Hard times ahead, there may be opportunities too

Survivors know that during an economic downturn, a surprising number of opportunities present themselves to businesses that are well prepared and carefully managed-and that storms do pass eventually, even those as bad as the one that has been building up so far.

A number of factors point towards the possibility that 2016 may be quite rough for business. The Malawi economy is at the mercy of adverse global economic forces. Growth in China is at a 25-year low, and with it, the prices of commodities. Europe is still struggling to recover from the 2008 crash, and is tested by the worst refugee crises since the Second World War.

At home, Malawi’s worst drought in a century is bound to ignite high food inflation, which will be intensified by the fall in the kwacha and the State has no more fiscal reserves to spend to boost the economy. The tobacco season which has started off on a wrong footing does not seem to make things any better.

Add to all of this, Malawi’s propensity to score own goals-think load shedding and finance minister shedding-and it starts to look as if 2016 will rival the great recession of 2008.

For almost all owner-managed businesses on the ground, these grim conditions essentially mean that their clients will have less money to spend. Those that service households will find their clients’ disposable income knocked by inflation, stagnant wages and rising interest rates. Businesses in corporate supply chains will feel the effect of shrinking budgets as corporations cut costs and put growth plans on the back burner. The same goes for businesses that service government-the budget was revised down entailing less spending by the government.

Across the board, competition among businesses will increase as they chase a shrinking amount of disposable income. Pressure from staff for increased wages to cope with food inflation will add to the discomfort and input costs generally are likely to rise.

What are businesses to do in such conditions? There has to be a set of survival tactics or decide to throw in the towel and go under.

The first is preparation and planning. Now is the time to review costs and fine-tune your efficiency and productivity. Plans should include more than one scenario, and drawing your staff into these exercises will help to manage their expectations.

Second, cash flow management becomes supremely important. Businesses with weak debtor management systems and leaky budgets will probably not survive. Aggressive collection of outstanding debt is paramount to keep oiling the working capital machine organically.

Third, delight your clients with improved service. Increased competition in the coming months means they will be tempted to move to other suppliers.

The fourth survival method, and by no means the least, is not to lose sight of the inevitable business opportunities that downturns bring. Some of the most enduring businesses in the world were born during recessions. Even the terrible drought Malawi is experiencing has an upside for some businesses, such as those selling water-saving devices and the forth coming erratic power supply due to low water levels in the next coming months can pose an opportunity for power back up suppliers. Businesses that have been servicing the government might want to start adopting new principal – non-governmental organisations.

Many businesses that remain standing will experience an increase in the number of enquiries from potential customers who had previously used the services of competitors who succumbed to the downturn. Such opportunities should be handled carefully, with long-term growth in mind. Businesses that exploit such a windfall opportunistically with heavy prices and shoddy service, will find that their clients leave in droves as soon as the good times return.

There may not be enough going in Malawi’ favour but the market, albeit shrinking, is still there, skills are still there, what is simply needed are enough opportunistic entrepreneurs to tide us over. n

Fosters Kalaile is country manager of Business Partners International