SA channel explores 2017 minefield
The South African channel business is upbeat 2017 will bring better prospects after taking a knock last year, largely because of the unpredictable local currency.
The rand opened 2016 trading at R15.56 to the dollar; however, as the year progressed, it reached all-time lows, briefly touching R17.99 to the dollar. Nonetheless, the local currency has since picked up, now trading at around R13 to the dollar.
Besides the local channel being buoyant, market research and analysis firm, Nomura, says it expects the rand to hit R15.50 (-12%) to the dollar by the end of 2017. It bases this on the political uncertainties that characterised SA last year, which resulted in the rand shedding value. Nomura expects this trend to spill in to 2017.
Guy Whitcroft, CEO of Westcon-Comstor Southern Africa, says with the breaking of the drought in the summer rainfall area and an uptick in commodity prices globally, the local channel will see a positive move on the local economic front.
"Not strong, but better than we've had the past couple of years. If we can retain a measure of political stability for a few months, this could lead to some of the much-delayed corporate investment being unlocked, too, so I think the channel can hope for a somewhat better year. The big plays are, of course, security, cloud, networking and communications, and this is where the main opportunities will be found this year," Whitcroft notes.
He acknowledges currency fluctuations had a huge impact on the channel business last year. "The past year has been particularly eventful on this front; after all, who would have though the rand would be one of the best-performing currencies in 2016?
"What is clear is that the channel, as a whole, needs to cover itself against fluctuations by stating the exchange rate on which their pricing is based when providing a quote, and reserving the right to amend this pricing should the exchange rate move beyond a small band. In the low margin climate of today, a 2% swing can make the difference between profit and loss."
Whitcroft notes end-users do understand the exchange rate links and are always quick to request lower pricing when the rand strengthens, so they should be equally able to expect high prices when it goes the other way.
He believes with the inauguration of US president-elect Donald Trump on 20 January, the channel can expect a period of instability in the dollar as the markets react to his first few months in office.
The medium-term view seems to be that Trump will be positive for business and the economy, and the US is likely to increase interest rates a few times this year, so the dollar could well strengthen a fair bit in 2017, Whitcroft explains.
"If the Supreme Court in the UK rules this month that Parliament has to vote on Brexit, this could lead to a strengthening of the pound against other major currencies as it would likely mean a delay in the process. Conversely, a ruling that the referendum was sufficient will probably mean Brexit officially kicking off in March, with a possible further negative impact on the pound.
"On our side [South Africa], we have the lead-up to electing the new president of the ANC in December, so there might well be instability in the rand from local political moves that will exaggerate the movements in the dollar, pound and euro. It is going to be a very interesting year on the currency front - hence the real need to link all quotes to an exchange rate."
Avoiding the pain
Similarly, Uwe Brandkamp, sales director at Westcon-Comstor Southern Africa, says currency fluctuation has been a part of the channel industry forever.
"It is how we manage this risk end-to-end in the channel that is really the clincher. Sometimes it needs some tough rules and a bit of flexibility to make sure no one gets hurt in the process. The biggest impact in my view has been the delay in decision-making the exchange rate fluctuation has caused at the end-customer level, where projects had to go back to the drawing board a few times to fit into a budget, or for a budget to be re-approved based on new pricing caused by the exchange rate."
According to Brandkamp, this indecision caused a number of big projects to be delayed throughout last year and even into this year.
Meanwhile, Elaine Wang, the Rectron group's Microsoft business unit manager, says 2017 needs to be a year of action.
"The fact that our economy has remained stagnant year-on-year means organisations will continue to remain prudent with their money. There's still opportunity and money to be made in the channel - we need to find the right solutions that target the right business pain points," she notes.
For Anton Herbst, group strategist at the Tarsus Technology Group, the growth prospects for the South African economy would remain subdued.
"This, combined with the rapid change brought on by the exponential growth of technology, leads to increased volatility, uncertainty and ambiguity," he said.
This, in turn, would put pressure on businesses to become more adaptive, resilient and agile, he concludes.