By Mpho Dipela, Chairman and shareholder of Legacy Motor Group
Mounting risks in the local and global environment are increasingly spelling even more trouble for both consumers and businesses in 2023. So, as business leaders grapple for momentum this year, it is crucial to carefully consider and manage these risks to build resilient organisations that can successfully navigate and survive turbulent waters.
For example, perhaps the greatest risk to global economic growth is the ongoing Russia-Ukraine conflict. In many ways, this war shaped 2022 by sending energy prices skyrocketing and rapidly driving up basic food, fuel, and transportation costs, resulting in a worldwide cost of living crisis. Its effects were particularly pronounced in South Africa, where the ongoing loadshedding crisis has forced growing reliance on diesel generators, placing a growing pinch on both household and business’s pockets. In addition, being an investor in the automotive retail sector, I have observed that vehicle specifications that have been popular amongst consumers have become scarce because of the interruption caused by the Russia-Ukraine conflict. For example, vehicle sunroofs have always been a dealbreaker when consumers purchase a new vehicle. However, several new vehicles end up reaching showroom floors without this unique specification and forcing customers to settle with what is available. Hopefully, original equipment manufactures (OEMs) will find a way of redirecting the production of key components to other undisrupted parts of the world.
Should we fail to see some sort of resolution to this war in 2023, the impacts of volatile energy prices will continue to take their toll, dampening growth prospects and raising the risk of a global recession.
Simultaneously, even as South Africans grapple with the effects of the energy crisis at Eskom, inflation remains above the upper range of the South African Reserve Bank’s (SARB) target band of 3% to 6%, reaching 7.2% in November. As a result, the Monetary Policy Committee (MPC) once again raised the repo rate at the end of January to 7.25%, further eating into household incomes, while slashing its growth forecast for South Africa’s GDP to just 0.3% in 2023.
With these risks in mind, here are three key focus areas for South African business leaders in 2023:
- Recession-proof pricing strategies
To navigate a difficult market environment, business leaders will need to remain cognisant of the difficulties facing local households as they manage pricing strategies. This does not mean carelessly cutting prices in order to boost long-term sales. Instead, consider optimising production costs to avoid passing on increased prices to consumers.
Alternatively, seek ways to enhance value propositions for customers, or even consider a segmented pricing strategy with added value for ‘premium’ customers and reduced pricing for ‘standard’ or ‘economy’ customers, appealing to different sections of the market.
- Sound fiscal management
As Warren Buffet said, “Only when the tide goes out do you discover who’s been swimming naked.” In other words, as global central banks tighten the taps and interest rates rise, overleveraged businesses who have expanded their organisations through relying on debt will face an increasing credit crunch – especially if company sales slow.
To manage this risk, it is vital to re-examine and adjust financial projections, pay increased attention to cash flow, rethink any further expansion plans, and prioritise reducing debt levels to minimise debt risks.
- Bridging the skills gap
Despite an unacceptably high official unemployment rate of 32.9%, there is a growing shortage of skilled employees in South Africa, particularly in the areas of finance and IT. Simultaneously, growing financial pressure on households combined with widespread company cost-cutting measures risks impacting employee engagement and productivity in a time when companies need to optimise performance and costs.
To better compete for and attract the necessary talent, and maintain a more positive, productive and high-performing workforce, business leaders will need to focus on creating motivating employee experiences, as well as an encouraging, supportive working environment.
This means fostering a sense of connection with staff and ensuring that all employees are aligned with the company’s vision and goals. Additionally, it means investing in upskilling staff, demonstrating an investment in their career trajectories whilst simultaneously building a company talent pipeline just like we did at LMG – our automotive retail business – through a partnership with the Youth Employment Service (YES)
Ultimately, the challenges facing businesses represent a steep learning curve for all leaders, who must be willing to adapt their strategies to overcome potentially lean times ahead. By prioritising these areas, however, leaders will be far more prepared to meet any threats head-on.