BUSINESS NEWS - The biggest challenge facing the South African economy is not low growth. It is the belief that there is no opportunity.
When people feel there is no path to seeing a return on their money, they don’t invest. And without investment, economic activity stutters.
This sentiment is of course understandable. On a macro view, the South African economy does not look appealing. The strategic plan released by National Treasury last week acknowledges that structural reforms have to happen to change the country’s fortunes.
Read: Treasury has laid down the challenge
However, in an economy as sophisticated and diverse as South Africa’s is, a broad macro view misses a lot of nuance. Low economic growth in aggregate does not mean that every business in every part of the country is seeing low growth. It is an average. Not a limit.
Where is your focus?
It also overemphasises the difficulties experienced by many large businesses, and underrepresents the rapid growth being enjoyed by a number of small businesses.
For example, Edgars may be struggling to survive, but that doesn’t mean that nobody can make any money by selling clothing in South Africa. In fact, it may signal exactly the opposite. Edgars’s problems are likely to be an opportunity for someone else.
One of South Africa’s most successful investors, PSG Group founder Jannie Mouton, sums it up like this:
“If you train your brain to always look at how negative things are in South Africa, you slowly fall behind. But if you focus on the opportunities and not the problems, then you realise this is a fantastic country.”
PSG has generated immense wealth for its shareholders by investing in South Africa – and it continues to do so. That is because despite how the macro environment may look, the growth potential in specific businesses remains immense.
Building momentum
Another example is Geddes Capital, which provides funding to local SMEs. Since it opened its doors two years ago, it has found it impossible to keep up with the demand for funding from small businesses in South Africa, despite never advertising its services.
“Almost every person we’re lending to needs the money for growth or working capital, not to plug a hole,” says CEO Brent Geddes. “They are winning a contract or winning a deal, so there is a positive momentum in their businesses.”
And in two years they have never had a company default on a loan.
“There is a huge opportunity for SMEs,” says Geddes Capital chief investment officer Warren Deats.
“You can say what you want about South Africa’s economy, but there are still loads of R5 million businesses that need R500 000 to grow to R10 million businesses.”
It’s telling that Geddes Capital has found this to be the case across many sectors. Small businesses in many parts of the economy are thriving.
“I hate the negativity we read all the time,” Deats says. “Through adversity comes opportunity.”
Geddes Capital has seen this from companies in areas as diverse as biofuels, retail, logistics and health food. Particularly they are seeing how nimble, smaller players are taking opportunities that their larger counterparts cannot.
It’s never the ideal time to be in business
“With a little bit of support from a lender or funder you can go from being a R3 million business to a R10 million- or R15 million business quite easily,” says Deats.
The reality is that the business environment in South Africa has never been ideal. But that hasn’t prevented some outstanding companies from being started and growing into extremely successful enterprises here.
There is also no more instructive example of how opportunity always exists than the list of global businesses that started during the Great Depression in the 1930s. They include names like Fisher-Price, Porsche, Walt Disney Studios and Samsung.
“Countries go through ebbs and flows,” says Deats. “Yes, the economy is tough, but there’s an opportunity to develop, an opportunity to grow, and there is money available to do it.
“If it was easy, it wouldn’t be profitable,” he adds.
“Where there is money to be made, it’s because it’s not easy. But if you’re pessimistic you will never see the opportunities.”
