In the current difficult economic climate, many industries are performing poorly as growth stagnates and consumers remain cash-strapped; yet there are measures that companies can deploy to perform counter-cyclical to the economy.
According to Douw van der Walt: divisional executive: corporate banking at Nedbank, the South African economy remains fragile. This was highlighted by Morgan Stanley recently slashing its GDP forecast for 2014 to just 1,3% from 1,8% previously. “In such a weak environment it is often difficult to find many sectors that are able to outperform; yet industries such as the mobile communications sector, for example, seem to be weathering the storm.”
He says one of the reasons that mobile communications companies are performing better than others is that they are adapting their business models to track customer trends.
“The changing landscape of telecommunications and the way people use their phones means we are seeing lower call volumes; however, by moving the focus from voice to data, companies can offset some of this decline.
“Furthermore, cell phone operators are also identifying cost-cutting measures to keep their margins healthy. For example, operators used to run their own tower networks but as most companies require the same coverage in the same areas, they are now outsourcing this need and simply all leasing space, which proves far cheaper.”
Van der Walt notes that mobile communications also remains a growth industry, as companies look to expand aggressively into new areas, whether beyond South Africa’s borders or into new revenue streams. “As it becomes more difficult to find horizontal revenue streams, we are seeing vertical integration such as Vodacom’s approach to Neotel and Telkom’s move on Business Connexion, for example.”
He notes that other industries, such as the steel and construction sectors, are so closely aligned to the economic performance of the country that it is difficult to adapt their business models to react nimbly during a downturn that is driven purely by the economy.
“When demand for a product or service is low, it becomes increasingly difficult for these businesses to offset this slowdown. In this case, outside intervention can provide support, such as Government’s proposed infrastructure development plan, which anticipates spend of almost R1-trillion on key infrastructure programmes over the next three years.
“This would see companies gear up for more activity and could help the steel and construction industries run counter-cyclical to the economy.”
Van der Walt says for those companies that are simply unable to adapt their business models during a downturn and have little prospect of any other intervention, such as consumer related industries, it is critical that they shift their focus on managing costs.
“We work very closely with our clients to ensure they are able to manage their finances and asset bases effectively and responsibly during lean times to emerge fit for purpose when activity does pick up.
“The role of corporate bankers is not simply to be there in the good times but to assist clients during these tough periods; and this is often where the real value is demonstrated. Through a deep understanding of the industry and the likely challenges, corporate bankers play a vital role by delivering client-centred innovations that truly meet their needs,” Van der Walt says.