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 change their business models dramatically as they seek new opportunities for growth in a fast-changing world.
With municipal elections coming up later this year, we are likely to see a continuation of the political volatility that marked the past few years, with major election battles likely in the big metros of Johannesburg, Pretoria and Port Elizabeth.
The African National Congress (ANC) is under severe pressure on many fronts, especially after the sudden axing of former finance minister Nhlanhla Nene late last year, and attempts to retain support may lead to populist, but ill-considered and unsustainable decisions by the government such as the introduction of a much higher national minimum wage, with potentially negative economic consequences.
In light of recent events we can expect to see an increase in political noise over President Jacob Zuma’s successor. In addition to the two commonly discussed candidates there is a third consideration. Although the Constitution limits Zuma to two presidential terms, it is not impossible that he will seek 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 this year, which will affect 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 baulk 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 probable downgrades by credit-rating firms.
Even though oil prices have decreased considerably, the depreciation of the rand against the dollar 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 put upward pressure on inflation. The Reserve Bank is likely to react by raising interest rates, in a controlled manner.
The Bank has predicted economic growth of about 1.4% for SA 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 effect 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 earn revenue in currencies outside SA’s borders. An example is the recent AB InBev and SABMiller mega-merger to exploit the potential in Asian and African markets. Local retailers that 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 SA is likely to continue. Despite the challenges facing our country, SA remains a healthy ( if messy) democracy with a strong constitution, dynamic institutions and mostly sturdy infrastructure, all of which serve to maintain stability over the longer term. SA is still seen as a springboard for firms to expand from here into the rest of Africa.
The #FeesMustFall student protest is expected to remain dominant. The movement, about the transformation of higher education institutions and not just tuition fees, highlighted that SA’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 about different lifestyles and levels of privilege in the months to come, as well as an increased awareness of questions such as: What is a South African? What is our common identity?
New technologies will continue to disrupt the way business is done traditionally. 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 affecting their industries. Robotics is 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, the upskilling of people for redeployment in the service industry, for example, is an urgent imperative. Sectors that have the potential to absorb jobs lost as a result of mechanisation include the information technology, business process outsourcing, tourism and film industries.
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 success.
These challenges will create opportunities for growth. SA is still moving forward, and companies that remain positive about their future in this country and seek out and find these opportunities despite the disruptive environment cannot fail to come out on top in the long run.
• Lundy is a partner at Odgers Berndtson Sub-Saharan Africa