Beware the ides of March
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
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.