Beware the ides of March

Robert Likhang

Sunday Express - - BUSINESS JOURNAL -

THE ides of March were based on a com­pli­cated dat­ing cal­cu­la­tion de­vel­oped by the Ro­mans. The date was 15th of March, the date Julius Cae­sar, ar­guably the Em­peror of the Ro­man Em­peror, was killed by his friend and foes.

The Sooth­sayer shouted as Julius was pass­ing by, “Beware the Ides of March” and Julius Cae­sar shouted back, “The Ides of March have cometh”, mean­ing that we are al­ready in the date that was sup­posed to be the day of doom, but the sooth­sayer shouted back, “but not gone, Cae­sar”.

The con­fu­sion in the Ro­man Em­pire led to the as­sas­si­na­tion of the ruler and fur­ther con­fu­sion and change of guard to Mark Antony and fur­ther wars.

This Ro­man phe­nom­e­non may, in a way, re­flect the eco­nomic con­fu­sion and dis­abil­ity that this re­gion is fac­ing. The ides of March are come but not gone yet.

Our ides of March

Can South Africa re­sist or even sus­tain the down­grade to junk sta­tus. The Reserve Bank of South Africa in its re­cently pub­lished bian­nual Fi­nan­cial Sta­bil­ity Re­view said ‘in the un­likely event of a down­grade, SA might ex­pe­ri­ence ini­tial short-term losses in the do­mes­tic cur­rency and bond mar­kets as well as an out­flow of cap­i­tal’.

The re­al­ity is that the South African econ­omy is frag­ile. The per­for­mance of SA against the other emerg­ing mar­kets has de­te­ri­o­rated. There are con­trac­tions in many ar­eas e.g. sav­ings as per­cent­age of GDP, fixed cap­i­tal in­vest­ments etc.

The world has be­come “Trumpy” so to speak, there is un­cer­tainty in re­gard to many fac­tors as a re­sult of the un­ex­pected change of guard in the US pol­i­tics.

Trump’s pro­tec­tion­ist plans and threats to with­draw from bod­ies like the World Trade Or­ga­ni­za­tion and oth­ers could dis­tract global trade. You will know that the US is SA’s third big­gest trad­ing part­ner.

We dis­cuss the is­sues re­lat­ing to SA, and they are very rel­e­vant to Le­sotho as our econ­omy is to a great ex­tent de­pen­dent on SA and the coun­try re­mains our num­ber one trad­ing part­ner, thus even af­fect­ing SACU rev­enues that have re­cently shown de­cline.

Global eco­nomic growth re­mained weak in the sec­ond quar­ter of 2016 in both Ad­vanced and Emerg­ing Mar­ket Economies. Quar­terly do­mes­tic eco­nomic ac­tiv­ity, mea­sured by the CBL’s Eco­nomic Ac­tiv­ity In­di­ca­tor (EAI), is es­ti­mated to have de- teri­o­rated in the sec­ond quar­ter of 2016.

At the end of June 2016, gov­ern­ment bud­get bal­ance is es­ti­mated to have reg­is­tered a deficit of 13.5 per cent of GDP from that of 9.5 per cent in March. Gross of­fi­cial re­serves de­clined by 11.9 per cent in the sec­ond quar­ter of 2016, re­flect­ing a fall in South­ern African Cus­toms Union (SACU) rev­enue.

The econ­omy re­mains highly ex­posed to in­ter­nal and ex­ter­nal shocks. Threats of credit crunch, de­creas­ing re­serves (pos­si­bly threat­en­ing Rand/Loti peg­ging) un­less econ­omy gen­er­ates more in­comes.

What does this mean to the lo­cal busi­ness man in Le­sotho? We can only say in the words of the Ro­man Sooth­sayer ‘The ides of March have come’.

Pre­par­ing for the ef­fects of the ides

I have largely ad­vised my clients that the key risk man­age­ment strat­egy is preser­va­tion. Preser­va­tion means keeping that which is valu­able and set­ting out risk strate­gies to man­age it, and re­duc­ing ex­po­sure to risk be­yond your ca­pac­ity. The steps to be taken could in­clude: l Assess­ing direct prod­uct prof­itabil­ity of your prod­ucts and ser­vices. We mean which prod­ucts of busi­ness units pro­vides higher prof­its, at the least ef­fort and con­sump­tion of your ca­pac­i­ties.

Those are the prod­uct or busi­ness units that you need to con­cen­trate on so that you can har­vest more prof­its which will build more re­serves; how­ever some prod­ucts may not give high direct prod­uct prof­itabil­ity but may be more de­mand in­elas­tic to eco­nomic changes es­pe­cially dif­fi­cult times. You need to con­sider these prod­ucts as they will turnover even dur­ing tough times. l Assess­ing mar­kets or mar­ket seg­ments’ and cus­tomer prof­itabil­ity. Those that are prof­itable may need to be kept more. Keeping such mar­kets and cus­tomers will call for higher sup­ply chain man­age­ment.

