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Economic Climate

Posted By IRMSAInsight, 11 May 2016

12 May 2016 


 Economic Climate


How do we survive / take advantage of the current Economic Climate?

Recently BarnOwl hosted a presentation by Nicky Weimar, the senior economist of Nedbank, on the “Economic Review & Outlook 2016”.  A brief summary of the presentation is provided below.

The Good:

The good news is that Pravin Gordhan seems to have steadied the ship and can hopefully hold out against populist politics. We have a great National Development Plan 'but appears to be lacking in execution'.  Can we stick to the plan and get it going? Another positive slant is that ‘necessity is the mother of all invention’. South Africans are resilient and as leaders of our various organisations and departments we will need to find ways to work smarter. We have control over our efficiency and cost base to a large extent with the ability to right size our staff complement,   find more efficient ways of working, be more competitive, find new opportunities in a tough market, increase market share based on competitor rationalisation, improve processes, make use of IT more effectively, mechanise, export etc. We need to get through the tough times and be ready to take advantage of the opportunities when the market picks up again.

The Bad:

Commodity related prices which make up approximately 60% of our exports are right down, agricultural production is in the grips of a major drought and also down, our inflation rate is climbing and food prices are set to increase between 10% and 15% this year. Not to mention a flaying Rand and interest rates which are set to rise. On top of this our economic growth rate is dismal and projected to be about 0.9% (previous forecast 1.7%) this year. With our current infrastructure constraints (rail, power etc.) it is questionable even in a perfect economic climate how much we could grow by. The current growth rate is propped up by consumer demand driven by the bloated civil service which employs excessively and continues with its above inflationary increases. On top of this we have labour getting their way and unions holding the country to ransom with unrealistic / non-sustainable wage increases whilst offering low skills and low productivity.  We have just heard that the official unemployment rate is one of the highest ever at 26.7% (5.71 million people) and we hear that Telkom is planning to lay off 4,200 staff at an estimated cost of R2.2 billion.

The Ugly:

Currently Moody’s rated us two notches above ‘junk bond’ status and fortunately did not downgrade us this month (but have given us a negative outlook). The other rating agencies have us rated lower and are still to grade us.  Should we fall into the ‘junk bond’ category, overseas institutional investors made up predominantly of pension funds will have to sell / dump approximately R620 billion worth of bonds. To add to the problem, we as a country have borrowed more and more and are currently sitting at an annual budget deficit of 3.9 % and Gross Debt is sitting at 50.5% of annual GDP. Anything above 60% for an emerging market is catastrophic. 

In light of the above and as a risk manager / strategic adviser to your organisation have you asked:

  • How robust is your risk management process? Now more than ever risks need to be managed more closely and in real-time.
  • Are you making sure that you have effective controls in place to ensure the running of a 'tight, cost efficient ship?'

  • Are you adding value by understanding the business and suggesting process improvements?
  • Are you thinking strategically (as if it were your own business) and adding value as a trusted advisor?

Nicky Weimar’s presentation on the ‘Economic Review and Outlook for 2016’.





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Comments on this post...

Marianne Hendrikse says...
Posted 16 May 2016
The "Bad" and the "Ugly" seems to be overwhelming with businesses having little control over these elements. Now is indeed a good time to re-look the actions listed under the "Good" since these are in our control, especially finding new opportunities in the markets which remains a challenge.
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