COVID-19, Russia – Ukraine War, and now a looming recession, how sustainable is it now to still own a business, particularly in African economies, as a start-up and Small Micro Medium-Enterprise?
Among the greatest worries, would be the new burden brought about by inflation. A survey by Ipsos SA has found that this is the biggest concern facing people in over 27 big economies compared to other global issues like poverty, unemployment, crime, corruption, and even COVID-19.
Whilst businesses are now less concerned about COVID-19, the aftereffects are still being greatly felt. This is now worsened by the announcement by the World Health Organization a few days back that the monkeypox outbreak is now a global public health emergency.
Economists were found shaking at this announcement as several prospects among various value chains are not as prospective as they used to be. Will we re-live the global lockdown like we did a couple of years back?
China may probably be quite better off since they long had their borders closed. The rising costs of commodities worldwide keep soaring and the burden this has placed across multiple businesses in different economies has left many business leaders questioning their entities’ ‘going concern’; which is to say, “is the business likely to still be operational in the next financial year” if we may put it in layman’s terms.
The likelihood that businesses may not succeed as a result of inflation causes the greatest concern as the soaring food and energy prices have resulted in 71 million people in developing countries falling into poverty, according to the UN Development Programme (UNDP). This is specifically because whilst the pandemic had caused disruptions that led to prices increasing, the war accelerated this, particularly with wheat, corn, and sunflower oil.
I'm sure you've seen even in your household, the food that you could afford yesterday, is not as easy for you to buy today. This is quite particular for many developing economies, especially for those in Africa, including us, Botswana.
Whilst we are still a bit better off here, it’s getting quite sad around the globe. Research by Reuters recently found that regular people in Kenya are now back to using firewood to cook compared to kerosene (i.e., our common paraffin) and are also now back to walking instead of using taxis like they used to, simply because whether you’re in the informal sector or a formal job, what you are making is simply not enough to cover the general cost of living. It is really an uphill struggle to make ends meet.
Whilst many countries are trying their best to offer remedies to people and their businesses including tax cuts and subsidies to commodities, there are concerns that policies being implemented may not equally benefit all and some may disproportionately benefit wealthier people, feeding into the inequality gap. But unfortunately, we are not all ready for such conversations. However, I would applaud President Uhuru Kenyatta who has increased the minimum wage by 12%. Some of the best solutions that can be a saving grace for this continent is finding and accelerating synergy because just like we saw in the 2008 global recession, there is a likelihood that this inflation will continue for the foreseeable future if we put it in an economic context.
One way of going about it is fast-tracking the efforts of the African Continent Free Trade Area (AfCFTA). We still have member states that to date have not concluded their stance on the AfCFTA and this has slowed the efforts to boost intra-African trade to be self-sufficient and bring down the pressures brought about by these demand and supply forces.
The sad part about this is that it has left consumer wars between citizens and retailers where in some countries such as Botswana, retailers have made pleas with the authorities to raise prices even of basic products to at least break even, and consumers on the other hand simply refuse to pay more from their pockets and would rather capacitate the informal sector by selling the same products in the streets, for example, vegetables. The state is unlikely to do anything about this to avoid issues of protests from consumers because everyone is simply making survival adjustments.
The truth of the matter is that inflation will never really end, but at some point, we will get some sense of normalcy as it levels off at some point. Unfortunately, until that happens, small business owners need to find ways to adapt, look for growth prospects, and take advantage of remedies offered by governments.
It's quite simple, either one decides to remain as a small business and save as much as possible or one re-invests and finds innovative ways to circulate cash flow and improve growth prospects to keep up with the rising inflation. This includes looking at the credit lines available for your business. After all, if you can't manage it all yourself, it's easier to get a consultant to find efficient ways and reevaluate production lines and value chains.
*Chilo Ketlhoafetse is a Chartered Accountant and seasoned finance specialist focusing on economic issues affecting the local business environment. Feedback can be emailed to [email protected]