I am writing this because I bumped into the very talented Tarek at an entrepreneurship forum and he asked for my 2 cents on things. The following lines are not based on any scientific nor quantitative analysis and are instead the musings of a former economist.
- In the following months the foreign exchange situation will continue to worsen. Banks are currently rationing their disbursement of funds to basic commodities and absolute necessities. It is not unimaginable that soon we will have extremely limited access to imported products. Black markets are likely to emerge. Prices of imported products are expected to rise dramatically. This can currently be observed in the prices of vehicles, furniture and clothing.
- With regard to expenditure; we had been experiencing an expenditure boom inspired by the sense of uncertainty and the double-digit inflation. Individuals sought to hedge against the rising prices and worsening pound value by spending. This initial boom is now dying out as more and more individuals face uncertainty regarding their income levels and job security.
- Corporates are feeling the full weight of a cash crunch. Their imported (or locally purchased for that matter) components are more expensive than usual, foreign currency is hard to come by and terms of payments with suppliers (especially abroad) have worsened considerably. Banks should be offering a way out to these companies through financing their working capital and providing them with extended facilities and bridge financing to tide them through these rough times. Yet I am unsure of the risk appetite the banks seem to be displaying these days. It would seem that it is increasingly tougher to find affordable & timely finances.
- My anxiety comes from the fact that it is the little guys who will be hit worst. Banks would have a lower appetite to finance a cash crunch for a smaller company or a start-up than it would be had the company been a large & established one. Hence those whom are most in need for financing are least likely to get it. Or would get it at disadvantageous rates.
- As small companies shut down or fail to survive these turbulent times jobs are lost. This increase in unemployment as the job market shrinks is likely to have two opposing impacts. The first (the positive side) is a boom in entrepreneurship Young men and women will abandon dreams of a stable job at a big name and will instead follow their bliss. Granted a lot of these projects will be in the food & beverage segments and others in trading (commission & delivery based projects), yet eventually more manufacturing based ideas are bound to emerge. The second trend (far less positive) would be the rise of crime and illegal activities as people strain to support their families.
- Spending on media & advertising will fall as companies become more and more fraudulent with their spending. You must have noticed the rapidly growing number of empty billboards. This spells good news for my social media guru friends though as companies will shift towards more creative forms of advertising.
Tarek, this is off the top of my head. Will keep adding to it throughout the week as ideas pop up, or if people ask specific questions in the comments.