SA business not exempt from global financial crisis

As fears mount in Europe of a double-dip recession amid a global meltdown, South Africa has to prepare itself for the knock on domino effect, and apply even greater business prudence if it is to come out the other side in-tact. The Euro zone's and America's debt crisis has shook the foundations of trust, business ethics and future global predictions for medium-term growth.

Global impact

Undoubtedly, some businesses in South Africa will weather the financial storm better than others, however, the uncertain shape of the global stock markets, coupled with severe austerity measures, government and other institutional intervention such as those from Europe's Central Bank and the IMF, will have an impact that will be felt globally.

The unstable scenarios of the West have seen some gain and some loss. The JSE has felt the pressures of investors selling stocks and shares mirroring the pattern across Europe, America and Asia with billions being wiped of the value of those stock markets in a matter of days. On the other hand, people looking to invest in secure commodities have helped gold reach record prices per ounce with other precious metals also seeing healthy gains such as silver and platinum, which is of course good news for Southern Africa. However, even recent growth in precious metals, such as gold, could also carry a risk as an investment, as people look to hard cash and bonds in these troubled times.

Tourism not the only sector to take a knock

However, as people have little spare cash, other sectors will feel the pinch. Tourism already accounting for just over 8% of South Africa's GDP and already suffering a post World Cup downturn, will be squeezed further as people reassess holiday options and associated costs, with many looking to holiday closer to home. South Africa's tourism industry will have to adopt more aggressive pricing policies to make it competitive globally if it is just to maintain, let alone grow, its market share of international visitors.

However, tourism won't be the only casualty. With less money available, banks struggling to make profits and lines of credit under severe pressure, there will be less available to invest overseas. Investors and shareholders have already started to instigate their own austerity measures, which are now no longer the reserve of governments.

Looking for safe havens

The construction industry, real estate, consumer durables such as electronics, cars, luxury goods and the retail sector are all expected to take a hit, as people tighten their belts in what many feel is an uncertain future, over the next few years.

Investors will look to safe haven assets such as gold, Swiss Francs and bonds - the risk element no longer being an option upon which they are prepared to gamble. As such, they will look to businesses that have embarked on their own solid risk limitation strategies, and will take a lot more convincing to part with their cash.

Governments of the West and in particular, the Euro Zone will have less in their coffers to help with overseas aid. As such, aid programmes to developing countries will be under extreme pressure as governments look closer to home as the ceiling on spending takes effect. Places like Malawi and Mozambique will feel the pinch, and with that, comes a host of social issues coupled with a possible influx of immigration from other countries in Southern Africa, as people from neighbouring countries seek a perceived more prosperous light shining in South Africa. The knock on effect here is also a dangerous one and one that could potentially create another kind of crisis for South Africa to deal with, as unemployment increases due to lack of available jobs in light of cut backs in manpower, and boardroom attempts to curtail diminishing profits.

Economic climate 'volatile'

"The economic climate is volatile and now more than ever, it's a serious wake-up all for all businesses to get their own house in order to weather the storm," said Tim Marshall, CEO, Trifector Capital.

"With increasing uncertainty on what the market will do next and how the global economy will react, it's a question of bolting down the hatches and ensuring businesses have the correct procedures in place at the right time, to ensure their longer term profitability and ultimately survival", he added.

The road to recovery is going to be a bumpy and uneven one with nothing in the short term guaranteed, owing to the considerable risks and uncertainties globally. If inflation gathers a pace, the current financial crisis could be worsened further by a hike in interest rates which will undoubtedly have considerable consequences for businesses, the investor and the consumer.

Survivability will depend on ability to manage resources

While the UK has been applauded in some circles for getting its own debt in order through acknowledging its debt burden and embarking on severe austerity measures and cuts in the public sector, its very success is dependent on what happens elsewhere as the EU President has already warned, the debt crisis in Europe is spreading. Portugal, Ireland and Greece have already been seen hefty bailouts, but there isn't enough money to bail out Spain or Italy in the same way. America's trillions of debt also has the rest of the world feeling nervous, as companies adapt to an ever-changing new business climate which has the potential to change the way we have understood business over the past three decades.

The survival of companies and indeed countries in their entirety, in the wake of a new wave of business culture, will depend on their ability to manage their own resources and business conduct, if they are to survive the global impact and instability of the financial crisis.

Top tips:

• Don't wait to react to problems - act now
  
• Review profitability strategy
  
• Develop clear damage limitation policy
  
• Review supplier contracts
  
• Reduce overdraft
  
• Ensure business partners are credit worthy
  
• Reduce and call in debt
  
• Don't gamble on a deal
  
• Be transparent to shareholders and investors