While most of the developed world has been experiencing “low for long” interest rates this has not signalled the end of price volatility challenges for small businesses. In the West most of the focus has been on FX volatility arising from Brexit but perhaps a more global headache for small businesses is energy price volatility.
Management of price volatility risk can be a major distraction and can add additional distress if the “hedge” is ill considered. Back in the days of sky high interest rates (30+ years ago!) a lot of companies got into difficulties by seeking out the lowest currency interest rates at that time (i.e. CHF or JPY) without any natural source of repayment in the same currencies. When these currencies appreciated there were calamitous losses. Others took out complex derivative hedges with opaque pricing and sometimes ineffective risk management.
On a recent trip to the beautiful, natural “Riverland” in South Australia there were multiple examples of innovative and dynamic responses to managing rising energy prices and increasing price volatility. These include diversifying energy sources, particularly to solar and balancing the load more optimally between multiple sources of energy. There is plenty of scope for additional improvement in energy storage and intelligent usage to allow small business owners to focus fully on their core activities. These need to take note and avoid the mistakes of the past in interest rates and FX risk management.
The abundant sun, massive geographical coverage and innovative mindset are making SA one of the most fascinating testing grounds in the world for the latest solutions for small businesses for managing energy price volatility. There are also very exciting developments in off-grid and near-grid solutions.