The ill wind can still be sailed by careful trimming

2008-09-22 00:00

The financial crisis facing the world is another case of lies, more lies, greed and appalling management decisions. Both the U.S. and British governments are making a big song and dance about their “rescue plans”, but whose money is it they are rescuing the markets with? The taxpayers’, of course. A call is going out for new regulatory systems to ensure that such an appalling financial fiasco never happens again. It seems to me that greed will always find a way past any security system, however many locks you put on the door.

The good news is that South Africa should not be dramatically affected by this world financial crisis. Our economy is not heavily into offshore credit lines. However, I do believe that you, the businessperson, and particularly entrepreneurs of SMEs, will feel a wind of change in relation to the attitude of the high street banks in relation to you, your business and its borrowings.

Far too many companies worldwide have become over-dependant on using banks’ money. Business has not been sufficiently profitable, nor retained profit to benefit the business’s future operation and particularly any growth strategy.

Many companies I see started the business with an overdraft facility, supported by the security of the owner’s home deeds. Five years on, not only is the overdraft still in place, it is bigger.

Well, the winds of change have arrived. The annual meeting with your bank manager to evaluate your business’s performance will not only require audited accounts and three years’ cashflow projection, but your manager will also be saying, “I want to see you repaying the overdraft fully within the next 18 months.”

The only conclusion is that you, the SME entrepreneur, have to find ways of making your business discernibly more profitable.

Despite everything that is happening in the U.S. and UK, we find ourselves with a very weak rand, it being plus/minus 8 to the greenback and 15 to the pound. Certainly, imports are going to continue to cost South Africa more than it perhaps can afford. However, the other side if this coin, is that a weak rand presents us with wonderful export opportunities that can contribute greatly to gross margin improvement, both in rand value and percentage.

Less than 12 months ago, I devoted this column to the emerging opportunity for developing exports and that the SME manufacturers should get out there and find new markets overseas.

The effect of the ANC Youth League rhetoric and actions, coupled with our political leadership debacle, will, I believe, put the rand under even more pressure for some considerable time to come.

What can be considered a major headache on the one hand should also be viewed as a tremendous opportunity on the other. Textile, clothing, shoes, steel and many other industries must view these circumstances as offering a timely opportunity to hit strategic world markets. Equally, firms with established and strong export initiatives must look to dramatically increase South Africa’s share of strategic markets such as fruit and wines, etc. The advantage to our economy of increased exports is enormous in many areas, not the least of these being increased employment.

For me personally, the benefits of a weak rand are also substantial. My fixed, never to be increased, UK state pension, gives sufficient additional rands to play an extra round of golf.

That’s got to be good! In fact it doesn’t get much better for me than that.

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