Businesses need to look ahead and adapt

SIMON BROWN: I’m chatting now with Christie Viljoen. He is, of course, PwC South Africa senior economist. They’ve just published their most recent South Africa Economic Outlook.

Christie, I appreciate the early morning time. You make a really great point in this report around a lot of the focus being on building business resilience and staying operational in a world full of global crises such as climate change, and local crises such as load shedding. It is tough being a business out there and you really need to be adapting.

CHRISTIE VILJOEN: It has certainly been [so for either] a big company or a small business. We’ve gone through quite a few years of shocks and disruption. We’re thinking about the Covid-19 pandemic, we’re thinking about the global fallout from the Ukraine situation, and obviously now the big issue at the moment is load shedding. We have had three, four years of very challenging business conditions, slowing economic growth and concerns of a recession.

So, yes, at this point we’re thinking and we’re talking to our clients about how to keep going, how to prepare, how to stay resilient and agile. Those are not big words or catchphrases we use. Those are ways of thinking about how I can just look above the current situation, just beyond the horizon, and think about what I could see next and how prepare for that.

SIMON BROWN: I take your point. It’s not necessarily always giant things. You mentioned, for example, greylisting. On 24 February we were greylisted. People have gone quiet around that, but it’s managing that – which is manageable, and you need to lift you head and put the processes in place. If you have global counterparties, that is however going to bring some cost into the equation for the local business.

CHRISTIE VILJOEN: Yes. I think for most people in South Africa the greylisting has sort of come and gone. Because it does affect different companies and different industries in different ways, there is also not one universal approach to it. We know that the big impact is when you transact with another company that’s overseas. It could be a client, it could be export or input, could be investment, it could be as simple as a banking transaction. Mostly it involves a bit more paperwork, more due diligence, and increased costs around these processes.

I think most companies have sort of said to themselves, listen, this is probably not the most serious thing going on at the moment. We’ll just handle it. That might be why it’s a little under the radar, I think; also because there is actually some realistic optimism that we will eventually get off this list. We’re probably seeing companies dealing with other more important things at the moment.

SIMON BROWN: Yes. And you made the point. There is load shedding – we all get that, absolutely. You even talk around, for example, technological disruption and a lot of folks would think surely that has kind of happened. But those sorts of trends are continuing. Obviously [with] artificial intelligence, whether it be ChatGPT or whatever, there are going to be continual challenges, I suppose. That is part of running a business whether you’re in South Africa or in Wichita, Kansas.

CHRISTIE VILJOEN: Yes, most certainly. Those points that you’re making – the technological disruption and climate change, for example – those are what we call the mega trends. Those are the big things that have been around for quite some time. They’re going to be with us in the foreseeable future. They are global in nature. They’re touching all of us. And as a small or even a big company you can’t control that.

Let’s say climate change – you have no control over that. What you do have control over, when we think about that business-resilience conversation, is how I prepare for it. What do I do when a flood happens, or a drought happens, and it disrupts my supply chain? That’s the kind of conversations we’re having. We’re telling businesses [to] plan and think about different scenarios, about how this could disrupt you and what to do to keep the doors open and recover and actually keep the business going.

If suddenly this disruption happens and you have to close a factory or office for two weeks, that’s just not just lost revenue, that’s lost employment, that’s a big chunk of clients who may be going elsewhere. So yes, you can’t control climate change, most certainly not, but you have to be able to control how you react when something like that happens.

SIMON BROWN: Yes, I take that point. And of course we had those devastating floods down in KZN in April last year, and we saw exactly that, with businesses having to close. And, speaking with listed CEOs, there was a really significant impact on their businesses.

Looking at the macroeconomic forecast, it has not massively changed from the last time we chatted. In the repo rate you are looking for another quarter percent to the upside during this year. Inflation is remaining sticky at sort of 6%, and not really getting back into that bandwidth the MPC [Monetary Policy Committee] is looking for.

CHRISTIE VILJOEN: Yes. Inflation has been very sticky at around that 7% level. But if you look at what the Reserve Bank is saying in its forecast, it is expected to come down in the next few quarters. Now, some is just statistical effects, because it went up so significantly last year. It eventually needs to come down just because of how it gets calculated. But yes, quite sticky.

And then there is always the question: what’s next with the interest rate?

We see a little bit being added probably in the month of May. But then, because of what the Reserve Bank does – it forecasts inflation and, based on that, makes these interest-rate decisions – its forecasts are showing inflation going down slowly but going down back into the target range next year and the year thereafter.

So whether we see a small adjustment in May or not, we’re basically very close to that peak in interest rates because, as the Reserve Bank says, inflation is coming down. It’s not going to be quick; it’s going to be slow. But when you look at how they do things, that’s the view that you need to have. We’re probably close to that peak of where interest rates are going.

SIMON BROWN: We did see, to your point, inflation hit, what, 7%? I think the first time was in June last year. That starts to unravel itself.

Christie Viljoen, I always appreciate the time. PwC South Africa senior economist.