Connect with us

Entrepreneur Today

Moody’s Decision To Maintain Sovereign Rating Improves SA’s Prospects Of Keeping Its Investment Grade

The decision by Moody’s on Friday, 25 November 2016, to leave South Africa’s sovereign credit rating unchanged at two notches above junk status is another welcome reprieve, providing an extended window to rebuild confidence in the country and improve its economic prospects before the next ratings reviews next year.

Entrepreneur

Published

on

moodys-credit-rating-south-africa

moodys-credit-rating

The decision by Moody’s on Friday, 25 November 2016, to leave South Africa’s sovereign credit rating unchanged at two notches above junk status is another welcome reprieve, providing an extended window to rebuild confidence in the country and improve its economic prospects before the next ratings reviews next year.

This is according to Old Mutual Investment Group Chief Economist, Rian le Roux, who points out that now there is a better chance that S&P will also leave the rating unchanged this week.

Fitch’s decision to keep SA’s sovereign rating unchanged at one level above non-investment grade, but changing the outlook from stable to negative, is an indication that a downgrade to non-investment grade is possible unless prospects for the economy improve materially, and underpins government’s intended longer term fiscal consolidation.

Le Roux believes that while SA’s ratings from Moody’s and Fitch remains in investment grade for now, the longer term risk is still that, failing a material improvement in SA’s economic growth prospects through growth-enhancing structural reforms, SA could be subjected to multiple downgrades. Such an outcome could cause capital flight, a slump of the Rand, an inflation surge and will leave the Reserve Bank with no choice but to raise interest rates further.

Related: South African Venture Capital Company Launches To Help Local Start-Ups Take Off, Globally

“As agencies typically first change the outlook, before actually changing the rating, the negative ratings from all three agencies imply that the urgency has increased for SA to get its’ economic and fiscal house in order,” he explains.

“The implication is that SA will need to work harder to implement structural reforms to restore confidence and encourage investment.”

In its review, Moody’s noted the strength of South African institutions that support the investment grade rating, citing the public prosecutor dropping charges against Pravin Gordhan and the public protectors State of Capture report as positive developments.  But, it also lists a number of concerns including political infighting, low growth and unemployment, which it believes pose the greatest risks to the South African economy.

Le Roux says that the most significant risk in the short term remains whether or not S&P, which currently has South Africa at one level above junk status, will downgrade its sovereign rating to sub-investment grade.

“S&P might give SA another reprieve, as there have been a number of positive developments over the past few months, over and above the ones mentioned by Moody’s. These include strong and growing societal opposition to corruption and mismanagement in the public sector, a solid commitment to fiscal consolidation in the Medium-term Budget, a welcome lack of disruptive strike action, a much improved rainfall season, growing confidence that the economy is past the cyclical low, reduced upward pressure on local interest rates and a strong indication from government that corrective action at a number of state-owned enterprises has moved up the policy priority agenda,” he says.

However, Le Roux believes that S&P could downgrade SA’s local credit rating – currently three levels above non-investment grade – next week, on account of the rising interest burden of government debt and the fact that fiscal flexibility is still constrained.

Related: Will Minimum Wage Increase Boost Economic Growth In South Africa?

He adds that the past six months have seen little in terms of policy reforms and this keeps the risk of an actual downgrade by S&P alive.

“The recent announcement on the suggested minimum wage does create a bit more certainty about the issue, despite strong opposing views and further negotiations still to be conducted,” he explains.

“There have been indications that announcements could soon be made on the mining charter and labour reforms, creating some more policy certainty, but the timing is uncertain and it is obviously still uncertain as to whether the nature of these reforms will satisfy the agency.”

Another concern is the uncertainty around how S&P views SA’s institutional strength – currently sitting at a neutral rating. “If they change this to negative on account of the political tensions concerning the Finance Minister and concerns over the broad direction of economic policy, then they could downgrade us. However, we don’t believe at this stage that they will.”

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Entrepreneur Today

South African Students Win R50 000 In The Universities Business Challenge

Students from Mangosuthu University of Technology beat 500 students from 13 different universities across South Africa.

Entrepreneur

Published

on

business-students

The Overlings from Mangosuthu University of Technology are the 2018 winners of Cognity Advisory’s Universities Business Challenge (UBC), sponsored by General Electric (GE). The winning team of four students are walking away with R50,000 to turn their business idea into reality.

Launched in July this year, the UBC has seen 500 students from 13 different universities across South Africa participate in a business simulation competition designed to develop entrepreneurship skills.

