Business frets over Covid-19

PHILLIMON MHLANGA/
TAURAI MANGUDHLA

Business leaders face the daunting task of restoring fortunes in their organisations after the easing of a strict and lengthy lockdown this week with companies struggling to get back on their feet including restocking.
This also comes against a backdrop of the declining and persistent erosion of disposable income as inflation bites.

While the lockdown, which remains in place despite the government allowing business to re-open, has minimised the spread of the virus and may have saved lives, it has also hurt the country’s already fragile businesses.

They are expected to experience deep scars, according to business executives.

They said the lockdown put in place end of March 30, as an attempt to contain the outbreak and extended last week until May
17, has led to major economic disruption and sudden halt in demand and a neartotal lack of revenue for many firms even while they continue to pay rents, wages, and interest payments.

They expect the pain for business to continue.

President Emmerson Mnangagwa this week took the first step to restart the
economy after relaxing its strict national lockdown. The crisis has exposed the frangibility of supply chains. Companies are battling to meet their financial obligations. Israel Murefu, Employers Confederation
of Zimbabwe president, said: “…..most players do not have ready resources. Many have opened now but others may fail to do so.”

“It is important to save businesses, livelihoods, lives, jobs and the economy and therefore allowing businesses to operate is a step in the right direction. (However), there are many things though that businesses are
still obliged to do such as the provision of ppe,saniters,gun thermometers and maintaining social distance and continuous education to employees which is still a huge responsibility and cost.The cost of testing which is still a requirement after opening is a very contentious issue and perhaps if
government subsidises this it would be a huge relief to many businesses,” he said.

CEO Africa Round Table chairman, Oswell Binha said there
are sectors that were in business because they are strategic industries.
Those, sectors, he said, have a seamless continuity and they are
counting their profits as a result of the pandemic.

“Small businesses have virtually gone extinct and it will take time
for them to relaunch and return to profitability.
“Control processes of the spread come with a huge health and safety
precautionary cost most of which is sunk cost,” Binha said.
He said there are industries hardest hit by the pandemic, that as
a country, we may start to count our losses.

“Going forward the mortality rate of these companies in those sectors
will continue beyond 30 months from now. Hospitality and travel,
restaurants and bars, aviation and airline will try to reduce fixed and
variable costs including labour but the impact will sustain,” Binha said.

He said social distancing enforcement on the workplace and
outside, among many requirements,was costly and availability of
transport services for those returning to work has a knock-on effect on
attendance.

Binha said companies were looking to government for bailouts
and various waivers.

He added companies were battling restocking.

“Stocks of raw materials havedwindled and replacement costs
are high especially imported raw materials,” Binha told Business Times.

Economists said the shock of the lockdown has caught many flatfooted.
“This is the real crisis. We are probably going to see balance sheet
stresses worsen and is likely to result in loss of many jobs,” an economist
Alfred Chisango told Business Times this week.

Industry groups this week warned saying it is a high price for a country
that is already on a declining growth trajectory and struggling to extricate
itself from the mess.

Amid a likely dearth of working capital, banks need to step up their
lending to help many businesses stay afloat.

But doing so, analysts say, could put extra stress on the financial
systems, which have not been borrowing much.

While small and medium sized businesses may struggle the most in
the short-term, larger organisations will not be immune to the crisis.
The Confederation of ZimbabweIndustry (CZI) this week said
with uncertainty and anxiety still abound, manufacturers could be
hit disproportionately harder than others.

CZI this week met permanent secretaries of the ministries of
Industry and Commerce and Health and Child Care to discuss challenges
companies are facing.
Companies have expressed concerns saying it was difficult to implement the Level 2 lockdown.

“Opening hours (are) not ideal for manufacturing as some machinery
needs to be running 24 hours and therefore require to have shifts
round the clock. Opening hours for retail not ideal as the social
distancing requirements make it difficult to service the usual number
of customers per day,” CZI said.

“The mass testing for Covid-19 should not be a cost for business
but for the government. Businesses are already struggling due to the
obtaining economic situation, the lockdown and disruptions during
lockdown.” “Testing employees who are still in contact with other people
outside of work and accessing other spaces that may be channels of
transmission is neither a preventive nor a containment measure. This is
a cost burden that industry cannot carry given the current constraints
and the increase in electricity and labour costs.”

Government last week announced several relief measures in the wake
of the pandemic to help commercial activities to re-start.
Several CEOs who spoke to Business Times expect job losses post
lockdown.

Last year alone, more than 200 000 jobs were lost. It is now expected
that more will be lost this year following the pandemic.
The concern by CEOs comes as companies listed on the Zimbabwe
Stock Exchange are projecting a gloomy picture.

NMB Holdings warned the national lockdown coupled with
the other devastating effects of the novel virus are expected to result in
a decline in transactional volumes due to the restrictions in movement,
thereby negatively affecting the bank’s fee and commission income.
“These measures would also have an impact on the cash flows of the
bank’s customers who do not fall within the essential services category,
albeit to varying extents depending on the underlying business models,”
said NMB Holdings in its 2019 results statement, adding this might
result in a deterioration of the bank’s credit risk and liquidity risk profile.

NMB Holding’s foreign exchange risk is also expected to deteriorate on
account of the negative economic performance outlook in view of the
economic restrictions necessitated by the Covid-19 pandemic.
“Whilst the group is cognisant of the negative impacts of the Covid-19
pandemic on its revenues and asset quality, the severity and operational
impact of the restrictions for the remainder of the year cannot be
reasonably estimated at this point in time,” the group said.

Listed miner RioZim warned its cash flow and business operation
will come under severe stress into the future as a result of the impact of
Covid-19. The company carried out a Covid-19 assessment to arrive at an
understanding of its effects on future business and cash flows, working out
a probability-weighted expected cash flow using four possible scenarios
– positive, mild recession, medium recession and severe recession. The
results of the assessment showed that Covid-19 will have material negative
effects on future business prospects and revenue.

“Consequently, the group’s cash flows will come under severe
stress going forward, however, the impact in monetary value terms
is undeterminable and remains unknown,” said RioZim in its results.
“Coupled with this is the fact that in addition to earning only 55% of
our receipts in nostro, remittances of the company’s nostro receipts from
RBZ are continuously delayed. We are constantly engaging the RBZ to
ensure that payments are brought up-to-date but this is another factor
that may put pressure on our already strained cash flows.”

Financial services group, ABC Holdings Zimbabwe said there
remains a great deal of uncertainty about the virus itself with the full
impact of this pandemic on the African continent and in particular
ABCH countries of operations still unknown at this stage.
“While we believe that our business will see the impact of the
pandemic on a wide scale this will only become clearer in the coming
months. The group is monitoring the situation very closely from all
aspects,” it said.

ABC Holdings said although the hardest-hit countries are in Asia,
Europe, and the US, increasing numbers are being seen in many
countries across Africa. As a result, the group has activated the business
continuity processes to weather this crisis.
Listed contracting group, Masimba Holdings believes that
the Covid-19 is likely to negatively impact on the business performance;
however, its impact is likely dependent on certain developments
which include duration and spread of the outbreak, impact on
customers, suppliers, and employees.

Masimba Holdings warned it could fail to meet its solid order book
due to Covid-19 and other macroeconomic constraints.