BUSINESSES are already grappling with rising oil prices, higher transportation costs and uncertainty in international markets.
This is as the country’s inflation rate recently rose to 2%. Tensions in the Middle East have continued to expose how vulnerable import-dependent economies are to external shocks, which are a direct threat to profitability and business sustainability.
As business costs rise, the price of essential goods and services is likely to follow. Consumers could see their purchasing power eroded if wages do not keep pace, leading to reduced spending and further pressure on businesses that depend on domestic demand.
Business Eswatini (BE) Head of Trade and Commerce Musa Maseko said businesses were operating in interesting and uncertain times.
When looking at the current inflation rate, he said one would not be worried at where it is sitting at the moment because it was still within the target range set by both the Central Bank of Eswatini and the South African Reserve Bank.
He was speaking during the Eswatini Television Authority’s programme ‘Market View’ yesterday.
Maseko noted a disconnect between what the consumer faces and the actual reduction of disposable income, coupled with the predicted increases going forward and the uncertainty caused by global geopolitics.
He said the disconnect made it difficult for businesses to contain their costs, and in effect made it difficult for consumers to manage their current expenses or forecast what expected costs would look like, even in the next two or three months down the line.
“Businesses and consumers must not expect things to revert to what they were pre-conflict wars, even if the Middle East war would stop right now. It would take a bit of time to repair the broken supply chains.
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“We expect quite a lot of uncertainties for businesses as the environment changes on a day-to-day basis due to the war. What we are seeing now, treat it as the new normal. Businesses should look at improved efficiencies, see where we can cushion consumer costs to an extent that is reasonable within the business sector and be mindful of the expected decrease in the consumers’ disposable income,” said Maseko.
He further advised businesses to be mindful and run their operations accordingly.
He said one would not be able to state which sectors are affected most, other than looking at the impact of fuel prices on the economy.
He said this was because the country mostly imports from South Africa and exports a lot outside the Southern African Development Community (SADC) region in terms of trying to achieve being an export-oriented economy.
He elaborated that this then permeates the economy and makes it difficult to do business.
He said they have noted that some businesses have tried to find a balance between cushioning the current impacts from rising fuel costs and determining how much of the additional costs can be passed on to consumers.
As winter approaches, SMEs can look at shifting operations so that energy demands are structured at off-peak hours where electricity tariffs are lower, finding additional efficiencies to cushion the cost of doing business.
He said they were faced with the stark reality, especially for the retail sector, that less disposable income meant fewer sales and customers.
As a result, he said they expected a drop in performance in certain sectors that are consumer-based, as opposed to some of the manufacturing sectors where there are long-term contracts.
He said businesses would have to prioritise what goods households purchase and reclassify what they can live without for additional months, hence expecting reduced demand for certain products and stable demand for basic goods from the consumer side.
Maseko said if the situation persists, businesses will be faced with increasing labour and production costs, and adjust the cost of living accordingly.
“We have seen in particular the small and medium enterprise (SME) sector struggle a lot because they have fewer tools to leverage bulk purchasing, negotiate with suppliers and other elements they do not have access to,” he added.
Meanwhile, Central Statistics Office (CSO) Statistician Bongumenzi Zwane noted that the inflation rate had shown a downward trend in recent months until it reached 1.6% in March.
He said food contributed negatively, but in April there was an upward trend as the inflation rate increased to 2%.
“One major contributor was the increase in fuel in April. This month fuel has increased again; we expect the fuel and lubricants category to show an increase in the May report.
“Now the question is; will this increase in fuel further trigger an increase in food? If it will have that immediate impact, then we will see further inflation rate increase,” said Zwane.