When the competition launched, all teams were challenged to form virtual companies and to virtually manufacture and sell bicycles.

The final 10 teams were from the University of Limpopo, Mangosuthu University of Technology, Vaal University of Technology, University of KwaZulu-Natal and North-West University.

During the two-day final, the teams played six rounds of simulations. Each simulation gave the teams a chance to re-evaluate their progress and better certain areas that needed improving. The winning team realised during one of their simulations that in order to maximise profits they would need to introduce two new products and market it differently from their initial product. They paid special attention to their customer’s needs. 

The aim of the UBC was designed to tackle South Africa’s high level of youth unemployment. Statistics South Africa (Stats SA) announced that South Africa’s official unemployment rate increased by 0.3 of a percentage point to 27.5% in the third quarter of 2018.

Nkosinathi Sokhulu from the winning team said, “Even though we didn’t have a great presentation we made the most profit. This experience taught us a lot about ourselves and business. Most of the decisions that we made came from serious debates. We learnt that market research is crucial when starting a business. We learnt that marketing starts and ends with the customer.”

Related: 20 South African Side-Hustles You Can Start This Weekend

“Based on this market research information we realised that it was important for us to introduce two new products and this, in addition to the main product we were selling, helped us to maximise profits. We saw an opportunity to add more products and it paid off” said Mbali Tshozi.

Tope Toogun, development advisor and CEO of Cognity Advisory said, “All the teams showed tremendous promise and I was very impressed by their levels of engagement with one another and their tenacity.”

“We really want to ensure that students are equipped with the necessary skills to not only start a business but to run it effectively. While we have selected one winner, our hope is that each team has benefitted by having learned the skills needed in the workplace.”

“The competition is designed to develop the ‘soft skills’ that are important for those wanting to set up their own business or simply be successful at work. With rising unemployment and ongoing talent shortages, having these skills is crucial for those wanting to get a job.”

The UBC, now in its second year in South Africa, will continue into its third year in 2019 and will run as the Africa Enterprise Challenge (AEC).

Continue Reading

Entrepreneur Today

Use The December Shutdown Period To Do Just That: Shut Down

by Greg Morris, CEO, Sebata Holdings

Entrepreneur

Published

on

closed-for-business

Most businesses – retail and entertainment excluded – resemble ghost towns during the first and last weeks of the year. Energy levels are low in December, and employees daydream about cocktails on the beach. Come January, it takes a few days to get back into the swing of things. Before we know it, South Africa takes another extended holiday in April.

We’re accused of having a “holiday culture” in South Africa. That’s a fair comment. We get 12 public holidays a year, which is more than most countries. And many people use their annual leave strategically in April and December to maximise their time off. As a result, we only really work for 10 months of the year, while other countries work for 11 months.

There’s no doubt that public holidays affect the economy. One extra public holiday in 2011 resulted in an estimated R7 billion loss in turnover. But there’s also a lot to be said for taking time off. And when we know the holidays are coming, we can prepare for them, so employees make the most of their downtime and start the new year on a strong footing.

Burnout is not good for business…

Productivity and motivation are like fuel tanks. While driving, the fuel dries up. At some point, we need to fill up, otherwise we’ll break down. People are the same; we can’t run on empty. Weekends are one thing, but in our culture of always-connected busyness, we don’t get a chance to recharge over weekends. That’s why we need the longer break in December.

A Pulse Institute study found that, when employees are not rested, they experience:

  • 23% reduced concentration
  • 18% reduced memory function
  • 9% increased difficulty in performing tasks

Fatigue-related productivity losses amount to R26,000 per employee per year. Sleeplessness can also result in mistakes and increased absenteeism, accidents, or injury.

Well-rested employees, however, are happier and more creative, engaged, and productive. They get more done in less time than their sleep-deprived, low-energy colleagues.

Related: Year-End Doesn’t Have To Be A Pain For Your Business

… but if you’re going to burn the midnight oil…

Businesses often think of December as a slow period that will harm the bottom line. Yes, it can be disruptive and there will be financial impacts. But if you’re going to keep the doors open til the end, this is the perfect time for internal housekeeping. Even the most efficient and streamlined businesses can improve some internal projects or processes.

Allow teams to be inwardly focused during this time, so that you start the new year with less to worry about. Whether that’s planning for 2019, reflecting on what worked and what didn’t in 2018, cleaning up databases, servicing air cons and office machines, connecting with customers over coffee, updating your website, or creating new marketing campaigns, employees can achieve a lot when they’re not focused on the day-to-day grind.

