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 might not be all doom and gloom.
The rand hit one of its lowest points last week, trading at R17 to the dollar as fears around 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 had taken some severe hits on its biggest players, across various sectors, from miners to financial services and retailers.
This crisis places “significant pressures” on South African businesses which will, in turn, need to find ways to optimise their 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 some factors of resilience and the current Covid-19 and Eskom economic crisis is no exception. Jack says businesses and the commercial property sector, in particular, could come out stronger if they make it through this difficult period.
"This may come in the form of taking reliance on electricity away from Eskom – opening opportunities for renewable energy players. Properties retrofitted to be more energy efficient will also 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. Jack says this will underpin property prices in the Western Cape. Businesses can also make their property footprints more efficient by consolidating multiple sites or matching the floor space to the headcount.
“We see quite a significant reduction in headcount in companies, reflected in the recent employment stats. What is often overlooked is the office size stays the same 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 when companies sell off non-core assets. “Here we see companies choosing to sell their 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.