ARE WE IN A CONUNDRUM?
by Schon G Condon RFD
Welcome to 2023, a year with much hope, anticipation and more new ‘reality’, … I suspect. It is interesting to talk to many people who would like to return to normality, which is probably back to either late 2019 or alternatively early 2020. A lot has happened in those three short years but it is fair to say that many ended 2022 physically and mentally drained. At least this recent festive season seemed more like normal with family gatherings and greater freedom to travel.
This year will present its own trials and tribulations and a very new market place, one thing for sure though is that leadership will be a key factor. Ongoing steady control with a keen eye to spot movements in the economy early, and adapt to them, as well as a degree of reservation that prevents an organisation from going out on a precipice, only to discover later that it was a step too far.
I remember in the very early days of my navigational training, we were taught about the ‘magnetic variation’ of a map. This was effectively the current day adjustment that one made to align True North (the map) with Magnetic North (the compass). If you did not calculate it and apply it correctly, then you were not going to be going in the right direction.
I learnt a very valuable lesson by adding when I should have subtracted. Off we went, only to not end up where we were meant to be.
Fortunately, the instructor let me make the mistake, and walk the mistake with my team. By showing me ‘on the ground’ how I had gone wrong, e.g., “according to the map, that creek should be on our left not our right as it is”, I completely grasped map-reading and navigation in one day, and that lesson has stood the test of time and for the many years that followed, navigation was a core tool in my role as an artillery officer.
The market we find ourselves in today has been severely impacted by COVID – international labour, material and production shortages, change being demanded to deal with rectifying climate change and the war in the Ukraine, which itself has significantly impacted the supply of major commodities around the world. Further, with the shortage of labour, wages are on the increase in certain sectors as employers vie for the limited available talent.
All of this has impacted inflation driving it up, and the old chestnut to fix this is to raise interest rates, which is being done around the world. The fact that I believe interest rates were allowed to drop to inappropriate lows is a separate story and will not be touched on here. The fact is that many decisions were made because interest rates were at the level they were.
Raising rates will impact businesses with borrowings, particularly the small and medium sectors, home owners and others with limited assets supporting borrowings the most. I am yet to receive evidence from anyone that I have spoken to that the rate rise will rectify material and labour shortages, change the climate or for that matter, end the war in the Ukraine.
Given that there have been wholesale changes to how the world works, are the century old fixes still the right ones? Just like the lesson I learnt all those years ago, if you apply the adjustment or fix, then there is a real chance that you could end up in a place you never wanted to be. However, what would be worse would be to find yourself in a place from which you are unable to return.
Leadership, a positive and pragmatic approach, and focusing on the fundamentals will be critical for the future of business. Careful planning, continual assessment of the market and other indicators will be critical.
Let’s all hope that the year unfolds more positively than the last one ended.
Enjoy the read.
Schon is the Managing Principal of Condon Advisory Group, a firm of Forensic Accounting, Solvency and Turnaround Practitioners. He has dedicated over 40 years of his working life helping the Australian community and businesses to grow.