The Maldives is once again reaping the benefits of unprecedented economic growth similar to several other Asian countries. The bounce back from Covid-19 was further reinforced by the inflows of foreign debt and the subsequent government spending that ensued.
Rampant public spending will have its deleterious effects in the long run. However, failure to seize the opportunity to ride a wave of high economic growth is foolhardy for any businessmen.
Everyone is making money during this period of high growth, and if you’re not, you’re doing something wrong.
Of course, this statement is an oversimplification but holds true regardless of which industry one works in. Alternatively, it may be that one is not doing enough, anything at all, or does not want to make money. Without obscuring the veracity of this statement any further by drawing exceptions, this article will highlight 3 moves businessmen should be making at this time to profit from this economic boom. This will be preceded by defining ‘everyone’.
Who is everyone?
‘Everyone’ refers to anyone and everyone that takes a risk with the intention of earning a profit. The spectrum ranges from large business organisations all the way to individuals focusing on side hustles. In short, entrepreneurs. This definition excludes employees, however, even those employed should be earning more during periods of high economic growth.
The margins are greater the closer one is to the source of injection. The construction firms, financial firms, and the law firms that advise on these high value projects amongst others are arguably the closest to the source and benefit from the highest margins. Nevertheless, it is trickling down to all sectors, even to the gig economy. This means that in the current economic climate, freelancers including designers, writers, and musicians must also be making more money than they did before. The recent proliferation of enterprise is a symptom of this growth.
Cyclical Nature of Economies
Economic growth is cyclical. What goes up must come down. Entrepreneurs must make investment decisions based on these cyclical changes to best make use of their resources. This is described as the top-down approach of investment; whereby investment decisions are made pursuant to macroeconomics.
So, what can entrepreneurs do to make the best use of an economic boom? The explanation that follows not only applies within the Maldivian context but anywhere in the world.
3 Moves to Make During Rising Economic Growth
1.Firstly, it is the perfect opportunity to increase prices.
Increasing prices is a sensitive decision for every business. However, a period of high growth fortified by increasing individual income levels dampens sensitivities that follows.
Furthermore, the recent rise in the Goods & Services Tax has been utilised by various businessmen to increase the price levels more than proportionately by painting the tax as the antagonist.
It is noteworthy that revenues must be inadvertently increasing because of the rise in the volume of sales. Although it must also be acknowledged that this may not be due to any positive action taken by the business itself but simply the byproduct of high economic growth. Nevertheless, any positive action taken to boost sales must not be discounted as it will further reinforce this growth.
2. Secondly, it is the time to spend money on growth.
This is because it is more likely to be recovered quickly during this period; both in terms of ROI and cashflows. This expenditure will help the business achieve a power-up similar to that in video games. It is like Mario acquiring the Super Mushroom which transforms him into Super Mario. The business has greater ability to take damage with vastly remarkable regenerative abilities.
If your business is growing slower than the rise of the economic tide, it is a sign of your inability to surf skillfully. For instance, this can directly be measured by comparing growth in GDP versus the growth in business revenue; a pegged KPI if you will.
Now is the time to hire the skills of consultants if you are unconfident with your skills. It is the time to work harder, smarter, but also risk more in the process. It is the time to reap the benefits of the Super Mushroom.
3.Thirdly, it is a time to make higher profit margins.
Profit margins are increased by making the difference between revenue and costs larger.
The first point highlights the importance of increasing revenue. Both by raising price levels and increasing the quantity sold. The second point contradicts with the third. Therefore, it is a game of making more than you spend.
If operations can be restructured and streamlined to make the best use of the rising economic wave, it will result in the ultimate reward. The skill of the surfer that gets up on the surfboard with the rise of the tide and exercises extraordinary balance during a period of extreme thrill, speed, and turbulence can be used as great inspiration.
Once the margins are earned, it will be prudent to save a portion of profits for a rainy day. After all, what goes up must come down. And cash is truly king especially during periods of economic turmoil. Therefore, the purpose of making significant profits during a boom is twofold.
- Economically, it is the easiest time to increase profitability.
- To save a portion of the profits for an economic recession which may follow.
Similar to a surfer, a skilled and intuitive businessman is one that is able to make use cyclical opportunities. This can only be achieved by drawing inferences from top-down analysis and making forward-looking strides based on the current economic outlook.
