With the Christmas and New Year holidays rapidly fading onto our collective memory, (much like the chances of the English cricket team challenging for the Ashes!), we at Malu decided to identify the Top 5 issues that could impact your business this year.

While we make the standard disclaimer that our information is general in nature and should not be construed as financial advice.

Supply Chain bottlenecks

We expect these to ease from the second half of 2022 as shipping and port facilities catch up with the backlog of vessels and containers. With the caveat that the patchwork COVID 19 lockdowns and restrictions applied by the various Australian states and territories will continue to disrupt interstate freight and distribution. Which, if we look at Europe and Singapore, as leading indicators of government action during the third of year the pandemic, then it is likely that the lockdowns and quarantine will remain with us for some time.

And with it, the ability to add resilience to your supply chain by procuring local products or inputs to guarantee supply to your customers, another alternative would be to increase holdings of key consumables to overcome supply chain interruption. However, that carries its own risk with reducing your working capital and finding the space to stockpile goods. Carefully consider how you can add supply chain resiliency and talk with your suppliers about doing so. As their supply chains have proven relatively inelastic to rapidly adapt to changing consumer demand. Which should provide a competitive advantage as these rolling lockdowns continue.

Higher interest rates

There has been increased inflationary pressures breaking out throughout the Western world. Banks’ fixed rates have increased, but question marks surround the cash rate also rising this year. Any rise would impact the commercial banks’ ES deposit rates, but that decision rests with the Reserve Bank of Australia. It’s indicated it will be patient and wants to see a significant lift in wages first. However, the pandemic and supply chain problems are already lifting inflation, which could force the Reserve Bank’s hand to raise the cash rate targeted earlier than expected.

In the USA, which is ahead of us in seeing inflation rises, the Federal Reserve said this week that interest rate rises there could be as early as March. The Federal Reserve’s Chairperson Jerome Powell’s expanded upon this view at his recent Senate confirmation that “a rapidly healing economy no longer needed as much help from the central bank and that keeping inflation in check — including by raising interest rates — would be critical for enabling a stable expansion that benefited workers.”

Our view is that interest rates will normalise or increase from historical lows over 2022. Since Australian financial institutions now obtain most of their funding from international sources, any increase in their borrowing costs will be passed onto the Australian consumer.

Therefore, now would be a great time to look at your working capital buffers and identify how you could pay increased lending costs, while retaining a profitable business.

Great Resignation

This has been quite a topical piece on social media and on mainstream media outlets, namely that the lockdowns have given employees an opportunity to re-evaluate their careers and will decide to depart the rat race for more fulfilling career. The idea has some merit within an Australian context with workers enjoying wage rises for the first time in a decade.

Although both political parties have committed to resuming their Big Australia policy. In the interim identifying opportunities to automate processes will free up working cashflow to pad out margins that could be passed onto workers to remain. While remaining flexible around working arrangements with existing staff was identified by Harvard Business School as linked with increased productivity, engagement and reducing the incentive to look at other employment options. But I’ve found the best place to start is to just talk with your employees about what’s on the front of their mind and conversely what’s on yours.

Another option to provide additional redundancy within your labour force is to investigate using both domestic and international remote workers. There are several firms that offer this as an option and one example is the American firm Crossover.

Political uncertainty

With an Australian federal election to be called by May 2022, we are now in an unofficial campaign period. Given the battering the private sector has endured over the past couple of years, with our first recession in thirty years. We expect both Labor and the Conservatives to embrace fiscal policy to grow the economy. Although the success might be muted due to skill shortages in key professions and product shortages.

What does that mean for you?   Now, more than ever, you need to understand the infrastructure priorities with bipartisan support and investigate how you or your clients can take advantage of the Government’s future spend.

Geopolitical risk

There has been some time since businesses have needed to factor in geopolitical risk into their planning, but 2022 has started with a bang with a standoff on the Russian and Ukraine border, which was serious enough to prompt two video calls over the holidays between the Russian President Vladimir Putin and the American President Joe Biden to try to de-escalate the situation.

Kazakhstan is experiencing widescale internal unrest prompting the Russia-led Collective Security Treaty Organisation to deploy troops to help to restore order. While Taiwan has re-emerged as a flashpoint with PLAAF aircraft continuing to probe Taiwanese air defences leading the American Secretary of State Antony Blinken to warn China of terrible consequences if China invades Taiwan.

With all of that in mind, the possibility of an armed conflict has been included in our assessment. Indeed, we are not the only firm identifying geopolitical risk, the Sydney-based Coolabah Capital model now estimates a 50 % chance of an armed conflict occurring within the next five years. The key question to ask from a planning perspective is…How an armed conflict starting in any of these flashpoints will impact your supply chain, your business, and your customers?
 

We hope that our Top 5 has helped you with your business planning or at least given you an entertaining five-minute break. That aside, Malu wishes our readers all the best on a personal level and for their businesses in 2022. If having read this article, you recognise the importance of staying ahead of the curve and having the right people in your corner, reach out to Matt for a complimentary discovery call.