The South African economy has slipped into a recession, and with the global COVID-19 pandemic, things are looking bleak for many businesses. 1-grid is also not immune to these macro factors. To gain insight into how the economy contracting will impact 1-grid and businesses as a whole, we sat down with the finance manager at 1-grid Morne Patterson and asked him some questions about the national recession and what the future looks like for small to medium enterprises.
What are your main concerns heading into the next quarter?
Economically, the GDP (Gross Domestic Product) is not growing, and there are high levels of debt and people don’t have money. There is not enough stimulation of the economy that can reverse that in the short term. Eskom has created massive debilitation for our economy, and this will not resolve itself anytime soon.
The biggest concern is the Coronavirus pandemic and what impact it will have on the economy.
Businesses will physically be closing down and will debilitate us further. The positive thing for 1-grid is that because we are an online hosting provider, we have the technology to service our customers without having to be present or around them – it doesn’t reflect the same type of risk for us.
Customers tend to remove themselves from offline to online – where you can work remotely. The irony is that it positions us very well. We should gear up well heading into the next quarter.
In terms of the company’s figures (expenses and income), are there any noticeable patterns in entering a recession?
The SME market is ever-growing in South Africa. We continuously see a new rise to the SME companies, and we have therefore noticed a pattern of increased bottom line over the years. Yes, margins are improving and seeing the business perform in a healthy space as the economy in SA has worsened. The Coronavirus is also a positive angle for us as a company.
Based on your experience and expertise, can a recession be positive and negative for a business?
We haven’t experienced a recession in South Africa for 25 years – the last time our economy was similar to where it was in 1994. What can be said is that the effects that the economy has phased in contracting has not affected us as it has other sectors. That’s why eCommerce and reaching an audience that you can’t physically reach, is positive and we can see that with our customers and us.
Will we be making any drastic financial changes due to this announcement?
We won’t be making any drastic financial changes. We are, instead, gearing ourselves up for growth. There won’t be any adverse effects on our company that we can foresee at this stage. It’s no good for us to be doing well and for our clients not to be doing well, so the objective here is to facilitate an online presence for our clients and providing them with all the tools in one space to ensure that our clients are doing well too.
How will the recession impact the employees at 1-grid?
Our goal is to be the best hosting provider in South Africa; we want to be a dominant player in Africa. Therefore, we are pushing efficiencies and critical performance amongst employees so that we can deliver excellence to our clients. There will always be change within the company, and you will see this is through our relentless pursuit of excellence. Moving our business to the next level, we aim to retain employees and increase customer base.
If you look at us in relation to our competitors, we have a high number of staff members relative to the size of our business. While we have this high headcount, our approach is not to make people redundant or remove people. Through improvement of processes, automation and efficiencies, we want to gear up our employees to assist us in this phase of growth for the business. We are currently re-strategizing and re-modelling our support system to enhance efficiencies by at least 20%.
How do you think other companies are going to fair in the recession?
In the connectivity, fibre, and hosting space, we are going to continue to grow. Technology will run off the back of that and go from strength to strength. Government is saying that we are going to curtail 1 billion rands of spend but how are we going to execute this?
I read an article that said that 78% of South African’s think that the government is the most broken public institution. That is scary because it means we have no confidence in the government. GDP growth will remain flat for the next 3 to 5 years, another significant factor to this is our socioeconomic complexities like the high birth rate. Once these individuals reach their average career age, they enter the employment market. Because our base GDO is not seeing growth, it means that many companies are unable to employ thus, economically, resulting in a higher unemployment rate.
How do you think other companies should approach their financial management and handle the recession in general?
Companies need to ensure that they can maintain returns to their shareholders and to do so, it means they will have to take action to reduce expenses. In a non-online/tech environment – if they can’t grow unto other markets or into niche markets, their businesses are going to experience a downward or plateau trend.
The equity investment by shareholders requires a guaranteed return. If these are not visible, companies may result in cutting the most significant expenses, like staffing, thus meaning that companies will see many more retrenchments.
Industries have had to be agile and adjust to impossible situations. The main takeaways are that businesses need a financial safety net to stay operational for at least six months in the event of global crises, reduce expenses as much as possible, streamline operations to online and cultivate an online presence. How businesses manoeuvre, these tough times will be a test.