HomeBusiness DigestCovid-19 lockdown: Govt must put exit plan in place

Covid-19 lockdown: Govt must put exit plan in place

THE Confederation of Zimbabwe Industries (CZI) has been conducting surveys to establish the economic impact of Covid-19, which has killed more than 120 000 people globally. The findings make for grim reading. Business reporter Kudzai Kuwaza (KK) this week caught up with CZI chief economist Tafadzwa Bandama (TB, pictured), who expressed her views on the surveys and possible ways of overcoming the challenges posed by the Covid-19 crisis. Below are excerpts of the interview:

KK: You have conducted a survey which found that 46% of local firms are affected by the coronavirus pandemic. What does this mean for production in the country?

TB: As you are aware, the country was put on lockdown in order to minimise the transmission of the coronavirus which causes Covid-19. Companies that produce non-essentials are closed, while those that are operating are not producing at their pre-lockdown capacity levels because of the need to fulfil the social distancing requirement.

In this regard, 34% of companies that responded to the survey were on nil production, while 52% were operating between 30 to 60% of pre-lockdown capacity performance levels. This is painting an obvious scenario of a drop in productivity and production.

Our productive sector will suffer contagion effects of closed raw material source markets and closed export destinations. Where markets are open, logistical bottlenecks will cause delays in supply of raw materials and finished goods, which curtails productivity and revenue.

KK: In the manufacturing survey, you projected that capacity utilisation could go down to 27% this year. Could it now go even lower, considering the coronavirus impact and the subsequent national lockdown?

TB: The productive sector is operating in a very difficult business environment. The fundamental cause of this is macro-economic instability. So, companies are struggling to access foreign currency to import critical raw materials and intermediate inputs and working capital has been severely eroded by inflation. The foreign exchange inter-bank market has not been effective in the allocation of foreign currency to the productive sector as it has not been allowed to discover a price where supply meets demand.

Rampant growth in money supply has caused very high inflation in the economy and this has been made worse by the negative impact on output due to the absence of key economic enablers. The economy is existing in a low equilibrium growth trap and the advent of Covid-19 which has necessitated a national lockdown to contain transmission of the disease will most likely extend our very poor economic performance. This is because the economy was already suffering from stunted economic growth before the outbreak of the pandemic.

KK: Can you estimate how much business will be lost during the lockdown?

TB: As you know, countries have deployed varying levels of national lockdown in order to contain Covid-19 since it is highly infectious besides being novel. Companies have indicated varying degrees of revenue loss with percentage losses ranging between 45% and 100% due to reduction or total suspension of operations as well as low demand and losses experienced in the perishable sector. Losses have also emanated from high overheads, supply chain disruptions, logistical challenges, international trade challenges, short banking hours and less man hours.

KK: How much is needed as a rescue package for industry in your estimation?

TB: It may be too early to establish the quantum of resources needed but, as I indicated earlier, companies are in a catch-22 situation due to the pandemic effects and significant resources will be needed to jump-start industry operations once the lockdown is lifted.

KK: In what ways can government mitigate the losses incurred by industry?

TB: Given the far-reaching effects of the lockdown and the limited fiscal space, the following measures may be considered:

Government should review the modus operandi of the lockdown so that Covid-19 containment policies do not hasten the catastrophic collapse of the productive sector and the economy.

Guarantees can be used to allow potentially viable companies to borrow and resuscitate operations.

Liquidity support arrangements must be put in place for the banking sector in line with international best practice and consistent with maintaining a stable monetary base.

Restructure loan repayments as opposed to suspending them.Interest rate regime could be lowered for the productive sector so that they kick-start production.
Business rentals should be rationalised so that there are no evictions for failure to pay rentals in view of the lockdown. Companies that are owing should be allowed rollovers and extensions of repayment time.

Government could consider increasing Pay As You Earn (PAYE) bands by 200%, effective April 1 2020.

The survey that was carried out by CZI revealed that most companies, at 82%, can only sustain payment of wages and salaries for a month and, in this regard, government could allow employers to offset a 2% Intermediate Transaction Tax paid in any given month against PAYE due for that month.

