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Navigating tough economic conditions

‘Once you set that budget, stick to it’ – Arno Loots – head of Umbrella Solutions, Liberty Corporate.

NASTASSIA ARENDSE:  We are going to be talking about navigating the tough economic conditions. Liberty Corporate did a research with their customers, the SMEs and members, to understand what they are feeling, what they are going through, to extract some insights directly from them as opposed to imagining what they’d be going through.

Arno Loots, who is the head of Umbrella Solutions at Liberty Corporate is joining us on the line. Arno, thank you so much for your time.

ARNO LOOTS:  Thanks for having me.

NASTASSIA ARENDSE:  Take us through the rationale of having the sort of interactive engagement with your customers and the SMEs.

ARNO LOOTS:  We looked at the various press [reports] out there. We realised that everyone, especially in the financial industry, will tell you how to save, how to spend less and things like that. We thought let’s turn it on its head. We are actually more interested in hearing what our customers are saying. Our customers at corporate, being SMEs and their employees.

It’s actually quite interesting what they are saying. So we thought this was a message we need to get to people.

NASTASSIA ARENDSE:  Arno, in terms of the SME insights, what came out of that? What were the key points?

ARNO LOOTS:  I just have to say this was a check-in with our customers. It’s almost like walking the streets and finding out what they say.

We had about 76 SMEs that responded to us. And when you look at their main concerns, [these are] economic growth and regulation of the SME space, which I think is not surprising, given how easy or not easy it is to do business in South Africa, whichever your view is.

But what was quite interesting was that SMEs are talking a lot about skills. When you are sitting and talking to these SMEs, they are saying it takes them time to train up people, and when they leave you probably lose six months, maybe even a year, depending on what your industry is, to get that skill back in. So they are actually having quite a tough time with skills.

On a more positive note, with those we interviewed 71% said their business is running better than five years ago. So on a  lighter note there was also some positive news.

NASTASSIA ARENDSE:  In terms of the solutions that they are providing – as you mentioned, finding skills and the right kind of people – what sort of solutions are they providing to navigate through this?

ARNO LOOTS:  In terms of skills they are saying they are trying to get cleverer about finding the right skills before they employ anybody. So they get recruitment agencies to help them or simply just come up with stricter requirements before they employ people.

In terms of dealing with tough times, they are looking for alternative revenue streams to see whether they can maybe diversify income a bit and they are saying they are trying to save, even during tough times they are still trying to save.

And they understand the importance of marketing. You will read many books that say you have to continue marketing in tough times because not so many people are looking for services. So they can see that and they are trying to do it more effectively, not necessarily in the way they used to, but maybe using online a bit more and things like that.

I think from a practical point of view – and this is quite nice and I’d like to share this with you – they mentioned a few things that you can do that are practical.

One of the things is they say maintain your quality. If you maintain your quality, your customer will stick with you, even though you are going through a rough patch. They say other more interesting things as well, like use teleconference facilities from and travelling to clients. Phone clients.

So quite a few nice interesting thoughts that they had for us.

NASTASSIA ARENDSE:  I see here that 34% of what concerns them is government policies and regulations. Has this number improved from the insights you may have got last year?

ARNO LOOTS:  This was our first check-in, so we wouldn’t necessarily have a trend that’s coming through. But reading various industry articles and things like that, I think that is something that’s just continuing, and I think that’s something they are finding quite tough.

NASTASSIA ARENDSE:  In terms of your members – I know we are approaching the festive season and a lot of people are going to be spending, trying to make it as merry as possible – how are your members going through the current financial landscape?

ARNO LOOTS:  I’d like to use some of my customers’ own words on this, and [that of] their employees. This is not us saying this. It’s quite interesting that we are aligning quite a bit. I hear things like, “we cut back on fuel”, and “less air time”. A lot of them are talking about entertainment and family holidays, . Something practical is also birthday gifts. We enjoy giving birthday gifts, but you can maybe create something yourself, make your own cards instead of going out and buying things. One of the ladies said that she goes and buys clothes every second month now, and not every month anymore, which also another interesting one.

Then there was also a lady who said that, rather than going to the movies, which could add up quite a bit, she goes and rents a movie and they make popcorn at home, and make the whole thing a nice outing for themselves.

NASTASSIA ARENDSE:  In terms of their priorities, what are they dealing with? Is it repaying debt, is it more focusing on saving money to further studies, what are their key priorities?

ARNO LOOTS:  If you look at members, what’s important to them is actually quite interesting. Firstly you want a place to live and you want things to eat, as any human being does. You can see their money basically goes to rent and bond and groceries.

And then they would start looking at paying debts, endowment savings, medical aid.

I just want to digress a bit in terms of repayment of debt. What we found – in this whole conversation we’ve been having – at the financial institutions we would see saving as putting money away every month. What’s interesting is what your employees are saying is that not spending is a form of saving. That was quite an interesting insight we got as well.

NASTASSIA ARENDSE:  Is it not spending your money – is that the same thing? That sounds peculiar.

ARNO LOOTS:  I guess when you are not spending and you are saving, in their minds you’ve got money available for whatever you need. So whether it is groceries, whether it is knocking off your bond or repaying more debt, or saving more for retirement, that’s probably next in line.

But you only have one wallet with so many notes in there, so every hundred-rand note you can save just takes off a bit of pressure somewhere else.

NASTASSIA ARENDSE:  And in terms of the main savings method, most people go through the banks, some have retirement annuities. What are the others utilising right now?

ARNO LOOTS:  What we are seeing in our space where we provide products to employers at Liberty, is that employees actually save through employee-provided pension funds as well, pension and provident funds. I think awareness of that needs to improve, so people know the overall picture. They tend to forget that they have a plan or, if they have a plan they must actually just have a look at that to make sure in the overall picture it’s enough for one day when you retire.

NASTASSIA ARENDSE:  What happens in cases where you’ve paid off all that you can pay off and there is not really quite enough to leave over to save? How do you encourage yourself to save perhaps even R100 or an extra bit of money? How do you get that discipline going?

ARNO LOOTS:  What’s interesting is – again I’m taking my cue from our employees – the importance of budgeting. Most of them can see budgeting is important, but the tough bit is for them to stick to their budgets. I think about two in three actually end up sticking to their budgets. So I think that discipline is more and more important as things get more expensive and you are trying to cut down. I remember one lady said she cuts down on luxuries like beauty products.

Once you set that budget, stick to it because that’s where the thinking goes into saying, okay, I get R10 000 in take-home pay, and this is how I should spend it. Stick to that, because once you break that you are just going to cause so much more stress for yourself, which is unnecessary.

NASTASSIA ARENDSE:  Before I let you go, what do the men think, because I’ve just picked up there were more women that were interacting with you. What’s the one thing that men are doing to adjust their financial situations?

ARNO LOOTS:  It depends on what you are looking at. I can give you something that they actually mentioned – I remember seeing what men are saying, for example, when they are giving themselves advice, if they were younger. I’ve got a male here who said “start saving early,” which was quite encouraging. I saw one saying “less alcohol” [chuckling] which is a good idea. So reducing some of those parties. And one guy said “drive less often and buy things for cash rather than using your credit card,” which was also quite a nice insight that we got.

NASTASSIA ARENDSE:  Arno, thank you so much for your time.

ARNO LOOTS:  No, it’s a pleasure. It was actually quite insightful for us to learn from our customers.

NASTASSIA ARENDSE:  That’s was Arno Loots, the head of Umbrella Solutions at Liberty Corporate.

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