It is undeniable that the current mishap in the global financial markets, we have witnessed in recent years, has reached implications with the global economies facing sharp contractions although a slow recovery is possible. This would result in: tougher financial conditions, commodity prices falling, slower economic growth, pressure on government spending, reduced external surplus and lower inflation.
The global environment is changing fast and businesses are facing a new set of unprecedented challenges, such as pressures of globalization and the impact of the latest world financial crises on region economy. Due to this businesses are already experiencing new sets of challenges. The urgent need to identify and mitigate risks therefore could not be over emphasized, particularly in this region where there is absence of credible data to rely upon, skilled talents to carry out risk analysis and propose remedies, or the organization structure and processes to facilitate the procedures.
Despite the economic stimulus, coming from rising governments spending, the ever expanding private business sector is becoming the growth engine. Inspired by emerging economic reforms, both private and foreign investors are gradually increasing across all industrial sectors, most notably in utilities, manufacturing, telecoms, financial services, and the economic cities. If the pace of economic reform is maintained, the prospects for sustained private investment growth may prove to be promising.
The global credit crunch has already impacted the growth in many countries by reducing the level of investment, reducing the growth potential, delaying or canceling some major projects. The consequence of this has an affect of on all businesses small and large. Such impacts include:
(a) The availability and cost of private investment for regional and international companies operating in the region will be undermined,
(b) Business growth will slow as a result lower liquidity which reduces confidence and impede investment, and
(c) Appreciating some currencies combined with lower commodity prices will cause inflation to drop.
The demise of certain international companies with business interest or partnership in some part of the world could severely influence their partners. The severity would of course depend on the type of relationship and level of dependence.
As a consequence, businesses are expecting a sharp down turn in growth including lower profitability than realized over the last few years, bearing in mind some businesses may have seen their fund value significantly reduced as a result of wrong investment decisions. The current crisis is anticipated to be short-lived and businesses are expected to start recuperate and to see radical changes by early next year.
Higher costs of interest, combined with tightness of lending conditions, has significant knock on effect on the companies that need to raise finance. However, many companies and investors are still cash-rich and therefore in the position to meet short term funding requirements without the need for borrowing.
Prices have decreased significantly across a range of commodities, from industrial raw material to food products to precious metals. Prices of most petrochemical products have plummeted drastically. Collapsing prices and the increased cost of financing, combined with the falling demands have resulted in many infrastructure projects have been put on hold.
Export-oriented businesses, such as manufacturing, are more at risk from the credit crunch and its consequences. However, domestically-focused businesses such as retail and telecoms will be less affected, it is expected that telecoms businesses to be the fastest growing sector.
The industrial and service sectors within the region have been the main drivers of economic growth in recent years, as they have benefited from economic reforms and the recent investment boom. The outlook for such sectors has deteriorated due to reduced consumer confidence, fueled by reduced oil prices and the collapse in some regional stock markets.
Nothing suggests that the current set of challenges could dampen business leaders’ determination. Every downturn creates opportunities for strong businesses with healthy financial and the institutional capacity to act rapidly.
These are unusual times and leaders are bound to come up with a new game-plan to meet looming threats in such a changing and unpredictable world. In spite of the negative bearing of the current global financial crisis on businesses, a window of opportunity exists to reconsolidate, strategise and search for new opportunities for long-term sustained growth.