Our best ideas come to us when we’re relaxed and not thinking about them. (If you’ve ever scrawled on the steamed-up shower door, you’ve experienced downtime creativity.)

Make the most of skeleton staff time in December. Host fun creativity sessions that have nothing to do with work. Pay for your people to complete short online courses that will give them skills and motivation boosts. When they do go on holiday, perhaps their new knowledge will result in a major ‘a-ha moment’ around the family braai.

Gone fishing

My best advice for businesses that are shutting down in a few weeks is this: shut down. Since the business is not generating income, everything that’s left running – that one employee watching the phone that never rings; that one light left on – hurts the bottom line.

Encourage teams to disconnect. Don’t expect them to answer mails and don’t contact them about work while they’re on holiday – unless it’s an emergency. Block access to mails if you have to, Volkswagen style. Give your people time to think, reflect, and sleep.

When we respect employees’ time and give them freedom to work when they’re most productive, we develop motivated, positive workforces who are enthusiastic about achieving the business’s goals. They work harder to get the job done and, in our experience, actually finish projects ahead of deadline because they want to be able to switch off and go fishing.

Related: Year-End Reviews Are Not Always A Positive Experience

Power down

Downtime is often seen as wasted time. We don’t take breaks, we eat lunch at our desks, and we work when we’re sick and should be at home. But working longer hours doesn’t mean that we’ll get more done. In fact, it can be enormously counter-productive.

Neuroscientist David Levitin cautions against the “false break”, when we feel guilty for taking time off and compulsively check emails. Napping, daydreaming, and “taking true vacations without work”, he says, is biologically restorative and essential for rebooting cognitive energy. So, if you’re going to shut down, do it properly. The same business challenges will be there when you get back. But you could solve some of them while you’re sleeping.

Continue Reading

Entrepreneur Today

Seasonal SMEs: Don’t Spend Your Extra Cash All At Once

Save a portion of festive season profits for an emergency fund.

Entrepreneur

Published

on

festive-season-spending

The festive season is a time when many seasonal small and medium enterprises (SMEs) reap the rewards of increased consumer spending, such as additional sales and accommodation bookings from the influx of holiday makers and festive season shoppers. This spike in earnings offers the ideal opportunity for these businesses to save some of the extra money that they make for an emergency fund.

This is according to Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS), who says that a major risk faced by many businesses is their vulnerability to an unexpected financially-draining mishap such as a big client loss, a lawsuit, or any accident that is not covered by insurance.

“Despite this, few SME owners have an emergency fund in place to deal with such unforeseen events,” he says.

“This is understandable since a growing business tends to require a lot of cash to move forward. Another likely reason for this is because most SME owners are more focused on the immediate practicalities of building their business, rather than on vague risk assessments and planning. By nature, entrepreneurs also tend to be chronically optimistic about the future good luck of their business,” adds Lang.

“However, considering South Africa’s underperforming economy and rising consumer price inflation, it is essential that all SME owners save for a rainy day. Those that have boosted seasonal business have an advantage and should capitalise on this by putting aside a portion of their seasonal profits,” he explains.

Related: 5 Small Business Money-Saving Myths

When saving towards an emergency fund, it is key to set a goal, Lang points out. “A good rule of thumb is to have three to six months’ worth of overheads set aside, but even just one month’s expenses are better than nothing.”

The next step is to decide what constitutes an emergency, he says. “If an emergency fund can be dipped into every time you want to avoid an awkward phone call to the landlord to say that the rent will be slightly late this month, it won’t last long. A true emergency is one that threatens the survival of the business.”

With this in mind, thinking through and writing down a list of possible emergencies that would justify the use of the fund is a good risk-assessment exercise for any business, suggests Lang.

Finally, some thought needs to be given to where an emergency fund should be kept, he says.

“Gambling with the money on the stock exchange defeats the purpose. A money-market account is a better option, but it may be worth considering an account where the funds aren’t too easily accessible, so there’s no temptation to dip into it on a whim. On the other hand, it should not be so inaccessible that you cannot access it fairly soon when an emergency does strike.”

As such, Lang recommends a set of notice deposit accounts with varying notice periods so that a limited amount can be accessed immediately, and some a little later, which allows for some interest to accrue while the money, hopefully, will not be used any time soon.

“However, ultimately the will on the part of the business owner to attain these savings is critically important. The cash demands in a business are so constant that any vague or half-hearted attempt to establish an emergency fund will fail. It will have to be a conscious and disciplined effort by the business owner,” Lang concludes.

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending