Director: ReVive Advisory & Turnaround
The challenges arising out of the radical increases in tariffs on exports to the US means that we are again faced with uncertain markets and rising input costs. Just when it looked like the macroeconomic fundamentals were moving in our favour. Low energy costs and a more reliable supply. Lowering inflation and likely interest rates cuts in the short term have all evaporated. An economic reset of this scale last happened in 1929.
And the impacts of this will no doubt be rising inflation, lower disposable income. And balance of payments challenges. The South African economy has a history of being able to respond to all these challenges. No doubt we will do the same again.
Review performance
This will start with an honest review of our performance in the changing environment. Are you still in a good market with good management and a supportive shareholder? Is your access to trade finance still in place?
Will your shareholder or foreign suppliers be focused on addressing the US and not be able to service a small economy. Will they even remain in business?
We will need a reconsideration of our supply chains and our customers.
Will our customers honour their offtake commitments? The examples to the shock wave are easy to find. What impact will Jaguar’s decision to stop shipping to the US and short shift production mean for SA. If we look at our Agri Businesses, they now look uncompetitive in the US. How do we find a new market for all the new citrus production that we have invested in over the last few years. Will John Deere still be the farmers favourite or will we move to TATA and Yanmar sourced from India?
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Engage staff
Engage your staff in the value chain to understand your sourcing and investigate your customers likely response. Some months ago, Wimpy cancelled their Americano coffee and replaced it with an Africano. Did they know something we did not? I am sure they were doing a marketing job to make their offering feel more South African, but more of those changes may happen as sentiment moves in response to a sense of unfair treatment or punishment for perceived ills.
Trumps agenda for South Africa is not just tariffs like everybody else. He is against the inclusive restructuring of our society and has found allies in our own country. Add the expropriation bill and the misleading statements of Farm murders and you have a toxic soup that extends beyond tariffs. All of this is exacerbated by the support for the Gaza cause, as just as that is.
How will the proposed tariffs impact you inputs? In fact, not much has changed yet. Our major trading partners are not seeking to place input tariffs on us and the impact of input cost increases into the US will take some time to reflect in our value chains. As the sun rises these inflationary tariffs will find their way to SA.
We also need to look at firstly our sales pipelines and customers. Then we need to look at our existing and new markets. And see what alternatives we have. The first consideration when such a market shift happens is to go back to the basics.
Exporters
For those businesses that export either finished goods or intermediate manufactured goods into the US it is important for us to secure customers likely demand and orders. The visibility of our stock levels and the ability to rapidly adjust the manufacturing or shipping to that market with the level of uncertainty this will take months to work out. Time and working capital will be needed. Speak to the financiers of your supply chain now. This event was beyond the control of all businesses, and they will need some time to readjust their cash flows and businesses.
We have some time to adjust but the work needs to start now and be done with a real sense of urgency. It requires deep analysis and understanding of our business opportunities and cost structures.
There will no doubt also be a realignment of shareholdings in these various companies as we. adjust a corporate structure to deal with these new opportunities. New partnerships in new territories bring new risk but need to happen. Trade needs to be encouraged, and the DTI must be a pathfinder for these new markets for South Africa.
Most importantly seek advice from your advisors and restructuring specialists. These skills will be in high demand globally. Revive has access to a range of seasoned executives that can assist in understanding these rapid and fundamental changes
Seasoned executives, diverse industry resources, and a unique turnaround perspective
