How was the business year 2022 for Egzakt Advisory, and what do you expect in the coming year?
We have had a very successful business year behind us. We are incredibly pleased to have continued our planned growth, strengthened our team, and gained significant new clients. Besides financial parameters, a key indicator of success for us at Egzakt has always been consistency in implementing our strategy. Our goal has always been to be one of the top 3 consulting firms in the region, and we have fully achieved that. Dozens of completed projects, new clients, and a stable team have brought us results we are proud of. But we have no intention of stopping. Despite the forecasted recession, the year ahead must be a year of further growth, team expansion, and a year in which we want to conquer new markets. We know that achieving this won't be easy, but the crisis must not be an excuse. Hard work, dedication, and knowledge must yield results.
We talked at the end of 2020, and you made specific predictions regarding the economic trends, listing six challenges. Looking back now, how accurate were those predictions?
From this perspective, we mostly predicted well what the post-COVID period would bring. However, to my great regret, very favourable indicators of economic recovery have been further complicated by a new crisis, this time caused by war. The war in Ukraine has wholly shaken the global economy and led to an energy crisis, followed by a financial crisis. All indicators suggest the global economy has slowly but surely entered a recession. Inflation, energy problems, rising interest rates, and geopolitical turmoil are visible, and one doesn't need to be an economist to understand that the issues that started in the third and fourth quarters are just the beginning. All of this indicates that we are facing a very challenging year ahead. So, as I mentioned, we were right, but the new adverse developments unfortunately bring a much bleaker outlook than what we predicted back then.
What has been the biggest challenge for the domestic economy during this year?
The dominant problem has been the increase in interest rates, which, following the rise in benchmark interest rates in response to inflation, is a logical consequence of entering a recession. Inflation and energy prices have significantly impacted manufacturing companies, and the onset of the European recession has clearly impacted exports. Although the economy has adapted chiefly to the new conditions, the real problems are yet to come, and this year has not been as bad for the Serbian economy as expected. Public investments have managed to keep the economy at a satisfactory level, and inflation has brought increased profits because consumption is still not declining. What is worrying is that credit activity is waning, which could be a significant problem for companies in an investment cycle this year. Global market instability, inflationary trends, higher interest rates, and geopolitical tensions are, I would say, the main challenges we are entering in 2023. This has been a year of savings, an energy crisis, and inflation.
In your opinion, how have businesses adapted?
So far, quite well, but the real problems are yet to come. As I mentioned earlier, consumption has yet to decline, especially since rising salaries have accompanied inflation, so the inflationary impact has been compensated for the time being. The question is for how long this will be possible. Regarding savings, although it may not be very noticeable, our experience in the market shows that companies are very cautious about new projects and investments, and they are mainly focused on stabilizing their operations and adjusting to inflation. The energy crisis is subsiding, but since it was caused by a war that will likely last longer than initially expected, we can expect it to bring much bigger problems than we currently have. The prices of energy sources have led to the closure of many factories, mainly in Western Europe, and reduced credit activity has resulted in fewer investments. This indicates that companies have recognized the crisis and adjusted their operations to the new reality.
The budgets of almost all countries are in recession. Is there room for investment?
It is clear that budgets are mostly in recession, and investments are crucial for getting out of a crisis. Public investments are one of the most effective ways to stimulate economic recovery. Given that we are just entering a recession, such actions cannot be expected immediately. Still, as time goes by, world economies will resort to well-established practices of public investments that stimulate the economy. This is particularly important for weaker economies and developing countries where companies are not strong enough to survive without such stimuli. Although the cost of borrowing is much higher than in previous years, we can expect an increase in public debt, especially in poorer countries. It's important not to forget that a crisis is always an opportunity for private equity companies, and many firms are likely to change ownership in the coming years. The good news is that money is still available, even though it's more expensive.
What will companies need the most during 2023?
A stable cash flow. Borrowing will be expensive, purchasing power will slowly decline, and investments in new products or facilities will be challenging. The biggest battle and the real victory will be to maintain the current sales levels and prevent a reduction in the number of employees. We can expect lower profits, especially in industries that saw significant growth in the early stages of the crisis, such as energy and banking. Good cost-saving programs and cost reduction are necessary, but so is further progress in digitization, which increases efficiency and reduces costs. They will need government assistance, especially in public works and investments that stimulate the economy. Above all, companies must focus on retaining their talent.
Specific work models, such as remote work and hybrid models, have remained, but this year, there have been discussions about the "Great Resignation" and silent quitting, where workers dictate trends. How do you view this, and what will remain a trend?
Indeed, employees are in a much better position today than ever. Changes in how we work, the lack of quality workforce, the lack of necessary skills, and the talent shortage in many markets pose significant challenges for companies. Remote work, the hybrid model that has remained a trend, is a significant threat to small businesses and an excellent opportunity for large ones. Globalization has taken on a new dimension. Hybrid practices and remote work have made it difficult for small local companies, as they are now competing only in their markets but on a global scale. Workers have a much wider choice now because digitization has enabled them to live in one country and work in another or globally. If we add the habits and expectations of millennials or the upcoming Z generation, it's clear that HR will be the main topic for all managers. This will further intensify, and the new era of digitization will bring significant challenges for small companies and poorer countries. Owners and managers must understand that the future, especially for small companies in developing markets, lies in different business models where employees see the company as their own. This can only be achieved if they are co-owners, see room for innovation and learning, and see additional benefits for themselves, which can no longer be just a salary.
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