Strategies to thrive through recession

INSIGHT

Howdy folks!
No doubt, our economy has been in recession in recent years. From double-digit growth of 10,6 percent in 2012, GDP has been yearly relapsing, to land at 1,5 percent last year.
The 2016 National Budget projects growth of 2,7 percent this year “mainly on account of mining, tourism, construction and the financial sector”.
But all these envisaged anchor sectors have been under-performing. Mining is not doing well, as commodity prices have been declining. Some mining companies have actually suspended expansion plans indefinitely, disincentivised by the slackening commodity prices.
Tourism has also been largely choked by the strengthening greenback, with reports indicating that arrivals at Victoria Falls declined by five percent between January and March this year. Hotel occupancy is reported to be around 40 percent.
The construction sector was also depressed in the first quarter of 2016, with some projects being suspended due to lack of funding. The sector is operating below 30 percent capacity.
The financial sector has not been spared and is currently ridden by a cash crunch.
In light of the above, it remains to be seen whether the economy will rebound as initially projected, but I bet my future 20 bond note that it won’t surpass one percent, ceteris paribus.
You know, folks, a couple of days ago, I looked at the financial statements of 20 manufacturing companies that are listed on the Zimbabwe Stock Exchange.
The intention was to understand their mutual woes and what can be done to deal with them.
Virtually all of them view the economic environment to be challenging and associated with difficult trading conditions.
There seems to be a cocktail of challenges bedevilling their businesses. Deflationary pressures were cited by the majority as a major threat to their operations.
The country has been sinking deeper into the deflation trap, from an annual average of 3,7 percent in 2012 to -2,4 percent in 2015.
And the strength of the US dollar against the weakening rand was said to have occasioned stiff competition from South Africa, both for raw materials and finished products.
That eventually resulted in their margins being significantly squeezed.
Manufacturing firms also cited increasing unemployment to be an albatross, as it has further resulted in consumers’ disposable incomes and effective demand declining.
The weak aggregate demand, coupled with liquidity challenges and funding constraints, also militated against their operations, leaving the capacity utilisation of the majority of them deteriorated.
Other challenges mentioned by the firms also include interrupted supply of utilities, delays by banks in remitting payments to foreign suppliers, smuggled competing products, increased competition by unregistered operators and erratic rainfall in the major markets in which they operate.
Yet they still strive to make it Zimbabwe, proudly Zimbabwean, despite all these challenges.
Granted, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to the own interest,” just as Adam Smith said.
But if it was much about their own interest, they could have simply closed shop long back and started to cheaply import the very substitutes from neighbouring South Africa to sell in the domestic market.
So, let’s give it to them; there is a sense of wanting to create jobs, a sense of contributing more to their economy — beyond their own interests.
Given the many operating challenges besetting local business in this recession phase, there are a number of innovative strategies they can implement to thrive while sustaining their operations to withstand the sting of economic depression.
I should single out Amalgamated Regional Trading from my study of those 20 firms as it demonstrated some form of dynamism that amazed me.
In their financial statement, Art said its “manufacturing units are now strongly positioned to compete with imports and the increased capacity in all the units has ensured that the Group is ready to exploit growth opportunities in its markets”.
Art managed to post a profit before tax of US$150 000 from a loss before tax of US$723 000 the previous year.
Their improved performance was a result of the recapitalisation of factories, production efficiencies and focus on cost containment.
While just about every manufacturing company is crying for protection, here we have one that does not need it, as it believes that there are measures that can be put in place to turn around the corner.
We have many companies out there that have the space to turn their businesses around, but are just ignorant of what they can do.
They focus much on the negative stuff that is said about Zimbabwe.
Yet “he who observes the wind will not sow, and he who regards the clouds will not reap” (Proverbs 11:4).
Indeed, if you look at the negative, you will not turn around the fortunes of your business.
The “negative” will tell you that Zimbabwe is ranked number 150 out of 167 on the Corruption Perceptions Index; 100 out of 102 on the Rule of Law Index; 175 out of 178 on the Index of Economic Freedom; 125 out of 160 on the Global Peace Index; 133 out of 141 on the Global Innovation Index; 125 out of 140 on the Global Competitiveness Index; 155 out 187 on the Human Development Index, 155 out of 189 on the Doing Business Index and, and, and.
Manufacturers highlighted that the trading environment is expected to remain challenging in the foreseeable future.
But what is needed is dynamic innovation and creativity for them to look at their situation and see opportunities they can tap into. This is a time for industrialists to focus on managing costs to over-compensate for revenue risk arising from this recession.
It is not time for a business-as-usual approach. It is, rather, a time for varying variables, just like one theorist called Victor Vroom did.
Won’t I accrue cost savings on key inputs by diversifying my suppliers? What if I right-size the business to try to capture market opportunities to bring material improvements in profitability? What if I streamline the organisation’s operations and cost base to create solid base for further improvements in performance? You may want to reduce inventories and overheads; or identify things that have a slower rate of turn as they lock up your cash. Why not consider leasing as opposed to buying, to keep your cashflow in a healthy state?
For those that are making profits, have you considered not declaring dividends so as to finance your expansionary plans without the headaches of borrowing a non-concessionary loan?
Are you asking all these questions? There are lots of options.
Yes, the rand is choking exports; but how about taking advantage of its decline to recapitalise and enhance operations in line with international trends?
Have you looked at your credit control management? Have you looked at considering to extend your product range to include more value offerings? Have you looked at managing your supply chain to ensure key product availability?
The key to survival is to continue to focus on value creation for all stakeholders through an all-inclusive approach to growth and development.
This is time to maintain your facilities in good condition in preparation for future recovery.
Companies that take time to review their marketing strategies might also end up seeing light at the end of the tunnel.
Why not try growing sales into the informal market through expanded distribution networks? And given the biting cash crisis, have you tried to negotiate barter deals with service providers so that you won’t have to use erratic cash?
Companies must also consider negotiating prolonging their debts while shortening what they are owed.
It is important to understand how the needs of your customers are changing in this era of recession and adapt your strategies to the new reality.
Intensive use of social media can also help in your drive to consolidate and improve market share. Building strong relationships with your clients is also key.
And regular market research can help by allowing you to stay in touch with customers’ expectations. You also have to understand that customers want bargains in a recession as every dollar counts to them.
Offering temporary price-cuts or creating competitive prices without compromising margins might be the way to go.
What many also forget is that a recession is an opportunity to hire more talented workers cheaply, especially those who would have lost their jobs at other firms.
But, most importantly, it is a time to build the morale of your existing workforce. Most employers often overlook this important aspect.
Your workers are under a lot of pressure as it now takes them more effort to close a deal than before. Some are also worried that their company might go bust or rationalise.
If you don’t put strategies to build morale, you might as well be catalysing productivity to fall.
While we wait for policy measures to turn around our economic fortunes, it is also imperative for business to implement strategies at micro level to enhance their operations.
Later folks!