News

» NOVEMBER 2009
Economic and Business Update

There seems to be more and more evidence that the South African economy is starting to recover. This is in line with international trends although the rate of recovery locally is lagging behind that of most overseas countries.

The JSE reached a low in November last year and after brief recoveries dropped to the same level again in March 2009. Since then we have seen a steady improvement of almost 40% in the overall index. Most analysts seem to agree that this is not a W shaped recovery but of a rather permanent nature, although nobody wants to discount the possibility of further downward corrections in the near future. Further volatility should be expected in the short to medium term. The stock market is a forward looking mechanism and the downward trend of late last year was caused by investors predicting that 2009 was not going to be pretty and moved from equities to cash. Now the market is starting to forecast improved results for 2010 and beyond and we therefore are seeing a steady improvement in the overall levels of the JSE as market sentiment improves.

Other factors driving the overall recovery include the lower interest rates, increases in gold and other commodity prices, improvement in the output of non-gold mining resources, the output of electricity and manufacturing. Nominal house prices and the sale of new passenger vehicles also appear to be rising. The high levels of unemployment, crime and corruption coupled with low levels of service deliver continue to hamper our recovery, whilst the increases in electricity and a weak dollar are not helping.

We are a long way from the good old days and the world economy is unlikely to return to those levels in the foreseeable future. There are however enough indications that we are experiencing some form of recovery and that the world went through a recession and not a depression. The US economy remains a major concern; at most the recovery will be modest especially after the fiscal support has been withdrawn. This is likely to result in the weakness in the dollar remaining as well as low global interest rates. This will cause investors to continue to look east for investment opportunities. It is forecasted that the developing world, Asia, India, Brazil and even Africa is likely to present the best investment opportunities over the next three years.

We are sailing in unchartered waters and care needs to be taken when making business decisions and personal investment choices.

At Barnstone we have definitely felt the downturn during the latter part of last year and the first half of this year. It was certainly worse than we expected and despite our best intentions our reactions were perhaps not always fast enough. The last three months has however been very positive and we have seen a reasonable improvement in revenues although margins remain under pressure. We have been able to retain our key clients and added significant new ones like Woodside, Australia’s largest independent producer of Oil and Gas where we were appointed together with CSC Australia as one of two suppliers of SAP resources; the KWV; Swaziland Rail; The World Bank in Swaziland and Renaissance, a leading Russian financial institution for which we are doing work in Kenya.

We have made significant progress with the establishment of a Health Care focus (see article below) and are launching a new Fraud and Risk Management service line in January 2010. More on this in the next issue of Barnstone Matters.

Having survived the worst of the storm we look forward to a bit more normality and hopefully some calmer waters. It is going to continue to take a huge effort from all of us at Barnstone to ensure our ongoing success. Total commitment to quality and client service will differentiate us. We will have to continue focusing on our key clients and core competencies. Working together as a team will enable us to meet the challenges of 2010.