay, at least for the next election in 2016, and the rest of 2015 is sure to be marked by much political posturing. On the labour front, matters appear to have settled, but there is always the likelihood of strikes as part of the greater pre-electoral political posturing, especially if NUMSA does start its own political party as it has promised to do. Amid such political uncertainty, companies would do well to remember that South Africa is a healthy (albeit rather messy) democracy with a strong constitution, dynamic institutions and mostly sturdy infrastructure, all of which serve to maintain stability in our country over the longer term.
Significant improvements in access to basic services for many poor South Africans have led to rising expectations and increased frustration in many sectors of our population. People are also feeling politically helpless and unable to influence their political leaders, which partly explains the growth of support for the EFF. We are likely to see an increase in racial debates, and continued anger and frustration in both the economic and political sphere in the months to come. The business sector can go a long way towards addressing this social malaise by starting conversations internally around how social cohesion can be advanced within companies. All companies can have an impact by improving access to and the distribution of opportunity within their own organisations, for example.
New technologies will continue to disrupt the way business is traditionally done. South Africa is still playing catch-up with the developed world in several areas – online retail, transport and logistics, and GPS technology. The biggest impact will be on location, in its broadest sense. Technological advances mean customers no longer need to be in a place physically in order to transact; deliveries can be tracked via GPS, improving efficiencies by reducing human error; and continual improvements in 3D printing will increasingly make factories in some industries redundant. In South Africa we already lead the world in many ways in the area of online financial payment methods. Companies need to be aware of new technology impacting their industries – if they don’t adapt their business models, their competitors will.
Renewable energy and compliance
On the environmental front, the roll-out of renewable energy projects will gather momentum. Africa’s largest solar energy farm has just come online outside Kimberley, and the biggest concentrated solar power (CSP) plant on the continent is nearing completion near Pofadder in the Northern Cape. The heated debate around fracking in the Karoo will continue, but early stage exploration activities are likely to start this year. The potential economic benefit to South Africa cannot be overestimated if the estimated gas reserves are accurate – it will be a game-changer economically. Another environmental trend likely to impact companies is stricter compliance – companies will not only have to adhere to more stringent regulations, but shareholders will demand increased mitigation against environmental risk. The challenge for companies will be to spot opportunities for reducing costs and growing sales within this new compliance environment.
Legally speaking, the ‘regulation fascination’ which is severely affecting the conditions for doing business in South Africa is not expected to ease up. For example, competition laws will continue to put pressure on companies around pricing and collusion. And since the introduction of the new visa laws in May last year, it has become 10 times harder to obtain a visa to work in South Africa. The red tape facing small business owners is often cumbersome. The bottom line is that companies will have to find novel ways of operating in what is likely to remain a highly regulated business environment.
The last word
So how can South African companies fight their way through what seems like a multitude of challenges and come out on top? It is important to remember that although the road is rocky and we are not growing nearly as fast as we need to or have the potential to, South Africa is still moving forward. Those that remain positive about their future in this country will do well, since they will find opportunities despite disruptive political, economic, social and other environments. And grabbing those opportunities now will put them well on the road to growth once the knock-on effect of the global economic recovery takes hold on our southern tip of the continent.
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