FirstRand’s CEO Alan Pullinger on why he is worried about small businesses
Three days before President Cyril Ramaphosa announced a lockdown to battle Covid-19, Business Day interviewed Alan Pullinger, CEO of FirstRand.
On the economic outlook.
While we do see a V-shaped type recovery from a Covid perspective, that has to be seen in the context of a broader Ushaped recovery for the country. Covid is going to take us sharply down, then it’s going to pull back. While Covid is Vshaped, the (new) starting point will be lower and going the same direction (down). That’s because of the structural reforms — we are not tackling them with enough vigour.
On the substantially reduced economic activity and its effect on FirstRand.
That has got a very big economic consequence and it ’ s already visible. It’s one thing for a business like us, a large organisation. We have got reserves, resources, new technologies, we can work remotely and we can carry on. We’ll easily survive this.
Why he’s especially worried about small businesses.
If you are a little business and you’ve been told to shut, or people are just not coming and you can’t make sales, your cash flow goes down. And then, of course, you say how am I going to survive? Then you stop paying your people or you don ’ t pay your rent, or your rates and taxes. A lot of these businesses don’t have reserves.
Why many little businesses are unlikely to recover?
This economic slowdown, when it comes to businesses, falls broadly into two: transactions that are just deferred (like buying a new car). We are less worried about that. Then there’s the coffee shop (and similar businesses) downstairs. Their turnover has collapsed. The problem is when we get the announcement from the president saying “it’s time to go back to work”.
When that call comes, if this coffee shop is open, I don’t go and say right can I have 16 cappuccinos because I missed them? I just have one. That opportunity is gone forever.
Can banks help to ease the pain?
We can work with those customers that have cash-flow shortages but that we think are viable. What we can ’ t do is keep a business that isn’t going to stay alive with more money. It’s not even in their interest.
Were exchange controls a godsend for financial stability?
One of the benefits we have in relation to rand liquidity is that we operate a closed system. In times of stress, exchange control is your friend because the liquidity can’t leave our system. It flows between institutions. It’s comforting from a country perspective. Where it is not so comforting, is it doesn’t mean everybody gets their fair share. You can see some places get a lot because there is a perceived flight to safety and some are starved of liquidity.
Exchange controls are a good thing after all?
They don’t always work well. Of course, when the sun is shining and everyone is growing and the risk is nonexistent, then they are an irritation. You must say sometimes they help.
Were they responsible for SA avoiding the worst of the 2008/2009 crisis?
It definitely helped. We were also less adventurous ... if you look at how that subprime crisis had gone through the banking system, not just the banking system, but into the insurance world. In some aspects, in terms of being exotic, we were underperformers. They probably looked at us and said, “You guys are quite boring because you are not dealing with the new age instruments”. We (also) had a regulator who wasn’t going to allow that. I gave credit less to exchange controls than our regulators (at the time).