Reflections: Looking back at 2022 and forward on what lies ahead in 2023

So, in a scale of 1 to 10, where one represents very unsatisfied and ten very satisfied, how would you rate your business experience in 2022? Did you meet your objectives? Well, I hope you managed to bag a few wins despite the tough times. For SMD Consulting Associates, we had set our sights on building back better following the devastating effects of the COVID-19 recession. It was brutal, and I would say that the aftershock is still palpable. And with the campaigns for the general election held in August, it became a double whammy. Everyone was cautious of their spending, and many adopted a silent but profound policy of ‘let’s wait and see’. Nevertheless, we somewhat managed to reach the finish line. All said and done, it is that time for businesses to reflect on the year that was and plan for the year ahead, once more. But first, let’s recap on how things played out throughout the year.

2022 Review
In our last crystal ball, we shared our predictions on events and trends that were likely to shape the business landscape in 2022. One of the predictions was a spike in rate inflation rate which did happen due to several factors like drought, elections, supply chain disruption arising from pandemic lockdowns, and quantitative easing by the Federal Reserve Bank of America. The price of goods and services went through the roof. Ultimately, the resultant high cost of living got bonkers, triggering protests in several countries around the world. However, what we didn’t foresee was a stronger US dollar and a weaker Kenya shilling, which made imports overly expensive with a multiplier effect on everything else. Given that Kenya imports most of its goods, the adverse impact was broad and cut deep.

Supply chain disruption persisted for most of 2022, just as we had predicted. The huge supply backlog dating back to 2020 is yet to clear up. The automotive and electronic industries were particularly hit hard due to the shortage of chips. Amidst all the logistical chaos, three other significant events took place that we hadn’t anticipated. One was the drastic increase in freight costs. Shipping rates saw the highest increase in recent times. The rise was attributed to a powerful duopoly after the merger of the two main players. For air freight, however, the hike was because of soaring oil prices as well as high demand. Lastly, we had the escalating tension between China and Taiwan, which was just shy of turning to a full-blown war. Undoubtedly, it would have been a conflict with serious repercussions world over. Taiwan is among the largest manufacturers of semiconductors. If they went offline, the production of electronics would have been greatly affected. When it comes to China, they are the world’s factory, and the implications are pretty obvious. Lastly, we have the Russia-Ukraine war that has complicated oil and gas prices as well as the availability of wheat and fertilizer, threatening global food security.

We also had the issue of vaccine mandates. This too came to pass. Today, you cannot cross the border (legally) without producing your COVID-19 vaccination certificate. Although in some countries, they only need negative PCR test results 48 hours before travel. Still, international travel hasn’t been seamless in 2022 and business travel will stay subdued as online meetings persist. On the upside, companies and government entities didn’t enforce vaccine mandates for persons visiting offices. A few businesses tried, but the backlash was swift and effective. They ended up reverting to the usual precautionary measures: wearing face masks, social distancing, and washing hands. However, as time went by, the infection numbers plummeted. The rules were eventually relaxed, and caution was thrown to the wind.

In the same piece, we also argued that hybrid work would become a mainstream human resource policy in many organizations. Indeed, those whose roles can be done remotely were able to adopt a hybrid system and only come to the office a few times a work. I would say cloud technology companies were the biggest winners as companies incorporated various tools and platforms for remote collaborations. But going forward, automation will accelerate as businesses work to counter high wages and supply problems. Cloud computing will also grow, supporting remote work and companies’ desire to collect and crunch data.

2023 Predictions
Having successfully reviewed events and trends that dominated 2022, at least from our vantage point, I would like us to try and forecast what 2023 may have in store for us. What are your predictions? Well, here are four factors that we believe businesses and individuals alike should look out for in 2023.

1. Recession is likely.
Since November (2022), there has been a lot of talk among economists and investment analysts about the possibility of the world going into recession in 2023. Put simply, we will experience reduced economic output signalled by a drop in employment and consumer spending. Perhaps, the biggest sign so far has been massive layoffs by the major global technology companies, specifically: Meta, Amazon, and Twitter. Closer home, organizations are quietly letting off employees as the tough business environment tightens the noose on revenue. Unfortunately, there’s more bad news. It so happens that 2023 is the year that Kenya will have one of the highest loan repayment obligations in recent times. Already, the country is drowning in debt while the taxman is struggling to raise revenue. If Kenya defaults on any of its debt, the consequences will be catastrophic. Even so, making the payments will mean less money for local development, and the economy is likely to slow down.

2. Food shortages and high inflation will persist.
As I pen this analysis, the country is facing a tragic famine courtesy of unprecedented drought. According to the weatherman, the rains, both short and long, were depressed across the country. Evidently, it is no longer a secret that climate change is here with us. In regions where farmers were lucky to receive some rainfall, the harvest is pitiful. Therefore, as a country, we won’t have adequate food stock to feed us until the next harvest cycle. With anticipated huge outflow in debt repayment, importation of food will even leave us in a much dire situation. And as Ukraine─Russia war drags on, fertilizer and commodity prices, especially wheat, will worsen food insecurity and ruin many economies, Kenya included. In sum, the prevailing high cost of living will persist, and it will hurt shoppers and businesses alike.

3. Environmental, Social and Governance (ESG) will be taken seriously.

Since the emergence of the ESG concept, companies and organizations have been treating it mostly as a value add, a nice-to-have feature or simply greenwashing their image. But that stands to change in 2023 as the world wakes up to the realization of the true cost of climate change. Governments, mostly in the western world, are now planning to formulate and strictly enforce ESG rules and regulations. New European Union (EU) rules for ESG accounting will apply from June 2023, with America to follow suit. Property owners will be encouraged, or compelled, to make buildings greener. In 2023 America will offer more tax credits for making energy-saving tweaks. Britain will set minimum energy-efficiency standards. Germany will impose emissions taxes, to be split between landlords and tenants. There will be no more corporate spin touting a company’s environmental, social and governance credentials when nothing is being done in practical terms.

4. Moderate widespread adoption of 5G.
Although worldwide deployment of 5G (fifth generation) technology began in 2019, it is only in November (2022) that Kenya started its maiden rollout. Safaricom, the leading cellular network, has activated 5G service in Nairobi, Kisumu, Kisii and Kakamega with plans to expand to 150 sites across nine towns over the next 12 months. The high-speed internet connectivity will spur increased organizational as well as individual efficiencies and productivity that will ultimately add value across sectors of the economy. According to GSMA, an industry organization that represents the interests of mobile network operators worldwide, 5G is expected to yield more than $960 billion in additional GDP value-add to the global economy by 2030. Expected applications include smart homes/cities, event experiences, and connected logistics among other applications. But smartphone sales will drag amid recessions and semiconductor-supply problems.

Final Thoughts
From the foregoing, all indications show that 2023 is going to be a relatively tough year from a general economic point of view. I hope this foresight will help you to adequately plan to survive and even thrive in case the forecasted recession comes to pass. But if it happens, I recommend that you prioritize three things. One, cut down the bells and whistles from your list of expenditures and have a lean budget. Two, identify your cash cows and double down on them. Lastly, put in place elaborate strategies that will help you retain your customers while, at the same time, diversify your client base. Have I missed something? Let me know! Otherwise, I take this opportunity, on behalf of the firm, to wish you happy holidays and a prosperous 2023.

Stephen Osomba currently serves as the Lead Partner, Communication & Marketing at SMD Consulting Associates where he helps SME clients deliver value by adjusting the solutions to each company's mission, product, strategy, and industry.