Business

Coronavirus could blow up Zim industries

…as ED sets up ad hoc task force

PHILLIMON MHLANGA

Zim b a b w e companies-large and small- are likely to suffer huge revenue losses due to the deadly coronavirus which has disrupted manufacturing supply chains and businesses.

This comes as President Emmerson Mnangagwa set up a ministerial taskforce as government steps up its fight against Coronavirus which claimed the life of TV personality Zororo Makamba this week.

The impact of the respiratory ailment is likely to make it difficult for distressed local companies to survive the potential economic downward spiral.

The virus, also known as COVID-19, was confirmed in Zimbabwe last week, resulting in partial lockdown.

The already frail Zimbabwe economy faces a multi-pronged shock on supply, demand and the values of the traded assets because of the highly contagious respiratory disease that originated in China but racing across the world to infect close to 200,000 so far with deaths currently over 10,000. Companies’ production is likely to be severely battered.

In fact, most companies this week sent a good number of their workers home and could soon close.

The threat to corporate profits are likely to send investors in search of safe havens down.

This is also likely to see fund freeze due to rising risk aversion among investors.

Business in need of cash would normally, turn to their banks for help in moments like these.

But, as banks get squeezed by the sliding interest rates, their ability and appetite to lend to struggling companies diminish.

This means banks are likely to limit financing for businesses, likely to cut production or lay off workers to hoard capital.

And it will be difficult to fix broken sectors.

Several local companies are beginning to grapple with how they should weather the storm.

This week, several companies have begun ordering some workers to stay at home, a situation which has forced firms to suspend production or scale down activities amid coronavirus pandemic.

There are also looming corporate defaults in terms of servicing debts.

The virus might result in suspension of contractual performances as businesses respond to the coronavirus.

Parties may be excused from performance or will justify termination of contracts.

“We are between a rock and a hard place. We are on a very difficult position.

Some difficult decisions have to be made because that’s a very difficult space to be at the moment.

With this, budgets have already been revisited to enable workers working from home.

So this is a bitter pill to swallow which comes with grave consequences because commercial activities have been affected,” the Confederation of Zimbabwe Industries chief executive officer, Sekai Kuvarika told Business Times.

“On the issue of labour, we are not looking at retrenching workers further but it’s something which is giving companies a serious headache because what’s happening now, there is no provisions in the Labour Laws on how to treat it.”

Employers’ Confederation of Zimbabwe president Israel Murefu said the impact is going to be significant in productivity.

“Plans and budgets are going to be disrupted. We need to come up with recovery plans.

I think a recession is inevitable. I also think some debt relief will be necessary because many companies will struggle to honour some obligations,” Murefu said.

The outbreak is also likely to hit growth, widen the fiscal deficit.

Several analysts have projected a steep economic contraction as government and companies take draconian measures to combat the virus.

Zimbabwe’s economy, last year recorded negative growth of -6.5%.

This year it was projected to grow by between 0.85 and 3%. Economists now project a pandemic-driven recession.

“There is little doubt we are staring a pandemic-driven recession this year,” economist Wonder Munzara told Business Times this week.

“With the spread (of coronavirus) spreading, Zimbabwe’s borders are likely to be closed. As a net importer, supply chains are likely to be affected.

This means production in many companies is likely to be halted as a result. And when this happens, a recession is the expected outcome.”

Another economist, Daniel Ndlela said suppliers are not going to supply Zimbabwe industries because of the lockdown the world over.

“On Zimbabwe, it’s going to be worse and business will suffer heavy losses. Zimbabwe’s exports, largely tobacco, are also going to suffer because we are selling most of our tobacco to China,” Ndlela said.

“The economy was already on a squeeze before coronavirus.

Now, with it, it’s going to be heavy and it’s going to drive the economy under in many areas. We are likely to have a recession.”

CEO Africa Roundtable chairman, Oswell Binha said the pandemic was likely to hit business hardest and described it as “an enemy of business” as a number of economic activities are reducing gradually.

“We don’t have the capacity at the moment to deal with it. The industry has not sufficiently adjusted to having workers having to work home. We don’t have capacity because most of the internet is installed at workplaces, not at homes. So the pandemic has and will hit business hardest.

As the CEO Round Table, we have postponed events to dates to be announced,” Binha said.

Across the world, many companies are closing their plants due to raw material shortages.

This could also affect Zimbabwe as the country depends heavily on imports. This could a severe blow to the local industry as well.

The focus of the disease has shifted from China to the rest of the world and Zimbabwe recorded its first case last week.

Under-reporting of COVID-19 cannot be ruled out. Zimbabwe’s weakened health system poses danger.

Just one case in the hospital, health experts said could lead to transmission within the system, putting already sick patients at risk.

There is no capacity for complex care due to a lack of basics. Symptoms include fatigue, difficulty in breathing, coughing, and high temperature.

The virus, some expert claim, was probably first transmitted from an animal but is now spreading from person to person.

In addition to the human impact, there is also a significant commercial impact being felt globally because the virus knows no borders.

Zimbabwe is not spared.

The deadly virus, which has since changed Italy, one of the world’s most vibrant societies, renowned for its flamboyance, has resulted in its lockdown.

Zimbabwe is in danger of a possible shut down because the country’s dilapidated healthy infrastructure is likely to buckle under pressure in the event cases mount.

However, three factors will determine how Zimbabwe will cope; the attitude to uncertainty; the structure and competence of the health system and above all, whether they are trusted to deal with the virus.

Zimbabwe recorded its first coronavirus case last week, driving panic in the southern African country.

Many fear that Zimbabwe, which has a fragile health system that has remained underfunded despite promises to do so, might struggle to cope as cases of the virus, which has ravaged several first world economies, mount.

Like most of the countries around the world, Zimbabwe has escalated “social distancing” policies by implementing draconian containment measures such as halting public events, closing schools and stopping sporting events were also shuttered to curb the spread of the respiratory disease.

President Emmerson Mnangagwa has urged Zimbabweans to avoid groups larger than 50 and has postponed national events like the Independence Day celebrations and the annual Zimbabwe International Trade Fair.

Mnangagwa said the resources originally earmarked for the events would be redirected towards strengthening defenses against the coronavirus.

The pandemic comes at a time when Zimbabwe’s health delivery system is run down owing to shortages of drugs and medical supplies.

Currently, only the Wilkins Hospital in Harare and Thorngrove in Bulawayo are being used as quarantine centres.

Policymakers in developed economies have also cobbled together packages to counter the impact of the virus.

The Donald Trump administration last week unveiled a US$1 trillion stimulus package that could deliver US$1,000 cheques to Americans within the next two weeks to buttress a virusstricken economy.

Britain, which has already told people to avoid pubs, clubs, launched a £330bn rescue packages for businesses threatened with collapse, while France, which went into lockdown last week is to pump €45bn into its economy to help companies and workers.

Global stock markets have also stumbled and are unable to shake off their coronavirus nightmare.

The Philippines was the first country to close markets, while Europe-now the epicentre of the pandemic-saw airlines and travel stocks plunge by close to 10% last week.

Zimbabwe’s stock market is also pointing to losses ahead of fears over the coronavirus.

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