A competitive economy is a going concern for laggards
An uncertain and depressed environment is a threat to a business’ going concern, but so is a fiercely competitive economy. We have not experienced the latter for a number of years now, thus, much of the business sector in Zimbabwe remains mostly familiar with an uncertain and depressed environment. The prominent perception is that the economy will take you out of business, not necessarily the level of competition itself.
Interestingly, from recent events of governmental transition, there is a new wave of economic optimism in the country. Just like a relieving breeze of cool air during a scorching summer, the optimism of a transition in government can cause overly comfortable relaxation. Business agents in our economy can become overly comfortable in the new dispensation.
There is an expectation of investment flows, consistently stable monetary outlook, and a soundly managed fiscal regime. Rhetoric from government is emphasising improvements in consumer welfare, particularly in jobs that give real wages to stimulate aggregate demand.
Such an environment, whilst desirable and cause for optimism should also be perceived as one that inspires fierce competition. An easier business environment with an improving consumer base is an attraction for well-managed, well resourced, and shrewdly strategic businesses.
The threat subsides from being a tough economy to one of the level of competition in the economy.
What the uncertain and depressed environment in Zimbabwe served to disguise was the prevalence of laggard businesses.
Through mostly the grace of an overly paternalist government, many are still operating today. Ironic credit — depending on how one looks at it — should be given to the last administration in that it did a lot for certain laggards in terms of interventions and protectionism to keep these laggards afloat.
Concededly, this was to the unfortunate sacrifice of fiscal efficiency and consumer welfare.
But, the laggards were grateful! So in this new dispensation under a new administration, the question should be proffered that at an inflection where government manages to create the easier business environment with an improving consumer base, will these laggards survive?
To what extent will the interventions and protectionism of past remain competitive leg up against an influx of competition?
As industries close and head for the festive holidays, many laggard executives should utilise this short window to prepare for a newly competitive economic environment. A competitive economy is a going concern for laggards, and this will likely be the reality of the environment pretty soon.
Executives must ask themselves questions within competitive narratives. For instance, as investment inflows are expected to increase steadily, as an entity are you positioned to be the recipient of that investment, or it is targeted to competitors? Executives must assess their operational structures and honestly reflect on whether they accord investment or not?
Economic perceptions must shift from the paternalist interpretation that had prevailed in Zimbabwe.
For instance, due to a very accommodative central bank that intervened on high interest rates a few years ago, many industrialists must shift their perceptions towards appreciating competition for credit; where the regulator only sets a benchmark interest rate, but the market determines the real price of credit based on the competitiveness of creditors in the market.
So in the near term, industrialists must expect a nuanced change in their interactions with potential financiers who will not lend off a duty of fairness, but market determined interest rates. Sure, interest rates are likely to become cheaper, but more convincing competitors will access credit much lower than laggards.
There is also a context of productivity to consider. Cheaper credit and greater investment mean that competitive entities will establish capital equipment of higher productivity. Overhead and marginal costs will expectedly reduce for the well-capacitated entities. This means that price competitiveness will become more prominent. A recurring theme under the last administration was government intervention in setting prices. This is less likely to occur in an improving environment, and price competition will be a reality that increases the disparity between the best and worst ran companies.
During this festive season, and the new administration shapes its industrial and macro-economic policy, individual companies in business should conduct their own competitive analyses.
While the economy as a significant challenge itself in year past, competition from other business agents will reaffirm itself as the forefront of competitive analyses.
The relationship between paternalist policy frameworks will likely become subdued as government conveys an open economy that inspires competition. Laggards will not be spared, and the reliable interventions and protectionism may not be enough to sustain continued operation.