New dawn after five years of economic gloom

Written by Vernon Cheung

Feb 21, 2014

For business owners who have been operating in survival mode over the past five harrowing years of economic gloom, the signs of a turnaround may not be all that apparent, but according to Nazeem Martin, MD of Business Partners Limited, the evidence is compelling.

The US economy is expected to grow at 2.5 percent, a sturdy rate for the biggest economy of the world; Europe’s expected growth of one percent is a decent swing around from a similar size contraction a year before, China is still pumping at 7.5 percent growth and African economies at five percent per year.

Martin says that the economic growth forecast is not just figures on paper. On his recent travels to global development finance conferences, the potential breath of new life into the global economy was tangible. “The number of active cranes on city skylines was striking, and the positive outlook is growing amongst business owners as well as industry leaders. I am certainly more optimistic now than I was a year ago.”

He says that although this global growth may still seem far removed from local business owners and their daily struggles, the growth will come trickling down throughout the whole of the South African economy. “The first to benefit will be the manufacturing, agriculture and mining sector because they are in many ways directly linked to the world economy. The spin-off for South Africa’s small businesses is clear: the better big businesses within these industries do, the more they buy goods and services from smaller suppliers.

“Tourism, by its nature plugged into the world economy, is already starting to feel the uptick with the number of visitors reaching new records.”

With the combination of a weak rand and an awakening world economy, Martin sees improved conditions for almost every sector of the South African economy. He highlights a few sectors with particularly tantalising opportunities:

  • Education

The education problem in South Africa, a struggling state system unable to meet the huge demand from parents who are increasingly willing to pay for quality schooling, is a major opportunity for entrepreneurs, as the success of the private-education group Curro shows.

  • Renewable energy

Even though the capital investment is steep, renewable energy supply presents a big opportunity for entrepreneurs.

  • Online

Online businesses are capitalising on steadily increasing e-commerce in South Africa. Online education and training services combines this with the demand for quality education.

  • Exporting

Trade into Africa holds major opportunities, and exporting with the current weakness of the rand is now so much more lucrative. However, Martin warns exporters to treat rand weakness as a windfall gain. It must not allow business owners to slacken the tight reign they keep on costs and quality.

Desire and focus

He says that while conditions are improving, each of these emerging opportunities still require true entrepreneurship from business owners, and advises that small operators establish niche products and services, rather than aiming for mass production, which is the preserve of big capital.

On the downside, Martin points to a number of factors that will challenge business owners and economic growth in South Africa in the coming year. “The economy cannot really grow if South Africa’s electricity supply remains on the brink. There is no easy solution for small-business owners who want to expand faster than the local power supply, apart from joining other business owners in forums that lobby for change. Persistence, one of the hallmarks of true entrepreneurship, is required here.

“Even further beyond the control of business owners this year are the inevitable uncertainties that come with elections. Investors prefer to sit tight and wait for the noise to die down before they take decisions, which may hold back the South African economic recovery from attaining its full potential in the first half of 2014.

“Might the election spur the government to kick start at last the long awaited infrastructure roll-out programme which would really boost the South African economy? Probably not. In fact, irrespective of the outcome of an election, it usually goes hand in hand with a lot of staff changes and reshuffling in government, leading to further delays in decision making.”

These challenges are real, says Martin, but they are nothing new and, for the first time in a long time, look as if they will be overshadowed by positive trends in the economy.

 

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