Business should expect volatility, and work to build resilience

Delivering the post-meeting statement of the Monetary Policy Committee in May 2023, the governor of the South African Reserve Bank (SARB), Lesetja Kganyago, noted: “Economic and financial conditions are expected to remain more volatile for the foreseeable future”. 

This sentiment has been shared by the International Monetary Fund (IMF). In their March 2023 report ‘G-20 Background Note on the Macroeconomic Impact of Food and Energy Insecurity’, the IMF notes that “…the up-and-down swings in commodity prices will likely pose economic challenges in coming years”. The multilateral organisation further notes that “volatility in commodity prices also appears to increase the volatility of domestic inflation over the medium term”. 

Geopolitical developments have caused global commodity price swings 

Such swings in commodity prices can weigh on long-term economic growth, especially for commodity exporters like South Africa, and may induce greater volatility in government finances and thereby lead to stop-start public investment – undermining both physical and human capital investment.

We have seen this volatility on various fronts, some of it emerging from the five global Megatrends identified by PwC as early as 2013. These megatrends include climate change, technological disruption, demographic shifts, a fracturing world and rising social instability. It is important to reflect on the volatility presented by recent global events, and present actionable solutions on how individuals, leaders in public and private sector organisations, and businesses should work to build resilience given the poly crisis world we live in. 

In July 2023, we have seen two events which can be expected to have a destabilising effect on food prices globally and in South Africa:

• Firstly, India's decision to ban exports of rice adds to rising risks to global food prices. India is the second largest rice supplier to South Africa, with an average annual share of 21% over the past five years. Rice is among South Africa’s staple foods, and this is cause for a concern for families and policy makers. 

• Secondly, Russia halted the Black Sea grain deal, agreed on in July 2022. This deal allowed for a safe grain movement from Ukraine and Russia and helped to combat a global food crisis. Agriculture economist Wandile Sihlobo has noted that this deal had been “one of the major contributors to the current slowing in global agricultural commodity prices”. 

Geopolitical developments such as the Russia-Ukraine conflict has created much volatility in the global economy. The World Trade Organisation (WTO) has estimated that the opportunity cost of geopolitical rivalry is 8.7% of real income globally, and 11.3% for the most vulnerable economies. As a global Megatrend, a fracturing world leads to trade and supply chain disruptions. According to PwC's 26th Global CEO Survey, some 53% of South African CEOs polled believe their company is moderately, highly or extremely exposed to geopolitical conflict.  

Our trading partners are responding to climate change by levying taxes

Another Megatrend we have observed is climate change, which has already seen numerous climate disasters in South Africa, affecting food production and threatening communities. We also know that South Africa is the most carbon intensive economy in the G20, with a carbon intensity more than double the world average.

Earlier this year, one of our biggest export markets, the European Union (EU), announced that the Carbon Border Adjustment Mechanism (CABM) has been adopted by the EU parliament. This is an important development, which will have important implications for various sectors in South Africa and our competitiveness. The EU will levy a tax on goods produced outside the EU to encourage partners to decarbonise or balance the efforts on decarbonisation within the EU and partner countries. 

South African society needs to act, in a collaborative manner between the public and private sectors, to address climate change and build resilience against its impacts – including relations with our trade partners.

Technological advancement, which is responsible for constant changes in the way we work and live, is leading to some anxiety. According to our CEO survey, 74% of South African CEOs believe technology disruptors will impact industry profitability over the next ten years. We are also seeing other concerning trends such as increasing disinformation and misinformation, more business competition and loss of market share, increased cyber risk, and a mismatch between required and available skills. 

In South Africa, this Megatrend has connections and implications for another – demographic shifts. Half of South Africa’s labour force aged between 25 and 34 are unemployed, and this has been blamed on the lack of skills amongthe youth. This means that staff skills programs within companies, as well collaboration between the private sector, public sector and education and skills institutions will be critical. 

Building resilience at all levels and sections of society and the economy

It is clear from the sentiments shared by Governor Kganyago and the IMF, as well as the Megatrends we monitor, that we should expect turbulence for the foreseeable future. Under these circumstances, it is important that individuals, leaders, and organisations work to build resilience at all levels and sections of society and the economy.

Taking action on building business resilience 

We have mentioned just some measures that could be helpful. However, it will be important to develop sector, supply chain and business-specific resilience strategies, and understand that we live in a polycrisis world. Resilience will require multi-faceted, data-driven, expert-led responses. Importantly, collaboration will be a key ingredient. 

Our recent report Building resilience in a polycrisis world provides several practical steps for South African business leaders to make sure their companies are resilient against disruption. For example, they need to work out what is necessary to deliver key services and how long it will take to get them up and running.

Where a new direction is taken on risk and disruption, stakeholders need to understand why the C-suite has changed the way it views existential risk and buy into this new approach. There is also a strong human resources aspect to this endeavour, and business leaders need to bring together the right people for the risk conversation, invest in developing their crisis-management skills, and focus on empowering them to make key choices.

The more prepared a business is to manage disruption, the less destructive and long-lived the crisis will be for the enterprise. By incorporating lessons learned and leading global practices and standards, proper resilience planning can help a business withstand disruption and reduce the overall impacts of a crisis. In the long-term, building resilience will strengthen a company’s ability to respond and adapt across key organisational pillars like operations, technology, workforce, data and finance.

For more insight, please read Building resilience in a polycrisis world and reach out to us to discuss your strategic options in South Africa.