Step 1 - Recognising and Assessing Foreign Exchange Dependency: Facing the Realities
For many local MSMEs, foreign exchange is a lifeline. It’s needed to buy imported goods (e.g., resellers, wholesalers, etc.), pay international suppliers, or secure critical services (e.g., online subscriptions, platforms, etc.). But here’s the thing: unfortunately many local business owners don’t fully take into account just how much they rely on foreign exchange until it becomes hard to access, as is the case now.
This lack of awareness leads to reactive decisions that often do more harm than good, wasting precious resources and causing operational hiccups.
Let’s break this down so we can better manage our exposure and start addressing the problem proactively.
The Challenge
Foreign exchange is not just a payment method—it’s the fuel that keeps many businesses running. Yet, most of us don’t realise how embedded it is in our day-to-day operations. From importing raw materials to paying overseas logistics providers, for a great number of MSMEs, foreign exchange impacts the very core of our business.
The problem? When access to foreign exchange becomes restricted, businesses find themselves scrambling to make payments. Without a clear understanding of where the dependency lies, it’s hard to prioritise. Should you pay your main supplier for raw materials or the freight company holding your shipment? The result is often reactive decision-making that drains resources and creates inefficiencies.
The Impact
The fallout from this lack of awareness can hit us as MSME operators, especially hard:
Unpreparedness: Many MSMEs are blindsided by the sudden lack of foreign exchange. Payments get delayed, and relationships with suppliers take a hit. If those suppliers lose trust in our ability to pay, it’s only a matter of time before they impose stricter terms—or worse, stop working with us altogether.
Resource Misallocation: Without a clear plan, foreign exchange is often used for less critical expenses, leaving essential needs unmet. Imagine paying for low-priority items and then not having enough to cover raw materials or inventory that keeps our business running.
Operational Risks: Any business that doesn’t fully understand its foreign exchange exposure risks grinding to a halt. Production or sales gets delayed, customer orders go unfulfilled, and the reputation you’ve worked so hard to build takes a major hit.
The Response Needed
The good news? This is a challenge that can be tackled with a proactive approach. Here’s how we as MSMEs managers can start:
Mapping Dependencies: Take stock of your operations. Identify which goods, services, and suppliers require foreign currency. Break it down by priority—what’s essential, and what can wait? For instance, the raw materials for your flagship product should be at the top of the list, while less critical imports can be deprioritised or discontinued altogether.
Prioritising Critical Needs: Once you know your dependencies, categorise them. Focus your foreign exchange resources on high-margin or high-demand products and services. This ensures that the most impactful parts of your business stay operational.
Forecasting Requirements: Don’t just think about the next week or month—look further ahead. How much foreign exchange will you need over the next quarter or year? By anticipating shortages, you can plan purchases strategically or explore alternative sourcing.
Moving Forward
This is just the first step in navigating the foreign exchange crunch. By recognising and assessing dependencies, we can begin to allocate resources wisely, minimise disruptions, and build resilience.
Stay tuned for the next seven articles in this series, where we’ll dive deeper into the specific challenges MSMEs face, including handling operational bottlenecks, cash flow pressures, missed growth opportunities, strategic realignment, adaptation or exit, and more. You’ll also get practical, culturally relevant advice for overcoming these hurdles and staying ahead.
Let’s face this together — one step at a time.
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