You need to cre­ate strong re­la­tion­ship with sup­pli­ers to en­sure that they will have ca­pac­ity to sup­ply, and you need to talk to your cus­tomers to ad­dress their chal­lenges and work with them to sus­tain ef­fec­tive re­la­tion­ship l Put your re­sources on your cash cows, and iden­tify the star prod­ucts that could raise de­mand in tougher times. You may wish to cut some prod­uct lines (ques­tion marks and dogs) so that you pre­serve what you are good at. l You need to in­tro­duce strate­gic cost man­age­ment pro­gramme, and this refers to es­tab­lish­ing what costs add or cre­ate value and what costs sim­ply main­tains or de­stroy value.

My com­pany RL Con­sult­ing has es­tab­lished that many com­pa­nies have a prac­tice of cut­ting ev­ery cost and thus lead­ing to sui­cide.

Strate­gic cost man­age­ment may be re­lated to a fam­ily that is faced with fi­nan­cial chal­lenges and cuts gro­cery in­dis­crim­i­nately and that in­cludes money for fruit and veg­eta­bles, lead­ing to greater health costs.

The fam­ily could cut more of meats, al­co­hol, sweets and even in­crease fish, veg­eta­bles etc. to re­duce chances of fac­ing high med­i­cal costs.

Back to the busi­ness con­text, the com­pany may need to in­crease train­ing costs to build higher ca­pac­ity, and see op­por­tu­ni­ties for out­sourc­ing.

My ex­pe­ri­ence with out­sourc­ing, e.g. fi­nan­cial di­rec­tor out­sourc­ing and com­pany sec­re­tar­ial out­sourc­ing which we han­dle at RL Con­sult­ing, is that the clients ex­pe­ri­ence greater skill at cost re­duc­tion of more than 30 per­cent.

Tak­ing ad­van­tage of the ides

Com­pa­nies have thrived even dur­ing the hard­est of times and have re-en­gi­neered their pro­cesses to be­come more ef­fec­tive. These are some of the few op­por­tu­ni­ties that may rise: l Re-struc­tur­ing the com­pany — Hard times made IBM change from a pre­domi- nantly hos­tile hard­ware busi­ness to con­sul­tancy busi­ness, while still keeping its main brands.

Hard times pro­vide a strate­gic re­fo­cus­ing and oven lead to a better and more ef­fec­tive com­pany.

The re­struc­tur­ing could lead to sell­ing of other busi­ness units, and ac­quir­ing other com­pa­nies that have had ex­pe­ri­ence and ca­pac­ity in the needed space.

Re­struc­tur­ing could also in­clude sell­ing busi­ness or part of busi­ness to big­ger gi­ants and cash­ing out good prof­its, or you re­tain better val­ued shares in a big­ger busi­ness l Re-en­gi­neer­ing the pro­cesses — Hard times will call for sys­tems and pro­cesses au­dit and es­tab­lish­ing as stated above what to out­source or what to au­to­mate or what to stop etc. l Prod­uct de­vel­op­ment — Hard times call for re­view of the prod­ucts lines and es­tab­lish­ing mar­ket needs, thus bring­ing new prod­ucts or re­mod­el­ing prod­ucts to meet new de­mands. l Better Lead­er­ship — Hard times call for re­cruit­ment of better lead­er­ship with skills to take the com­pany through the val­leys of death. Re­cruit­ment is key at this time.

A com­pany may re­view their boards and man­age­ment and at­tract the nec­es­sary skills, and the com­pany may be in po­si­tion to better look at their gov­er­nance and risk sys­tems. l

Con­clu­sion

Ob­vi­ously this coun­try is fac­ing a change of guard or re­tain­ing the same guard in a dif­fer­ent form, wher­ever our po­lit­i­cal chal­lenges are lead­ing us to, and one cer­tainty is that the econ­omy will need to be im­proved, and this is not just chal­lenge of politi­cians, but as well as how we run our busi­nesses in our cor­ners.

The Ides of March have come, are you go­ing to be the vic­tor? Get the busi­ness ad­vi­sor to walk with you.

Mr Likhang FCIS, ACMA, CGMA, CA (L) is a busi­ness de­vel­op­ment con­sul­tant and ac­count­ing prac­ti­tioner. Prin­ci­pal RL Con­sult­ing (Pty) Ltd and RL Char­tered Ac­coun­tants.

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