Should entrepreneurs pay attention to economic “noise”?

The South African economy had a bumpy start to 2016, impacting both small and large businesses alike. Recent attention grabbing headlines – from interest rate hikes, petrol increases and talk of a possible credit rating downgrade which has been averted – make it challenging for business owners to feel positive amongst the gloomy news.

Gugu Mjadu, spokesperson for the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, says that as it is difficult enough for established businesses with a sound client base to feel positive in turbulent economic times, relatively unestablished entrepreneurs in the process of starting or growing a new business venture are even further impacted.

She says that in such times, entrepreneurs need to carefully assess which types of economic ‘noise’ present in the media and marketplace they should pay attention to, and carefully consider what to take into consideration when developing strategic growth plans – both in the short-term and the long-term.

Some of the more prominent news recently, says Mjadu, is the country’s low growth forecast for the year. The recently released IMF World Economic Outlook report reveals that South Africa, Africa’s most advanced economy, is expected to see economic growth halved in 2016 to 0.6%. The report attributes this decline in growth to “lower export prices, elevated policy uncertainty and tighter monetary and fiscal policy”.

Another issue that’s currently dominant in the media is the electioneering by political parties as they campaign for votes in the upcoming local government elections, scheduled for August this year, which usually impact government programmes. “During any election year, policy decisions are often halted as Government politicians shift focus to campaign efforts, and this can provide uncertainty for both entrepreneurs and investors,” says Mjadu.

She adds that the fluctuating rand also reluctantly forces many businesses who source products and goods overseas to increase their prices in order to maintain profit margins, thereby possibly impacting client loyalty.

Lastly, the Monetary Policy Committee (MPC) also hiked the repo rate by 25 basis points in March 2016, resulting in the repo rate rising to 7% and the prime lending rate rising to 10.50%. “While this impacts all businesses, in particular, it impacts early stage entrepreneurs more as the lending rate is higher today than six months ago, or even a year ago.”

While faced with this negativity, Mjadu says that entrepreneurs cannot afford to pay attention to every negative economic situation and should instead analyse how each indicator will or potentially harm the business, and then plan accordingly to put pre-emptive or corrective measures in place.

“In the short-term, business owners should take the economic ups and downs, such as interest rates, into consideration as interest rates are expected to continue to rise this year. If possible, business owners should seek to increase loan repayments to avoid paying more interest. Similarly, if interest rates or inflation rises, customers won’t have much disposable income to spend. Businesses need to know how such market indices can have an immediate impact on business.”

She adds though, as much as it is important to keep an eye on daily influences that directly affect a business and how these will impact cash-flow and month-to-month bottom line, small business owners should allocate more time and focus on long-term objectives. “It is sometimes impossible to plan for all the short-term ups and downs, but by focusing on the business’ larger annual milestones and then planning realistically how you are going to achieve these, a business is more capable of surviving volatile periods.

Mjadu concludes: “While there were many macro-economic factors influencing investor and business confidence in the economy during the first quarter of 2016, many local businesses continue to survive and some even thrive. This is because there are reasons for entrepreneurs and small and medium enterprise (SME) owners to feel confident in the economy as with time invested to seek opportunities true entrepreneurs – those that see potential, rather than challenges – will continue to find the many gaps and business opportunities available in the South African economy.”