Financial Management and the Economy

Economic growth? The economy grew by a mere 0.7% in the third quarter of this year after contracting by 1.3% in the previous quarter. As a result, overall growth estimates for 2015 have been revised from 2.3 % down to 1.2%. This would make it the lowest since the 2009 recession, and less than half of the twenty year average of 3.2%. Make or break formula How can the government improve the financial management of the country’s economy? According to the Sunday Times, the Goldman Sachs MD for sub-Saharan Africa, Colin Coleman says that the current combination of high unemployment, low growth and rising interest rates is a dangerous combination for the economy. He recommends creating a group of economic ministers who are centrally driven around the objective of growth and development. He also advocates the creation of an advisory economic council including captains of industry, trade unions, civil society leaders and economic ministers. Similarly, Iraj Abedian, CEO of Pan African Advisory Services, recommends that Government, Labour and Business need to work together to resolve the issues. This would mean wearing different hats. Labour would need to focus on productivity, while business would need to be more socially active. Government’s role would be to balance and protect national interests. Timing is everything Coleman said that his proposals regarding a government led initiative to work with business and trade unions had been positively received by government officials but that it might be a difficult challenge two years ahead of the leadership succession. This begs the questions. When would it be the appropriate time for government to address this urgent issue?...

The Impact of the Interest Rate Hike

Are you prepared for the interest rate hike? The Reserve bank has increased interest rates by 25 basis points. Market consensus had predicted that a hike was not expected. This was because economic data had been disappointing and because the inflation rate is within the target parameters. Many economists now think the increase is the right decision in view of a possible increase in US interest rates next month and the possible effect on foreign investment. Some also believe that the Reserve Bank needs to stay ahead of the curve. The Reserve Bank governor says the committee had seriously considered delaying the increase and watching developments unfold. Such a delay, however, could have led to second round effects requiring an even stronger response. Analysts are now divided as to whether rates will now hold for an extended period until late in 2016, or whether rates will reach 7.5% next year. The effect of interest rates The economic effect of the rate increase will be felt by the poor and middle classes. It was reported in The Times that 23.37 million South African are in debt and that the average consumer has four credit agreements. Furthermore, 5.2 million debit orders go unpaid every month. The effect will be felt more by pensioners and those in the informal sector. Those in the middle income group are already under increasing pressure as pay increases are slowing down while food and electricity prices are increasing. The poor will also be hit hard, particularly as many have loans through micro-lenders at higher interest rates. Consumer spending normally surges at this time of the year,...

Surrounding yourself with the right people

That which makes up a leader The famous industrialist, Andrew Carnegie, once suggested that his epitaph should read  “Here lies a man who was able to surround himself with men far cleverer than himself. “ It has been suggested that a strong leader is comfortable surrounding himself with various experts, knowing it makes him look better, while a weak leader fears that doing so will make him look idiotic. But this article is not about appearances, it’s about results. Andrew Carnegie built Pittsburgh’s Carnegie Steel Company, which he sold to J.P. Morgan in 1901, creating the U.S. Steel Corporation.  It was the first corporation in the world with a market capitalisation of over $1 billion, and still exists today. Andrew Carnegie’s company was responsible for many innovations in steel production. He was an incredibly clever man but he believed in the power of teamwork. He believed in utilising other peoples’ talents and strengths. This is how you lead An entrepreneur, or the owner of a small business, is often denied the luxury of building a talented team around him or her, because of financial constraints. This can lead to missed opportunities, poor business practices and increased business vulnerability. In such instances it is advisable to consider the option of outsourcing business needs and harnessing certain talent on a part-time basis. One of the essential needs that can be outsourced is financial management. Adequate financial stability and control, the ability to plan, expand, and obtain finance are some of the benefits that are enjoyed under a competent financial manager. In the world of business, one of the most important members...

The Compliance issue comes up again

The Compliance issue comes up again The CEO of MTN has resigned over the Nigerian regulator’s fine fiasco. Accountability is an unavoidable consequence when a company suffers a financial loss. If this company were a small/medium enterprise (SME), the impact of a fine equal to nearly double the previous year’s total after-tax profit would probably have been terminal. This is a question of compliance. The company had apparently ignored several directives from the regulator to terminate the services of unregistered sim card holders. The unanswered question is whether the CEO was aware of the continuing lack of compliance and whether he was aware of the potential implications attached thereto. Who is responsible for compliance? In the case of an SME it is the business owner or manager. But compliance has several facets. Firstly the business owner needs to be aware of the compliance requirement. Secondly, he/she needs to be aware of what the implications of non-compliance are. Finally, the potential financial impact of the non-compliance should be known. Financial Management and compliance Many SME’s struggle in what is an over-regulated business environment. They are often unaware of the many compliance issues they face. It is, therefore, critical that they have the correct guidance regarding compliance requirements and how such compliance can be achieved. The person who assumes the Financial Management of an organisation is often tasked with ensuring compliance. A company that ignores this important role player often pays the price. Hopefully, the price will not mark the demise of the company. Financial Management – Outsource it At Leaders Business Solutions we offer Outsourced Financial Management solutions, in addition, or along-side...

Financial Budget Planning

Financial Management – The Importance of Financial Budget Planning Many believe that financial budget planning is a process of sucking one’s thumb to come up with an attractive looking set of numbers against which we then plot our actual performance.  Actually, budgeting is a science which incorporates a great deal of measurements and observations to come up with realistic numbers designed to show us where we are heading, in fact one should also incorporate into this process, revised forecasts which are prepared continuously, based on changes in the business environment and resulting assumptions. But what happens when the budget does not “balance”? In other words, what happens when the budget has an unfavourable outcome.  Apparently, our current minister of finance Nhlanhla Nene is unable to shed any light there. He says that the economy is expanding too slowly to meet South Africa’s needs. He has not explored the political or economic reasons why this is the case, instead he is exploring ways to squeeze the taxpayer even further. To quote the German Philosopher George Hegel , “We learn from history that we do not learn from history.” What we can instead learn from the past Does anyone remember Reaganomics of the 1980’s? The four pillars of Reagan’s economic policy were to reduce the growth of government spending, reduce the federal income tax and capital gains tax, reduce government regulation, and tighten the money supply in order to reduce inflation. Despite intense economic analysis of Reagan’s term in office, the general conclusion is that the American economy performed better during the Reagan years than in the periods before or after. Some...