Alternate Business Strategies are Needed
March 10, 2020

The Rand hit one of its lowest points earlier this 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, down from 1% to 0.7%, 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. Mining company Glencore’s shares plummeted 13%, MTN lost 12% and South32 declined 11%. Other players, such as Standard Bank saw its share price down 5%.

A Call for Flexibility & Resilience  

In the wake of this, Galetti Corporate Real Estate CEO, John Jack believes that businesses must employ robust and innovative strategies to create greater flexibility to remain profitable. “This crisis places significant pressures on South African businesses who will, in turn, need to find ways to optimise their business to meet these challenges head-on,”.

He believes that despite all the challenges, the local market has always had some factors of resilience and the Covid-19-meet-Eskom economic crisis is no exception. Jack notes that businesses and the commercial real estate 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 that are retrofitted to be more energy efficient will also increase in value,” says Jack.

Just recently, the City of Cape Town announced that it would look to alternative power producers to provide more than 1MW of power to the city. This, Jack believes, will underpin the property prices in and around the Western Cape.

Jack notes the need for businesses to make their real estate footprint more efficient, whether this is done by consolidating multiple sites or identifying ways to match the floorspace to headcount depends on strategy. “We see quite a significant reduction in headcount in companies, which is reflected in the recent employment stats. What is often overlooked is the office size which stays the same despite there being far fewer people in occupation. This is a hidden cost that could be reduced”.

Jack notes that another strategy often employed in a difficult market is one where 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”.

Jack 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.”

 

 

 

Galetti

Marketing Manager at Galetti

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