Due dates for PAYE and value-added tax can be deferred to provide relief for businesses that are facing cash flow and working capital challenges.
Downward review of National Social Security Authority payments, Aids levy and pension payments.

Procurement policy should favour locals.

KK: Given the impact of Covid-19 and the lockdown, what would you project will be economic growth in 2020?

TB: The outlook for the economy is very uncertain so it is difficult to predict at this stage how far-reaching the impact will be on the economy.
However, initial indications are that gross domestic product will fall by more than 10%, with expectations of a quick rebound once the pandemic is brought under control as the Zimbabwean economy is extremely resilient. The caveat is that we sort out our macro-economic policies to turn around the economy very quickly.

KK: A number of companies worldwide have implemented salary cuts as a result of viability problems caused by the pandemic. Do you see local firms taking similar measures?

TB: No business has been spared the negative effects of this lockdown. Some have been more affected than others. Many companies have not awarded dividends for many years now. Companies are realising huge overheads due to the lockdown and employers are unable to sustain payment of wages under lockdown.

Month-on-month inflation was about 26% for March 2020. This means that pressure on prices and incomes is continuing. The buying power of employees continues to be reduced. Any talk of reducing salaries is really up to each company because cashflow challenges are now a common occurrence for most companies.

However, companies can review their business models during this crisis and implement tighter management of cash flows and liquidity as well as exploring new sources of markets. Companies can also enhance online presence since the world is going digital.

KK: When the lockdown ends, how can the government facilitate business and ensure that citizens as a whole are better prepared for it?
TB: Government should communicate to the citizens about the country’s lockdown exit strategy. And whatever the exit plan is, business should be informed in advance to facilitate planning for restarting. Business and government need to collaborate to come up with sector-specific business restart plans after the pandemic is brought under control.

The exit strategy should take into account the destruction of global value chains and the role played by value addition and infrastructure development in national development. In addition, the exit plan should be informed by scientific evidence from epidemiological modelling.

KK: What lessons have been learnt from the impact of Covid 19?

TB: Countries are affected by this Covid-19 global pandemic at different times and magnitudes. Moreover, the impact of the pandemic on any country depends on its geo-political economy. The income level of a country also determines the measures to be implemented as a complete lockdown may be inappropriate for low-income economies like ours.

High-income economies can afford unemployment benefits and health insurance during lockdown, while in low-income economies prolonged lockdown punishes the self-employed, who need to work every day in order to earn a living.

Therefore, containment measures should not be one-garment-fits-all measures but tailor-made for each specific country. In our case, malnutrition and food insecurity after the 2019 drought meant a different approach to the pandemic. Because of our near-collapsed health system, strategic focus should be on containment and minimum business disruption.

As this pandemic is unfolding in the whole world, it is interesting to note that nations are adopting a nationalistic stance. Each nation for herself, implying that in the short-to-medium term the avenue of international support may turn out to be a cul-de-sac.

There is a lot of uncertainty surrounding Covid-19 and this calls for well-informed containment measures that minimise recession and hardships on the population. This is because of the evident trade-offs between containment policies and economic development.

KK: Can you give us your parting shot?

TB: Countries with strong economies have been able to respond effectively. It has been reported that China relied on its information technology sophistication to fight the pandemic, while the same cannot be implemented in a country with low information technology penetration. This experience should spur us to embark on leapfrogging economic development plans so that we are ready to cope with the inevitable calamities that will come our way in future.

Remember we had Cyclone Idai recently in 2019. We do not know what is round the corner. Our responsibility is to double our efforts to be a productive economy, growing exports and able to afford a decent health delivery system and at the same time with capacity to establish financial resources like other countries in the region.

This crisis must be seen by all as a timely call to action and an opportunity to start afresh and develop all sectors of our economy. We should develop our economy to achieve some measure of self-reliance, rather than relying on imports of goods and services that can be produced locally.
Bandama can be contacted on tbandama@gmail.com

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