The Sunday Mail
Godknows Hofisi
This article is simplified and not exhaustive.
I am sure we are all now familiar with COVID-19 and its global disruptions and destruction. No doubt the pandemic is causing untold suffering and loss of precious lives globally. The responses and measures instituted by individuals, organisations and governments also have business and legal implications. This article seeks to highlight some of the likely effects and possible solutions.
Disruption to economic activity
Some of the businesses whose economic activities may have been affected by the pandemic include the following:
Importers such as retailers,
Exporters from Zimbabwe to other countries such as South Africa, for example minerals,
Entertainment industries,
Service industries such as airlines, transport, tourism, hotels, schools,
Local manufacturers,
Retailers who may be importers or rely on local manufacturers.
Self- employed or small businesses.
Zimbabwe carries out significant import and export business with South Africa. There are views that many groceries sold in Zimbabwe are from South Africa. Zimbabwe also exports some of its produce such as minerals to South Africa. The country also imports many items from China. It goes without saying that whatever happens to our trading partners has a significant bearing on our economy.
Disruptions may come in the form of unavailability of or delays in receiving imported goods from mainly South Africa and China. Depending on what happens to our production levels exports volumes may also take a dip. Assuming we are still able to produce at the same or reasonable levels the logistics of the exports may now take longer including settlement of the export proceeds.
The way forward
It is not clear how long it will take to control the COVID-19 pandemic. This, therefore, leaves some uncertainty over the level of economic activity going forward. Businesses may, therefore continue to be affected. There is, however, positive news coming from China that the spread and mortality of the pandemic have been contained and businesses are coming back on track.
Companies may consider some or all of the following issues depending on their situations:
Working capital preservation: Working capital is easily eroded through payment of overheads and standing obligations such as bank loan instalments.
Overheads include commitments such as rent, fixed labour costs, plant maintenance costs, etc. Working capital is the life blood of a business and should be managed carefully for preservation. A separate article is ideal, space permitting.
However, briefly some of the additional measures may include negotiating payment terms with suppliers, down payments by customers, bridging finance from banks, etc. For self-employed people living expenses can be a huge burden on the business to the extent of eroding working capital.
Meeting financial obligations: These include rentals, loan repayments, employee costs. A business should make a plan to settle these. Where there are challenges it is advisable to negotiate with the stakeholders. I understand in the past years some companies worked with models whereby they could fund their obligations for say three or months through reserves, if there was disruption to production.
Labour commitments: This is a very sensitive constituency but has to be dealt with. A business should come up with ways to pay its staff, revisit some of the benefits if necessary, reduce its contract staff, stagger the rehiring of staff if economic activity is low, or even terminate staff and pay retrenchment packages. These decisions should not be taken casually.
Production materials: For a manufacturing company a realistic material resource plan is required. This will inform when production can be resumed, level of capacity utilisation, deliveries to customers, etc. For imports it is important to confirm with the foreign supplier and also factor in the logistics.
Retailers have to take a look at their stock holdings, whether suppliers are able to supply, supply levels, lead times, etc. The same has to be done with foreign suppliers in the case of imports.
Customers: A business has to assess how its customers have or will be affected by the disruptions. This will also include the customers’ ability to pay for the goods.
There is need to strike a balance as to asking customers to pay deposits, selling on credit, working capital needs of the business and the risk of default on credit sales, amongst other issues.
Exporters will have to assess the viability of their foreign markets including any changes in the commodity prices. Lessons can be learnt from the oil prices.
Businesses are also advised to revisit their business models or strategies for alignments.
There could also be new business opportunities or focus areas such as health, occasioned by the pandemic.
Technology is most likely going to play an even increased role in the future economy.
There could be merit in investing in technology going forward.
Godknows Hofisi is a legal practitioner, chartered accountant and business rescue practitioner. He is a consultant in deal structuring and tax and writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected]
