The fourth part of the Small Business Survival Toolkit series tackles the subject of South Africa’s macroeconomic strategy with Professor Adrian Saville.
Compiled by Tarren Bolton
Professor Adrian Saville, Chief Investment Officer of Cannon Asset Managers, and GIBS visiting professor, has extensive asset management experience across all major asset classes and jurisdictions. Adrian consults widely both to government and the corporate world, and has served as a Professor of Economics, Finance and Strategy at the Gordon Institute of Business Science (GIBS) since 2003.
His insights into the area of macroeconomics and strategy at both a company level and a country level lend some perspective in terms of where he sees South Africa’s contextual environment from a strategy perspective.
The impacts of Covid-19 led to the sharpest decline that the South African economy has on record, and one of its most obvious manifestations had to do with macroeconomic indicators, such as a budget deficit.
This budget deficit put ammunition into the ratings agencies’ decision to downgrade South Africa, and it in turn forced South Africa to head to international funders to help us work through this very slow growth and deep deficit environment.
When we move from those headline macroeconomic numbers we have to look at the implications for business.
Implications for business
Adrian says that while this conversation is about mid- and smaller-sized businesses, we can take guidance from JSE-listed company data, where we find that there is a high correspondence between what’s going on in the broader economy, and the implications for South Africa’s small business bottom line performance.
No one saw a global financial crisis coming, and very few saw Covid-19 coming. Something else will come in the next three years, five years, 10 years, and certainly within our careers – something else that has the ability to take down economies, entirely redefine countries, and break businesses.
For South African SMEs, who were already having to contend with a contracting economy pre-Covid, additional shocks from Covid-19 put further pressure on their operations. This is because during times of crisis they are often the least resilient. Typically, they have limited cash reserves, smaller client bases, and less capacity to manage commercial pressures than do larger companies.
South Africa’s redeeming features
But even in the face of the crisis, businesses should focus on the positive. One of South Africa’s redeeming features is good geography, and one of the trends that economists have seen as a result of Covid is a shift in terms of supply chains.
One of the things we’ve seen globally is a movement towards more of a dependency on a local supply chain. So, buy local. This is something that’s going to change consumer behavior in the long term and could be particularly beneficial for South Africa.
Another redeeming feature is that South Africa’s commodity market went into intense pressure immediately following the Covid outbreak, but rebounded, displaying some quite remarkable buoyancy. A large part of the JSC footprint derived earnings from that, and the spillover had multiple implications.
The shape and nature of small business responses
In order to establish resilience, buoyancy and participate in recovery, small businesses should take a top-down perspective. What does the environment look like from here? They should then gain a better understanding of, for example, shifting demand, potential new clients, and local substitutes for their products to enable them to shift their focus to new target markets to sustain demand.
SMEs that focus on operational efficiencies can drive further competitiveness to support sales, while also potentially creating increased capacity in the business. A better ability to focus on team efforts leads to better problem solving.
The chance for reinvention
There have been a surprising number of businesses that have been able to pivot and have done some really interesting stuff in short spaces of time. Those that are customer-centric build deep pits of customers that will stick with them for this commitment to the relationship.
It’s all in the team
In our businesses, we find ourselves in the fog of war – in a crisis in exceptionally difficult circumstances. And in that environment, it is the strength of the team that shines through. The key here is teams – those who are in your teams, who are in the battle with you, those who are at war with you, not against you – and these are the people you need to hang on to. This is how we start to turn a macroenvironment into a bottom-up business strategy.
Adrian uses a rowing analogy to illustrate: “Any form of recovery in your business is a team sport. It’s not about you as the leader. You’re not in this alone. First, if you’re going to thrive in rowing, it’s about coordination, and coordination requires communication. You should be communicating with your team, communicating with your suppliers with your customers – constant communication – and then letting them communicate to you, listening carefully to the responses and ‘environment’.
We get this again and again from our studies of teams that are effective and successful is their sensitivity and their attentiveness to not only communicating clearly and effectively but listening to what that environment is telling them back. Recognising that different parts of the team bring different skills and different attributes; that your position in the boat is going to give you different capabilities,” says Adrian.
Adrian says that there might be headwinds there might be tailwinds, but what happens when you get into the habit of honest communication with your suppliers and with your customers, is how they quickly turn from being a feared enemy to an extraordinary ally. “The boat might face a headwind, and then turbulence, but so what? What should we be doing in that environment? We should be pulling in all of the tools, skills, and aspects that we have developed, started, and built and use them to get you through it,” he says.
Yes, the environment is tough, but if you can pull these reinvention techniques into your business, they can help you to navigate and negotiate into recovery and return to economic buoyancy.
South Africa’s economy would benefit from measures to preserve macroeconomic stability, to revitalise the jobs market by improving the investment climate to build a better and more inclusive economy after the pandemic. Along with enacting carefully chosen regulations to improve the business climate and investing in small businesses, reforms can be implemented to encourage self-employment and support the growth of micro- and small enterprises.
