The war in Ukraine accelerated inflation, and the growing risk of stagnation in the EU poses new business challenges. How are your services changing to meet the needs of your clients?
The war in Ukraine has been a driver of many adverse developments in the global economy, which is currently going through a volatile period. Inflation is rising rapidly, interest rates have been increased to curb inflation, and problems with energy prices and supply are just the tip of the iceberg in the world economy's problems. Given its dependence on Russian gas and oil and the need to transition to other sources, the EU is under even greater pressure. The economy is gradually showing signs of a recession that could hit us harder than expected. However, the crisis is not just economic; the medical problem with COVID-19 is still ongoing, and on top of that, the war in Ukraine is completely changing the geopolitical situation in Europe and around the world, adding to tensions between the US and China over Taiwan.
These economic and geopolitical challenges are affecting businesses, and we expect many companies to have difficulty maintaining positive results and liquidity in the coming period. Higher interest rates will reduce investments and development projects and force management to reduce operational costs.
As consultants, we advise our clients to engage in intelligent cost-cutting activities, reconsider significant investments, and focus on developing cheaper channels, especially in the digital environment. A greater focus on local and regional markets, mainly due to the high costs of supply chains and the constant increase in transportation costs, is one of the main areas we are working on with our clients.
Egzakta offers a range of management consulting and financial advisory services. Which of your services is in the highest demand, and are new business niches opening up?
Our main projects in the previous period have come from the IT sector, digital, strategy development, and operational transformation. We notice that the need for digitization will remain present, but we expect cost reduction and efficiency improvement projects to be a higher priority for our clients. Additionally, we can see that, as is often the case during crises, mergers and acquisitions (M&A) activities will increase, especially in the food, information technology (IT), and companies dealing with artificial intelligence (AI) and the Internet of Things (IoT) sectors. Government investments in small and medium-sized entrepreneurs, especially in localization and "back home" projects, are also rising. An exciting development is also happening in the gaming and esports industry. In financial advisory, a typical case will be restructuring, while factoring will be prominent in supply chain finance.
ESG has become a key term for companies in recent years. How do you incorporate it into your services?
ESG principles have come and will remain present. The gradual transition to environmentally friendly practices and greater attention to the social dimension has been and will remain on the agenda of companies worldwide. However, while we have had several projects in this area, activity will slow down significantly.
At Egzakta, we always incorporate ESG initiatives into our work, especially in social security and people's well-being. As a service industry, we don't have many activities that significantly impact the environment. Still, typical measures such as reducing CO2 emissions, going paperless, transitioning to online meetings, and reducing travel are defined in our ESMS policies. We are fully comparable to leading global consulting firms regarding labour and working conditions. We are cautious in maintaining our client portfolio and mainly work for companies at a higher level of ESG implementation.
In the interview for this publication last year, you mentioned that Southeastern European governments should change their policy logic and support local businesses rather than foreign investors. Do you still consider economic localization the right approach?
Even more so than last year. Everything that has happened since our last interview a year ago confirms our hypothesis about the importance of local and regional business instead of fully global business. Supply chains and operating costs continue to rise. Many markets are almost entirely closed to European companies. The war in Ukraine that began a few months ago, with the prospect of being severe and long-lasting, has deepened the crisis caused by COVID-19. Many companies have left the Russian and Belarusian markets. China is increasingly questioning its logic and focusing on its consumption, and many European companies are now experiencing a significant drop in revenue. Inflation and higher interest rates will further reduce demand, so we expect many countries worldwide to protect local markets and companies in the coming period. Local business will become a key strategy, not only as a business approach but also as a measure to reduce the impact of the crisis and unemployment as a logical consequence. We expect many governments to launch significant stimuli for SMEs and increase subsidies in energy production, especially green energy, and ultimately, but perhaps most importantly, in food production, as food production and prices will be the first to be protected, just like energy today. This is one of the main opportunities for local initiatives and SMEs, one of the key sectors to be saved in the upcoming crisis.
With this in mind, in which areas should governments focus their efforts to harness the potential for economic growth?
Typically, these areas include infrastructure, energy, and agriculture. We expect to see further significant digital, IT, AI, and IoT investments. Games, gaming, e-sports, and entertainment will continue to grow, as will blockchain, especially after the market overcomes its current difficulties. As a development generator, we expect the construction industry to be one of the key areas where governments will intervene. As for less popular areas, it can be expected that investments in the defence industry will increase in light of political and geopolitical uncertainties. Large budgets, especially in Eastern Europe, are expected to be directed towards this sector. In terms of growth, without wanting to convey bad news, countries should consider themselves fortunate if their economies have no major recession. You wouldn't expect to go on a voyage in a stormy period, so governments should focus on safe havens and local initiatives to keep their ship from sinking.
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