It is mind boggling that with the economic and financial preponderance in 9ja and the rest of Africa, we are finding it difficult to claw our way out of the economic quagmire we are in.
Against the backdrop of these economic challenges, the organized private sector needs to figure out survival strategies for such a time as this. This article looks at some of such strategies proposed by concerned experts at United Capital seeks to proffer options for consideration by companies operating in these markets. Businesses and organisations in challenged economies like Nigeria, South Africa, Angola and Ghana may need to review their business models and financial structures and to explore some of the following options:
1. Low-end disruption
One key effect of recession is to increase the possibility of low-end disruption in established markets.
Economically challenged buyers who are currently over- served by existing market leaders will be more easily attracted to low-end discount products. This was the origin of the disruptive effect of "Sachet technology" innovation by products like COWBELL Milk in a market previously dominated by leaders like PEAK milk during the last recession in Nigeria. Commoditisation and unbundling of erstwhile specialist services to reduce unit cost and provide greater choice to consumers will create both an opportunity and a threat to established providers.
The same disruptive creativity occured when APPLE Computers carved a niche for themselves in the early 80s with their Personal Computers and grabbed a huge market share previously dominated by IBM that churned out products specially for large cooperations.
2. Diversification of Product Offerings and Service Outlets
Economic reality and cash shortage will favour mid-cycle retail shopping models and convenience stores. We can anticipate waning interest in luxury and high-end consumer goods. However a large and young population favours investment in agriculture, basic consumer goods, food processing and education.
The significant devaluation of local currencies will favour businesses which provide local substitutes for imported raw materials. Domestic businesses are encouraged to earnestly seek local substitutes for imported raw materials and develop cheaper products for low-end consumers. Investment in locally produced ready to wear fashion items should be attractive as increased cost of imported goods bites harder into consumers’ budgets.
For similar reasons there should be a rise in demand for good quality private education for middle class parents who can no longer afford to send their children abroad due to high foreign exchange rates.
3. Distribution
Expansion of distribution and sales via exportation becomes very attractive as a means of earning higher revenues because of the impact of domestic currency devaluation. This is a great time to cultivate the diaspora market. Platforms which promote African cultural products to foreign and diaspora markets are a great idea for this time. Electronic distribution platforms, digital sale outlets, platform distribution and open architecture platforms are innovative ways to increase sales at lower customer acquisition cost.
4. Financing Structure
This is certainly a time for companies to re-examine their funding structure and consider the following:-
Debt restructuring to lengthen tenors of existing obligations and ease cash flows.
Restructure to reduce / minimize foreign currency exposure.
Replacing short term debt with equity and other types of patient funding
Vendor finance, supplier credit and other alternative funding options.
5. Efficiency Initiatives
These jnititiatives take advantage of technologies capable of doing more compared to human efforts.
These help to deliver superior performance and grow revenues in a depressed economy whilst simultaneously reducing operational costs in a highly inflationary environment. Steps undertaken include stripping loss making products with persistent adverse outlook to a bare-bone structure and demand driven allocation of resources, i.e concentrating resources in market segments experiencing high demand.
Corporate players will certainly benefit from efficiency driving technologies at this time. One of such more successful and yet simple cost saving initiatives has been the paperless office rule which grossly reduced our stationery consumption expenses.
6. Liquidity Management
Liquidity created by selling already optimised assets at peak values puts one in a position to make strategic value enhancing acquisitions at discount prices due to the effect of recession on asset prices. For these investments to be justifiable, target acquisitions must be assets being acquired for their long term strategic values especially from synergies to be exploited and not portfolio acquisitions for short term gain as they may need to be carried at very low book values for quite a while.
Conclusion
In conclusion, the outlook for many emerging and frontier economies with high dependency on commodities as their major revenue source face huge challenges such as currency devaluation, high unemployment and rising inflation which have produced a tough business environment. It comes as no surprise that adverse results such as *high inventory levels,
*reduced manufacturing capacity, *downsizing of personnel,
*crashing stock
*property markets as well as rising interest rates are exacerbated by ineffective economic management.
To survive the harsh macroeconomic times currently faced by many African countries, the organized private sector needs to be more creative and consider reorganising our financing structures, operations as well as product and service offerings by adopting options such as
✔low-end disruption models, ✔varied distribution channels and ✔debt restructuring.
Attention needs to be paid to efficiency measures such as adoption of smart technologies in the real sector and more effective deployment of liquidity into high yielding and well thought out prospects so as to maximise emerging opportunities that abound our blessed continent.
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