Great companies will succeed in tough times
Businesses must employ robust and innovative strategies to create greater flexibility to remain profitable in the current negative economic climate.
If they accomplish this, it may not be all doom and gloom.
The rand hit one of its lowest points last week, touching R17 to the dollar, as fears around the coronavirus and a slowdown in the global economy impacted markets.
According to Bloomberg, this drop came as investors fled riskier assets, with tumbling oil prices adding to nervousness spurred by the spreading coronavirus.
However, uncertainty around Eskom’s future and the impact this might have on the country, as well as a downbeat assessment by Moody’s of South African growth ahead of its ratings review, were also contributors to this negative sentiment.
At the start of this week, the JSE took severe hits on its biggest players across various sectors, from mines to financial services and retailers. This crisis places “significant pressures” on South African businesses which will need to find ways to optimise business to meet the challenges head-on, says Galetti Corporate Real Estate chief executive John Jack.
Despite the challenges, he believes the local market has always had factors of resilience and the “Covid-19-meet-Eskom economic crisis” is no exception. Jack says businesses and the commercial real estate sector, in particular, could come out stronger if they make it through this difficult period.
“This may come in the form of taking away reliance on electricity from Eskom, opening opportunities for renewable energy players. Properties that are retrofitted to be more energy efficient will increase in value.”
Recently, the City of Cape Town announced it would look to alternative power producers to provide more than 1MW of power to the city. This, Jack believes, will underpin property prices in and around the Western Cape.
Businesses can also make their real estate footprints more efficient by consolidating multiple sites or identifying ways to match the floor space to headcount.
“We see quite a significant reduction in headcount in companies, which is reflected in the recent employment stats. What is often overlooked is the office size, which remains unchanged despite there being far fewer people in occupation. This is a hidden cost that could be reduced.”
Jack says another strategy often employed in a difficult market is one where companies sell off non-core assets.
“We see companies choosing to sell properties and lease instead. This gives them greater flexibility and a healthy capital injection at the same time.”
He remains positive: “Business must look past the negativity and instead find ways to remain relevant and take market share in a challenging market. This move will see great companies succeed and negative ones disappear.”