Corona Virus Global Impact

On 31 December 2019, the Wuhan Municipal Health Commission in Wuhan City, Hubei province, China, reported a cluster of 27 pneumonia cases (including seven severe cases) of unknown aetiology, with a common reported link to Wuhan’s Huanan Seafood Wholesale Market, a wholesale fish and live animal market .

On 9 January 2020, the China CDC reported that a novel coronavirus (later named SARS-CoV-2, the virus causing COVID-19) had been detected as the causative agent for 15 of the 59 cases of pneumonia. By 20 January 2020, there were reports of confirmed cases from three countries outside China: Thailand, Japan and South Korea. These cases had all been exported from China.

The first European case was reported from France on 24 January 2020. This case had a travel history to China. In Germany, cases were reported on 28 January, related to a person visiting from China. On 30 January 2020, the World Health Organization (WHO) declared a pandemic over a new coronavirus which causes an illness known as COVID-19 that has spread to at least 180 countries and territories.

The disease has killed more than 48,000 people and infected almost 950,000, according to data compiled by Johns Hopkins University.

COVID-19 Impact on Global Business

Positive Impacts

Online Services Providers

• Amid fears over a global economic slowdown from the widening coronavirus outbreak, companies like Netflix that provide in-home services are best positioned to withstand the storm or even see upside from the crisis. In addition to Netflix, other tech companies catering to internet-connected consumers at home that could benefit from coronavirus include Facebook, Peloton and Slack.

Remote Work

• Remote work can lead to increased productivity, which ultimately helps a business’ bottom line. Employees are more efficient as they are less distracted than in an office setting (however, companies need to consider how they can monitor this as a viable business model). With remote workers, companies can incur less overhead and operating costs to keep their business running smoothly, and they also may see a reduction in severe workers’ compensation claims.

Business Opportunities

• More business potential to entities who can provide their products online and also with adequate capital to launch the products online.
• Other Companies will be forced to start thinking of more innovative ways to offer their products online and forces companies to move forward in ICT advancement.
• Entities like Facebook, Amazon and Google have the potential to launch new products as most countries are on a lock down period and are working from home with the use of internet.

Climate Change

• Lockdowns across the world have already resulted in a significant drop in greenhouse gas emissions and pollutants. In China, for instance, the lockdown caused carbon dioxide to drop by at least 25 percent and nitrogen dioxide by 37 percent which may possibly result in less droughts leading to more water supply and increased electricity supply for industries in Africa.

Negative Impacts

                                      Adapted from World Bank, 2019

Trade

• Large-scale quarantines, travel restrictions, and social-distancing measures drive a sharp fall in consumer and business spending, producing a recession.
• Although the outbreak comes under control in most parts of the world, consumers stay home, businesses lose revenue and lay off workers, and unemployment levels rise sharply.
• Business investment contracts, and corporate bankruptcies soar, putting significant pressure on the banking and financial system.
• Demand suffers as consumers cut spending throughout the year. In the most affected sectors, the number of corporate layoffs and bankruptcies rises throughout 2020, feeding a self-reinforcing downward spiral.
• Firms and institutions (including private schools and private companies) took proactive measures to avoid infection. Business closures—whether through government bans or business decisions—result in lost wages for workers in many cases, especially in the informal economy where there is no paid leave.
• Individuals reduce trips to the market, travel, going out, and other social activities. These actions affect all sectors of the economy—the health sector, manufacturing, retail and other services, trade and transportation, education, and others. These in turn translate into reduced income both through the supply side (reduced production drives up prices for consumers) and the demand side (reduced demand from consumers hurts business owners and their employees).
• These short-term economic impacts can translate into reductions in long-term growth. As the health sector soaks up more resources and as people reduce social activities, countries invest less in physical infrastructure. As schools close, students lose opportunities to learn (hopefully briefly) but more vulnerable students may not return to the education system, translating to lower long-term earning trajectories for them and their families, and reduced overall human capital for their economies.
• Reduced Chinese demand for raw materials, likely to reduce investments in energy, mining, and other sectors and also a fall in travel and tourism
• About a quarter of Ugandan imports comes from China. Supply chains have been interrupted because many Chinese factories shut down production. In Zimbabwe and Angola exports to China have crashed.
• Some entities have encouraged their employees to work from home but however not all kinds of jobs or professions allow such kind of arrangement e.g. construction workers they must be at the construction site. Now given that economy is an ecosystem, one company relies on the other either directly or indirectly. Halting of e.g. construction means construction companies and companies that directly rely on them (like steel or cement manufacturers) all become victims of the COVID-19. However, the contagion effect does not stop there but goes on to the financiers for example to the fiscus, employees etc. all will be next on the execution.

Economic Impact

• To avoid the envisaged dire eventualities, central banks will be coerced to pursue expansionary monetary policies (i.e. lowering of interest rate) in order to avail borrowing at affordable rates and affords the corporate world and businesses the opportunity to recapitalize cheaply.
• The COVID-19 outbreak has generated both demand and supply shocks reverberating across the global economy. Among major economies outside of China, the Organisation for Economic Co-operation and Development (OECD) forecasts the largest downward growth revisions in countries deeply interconnected to China, especially South Korea, Australia, and Japan. Major European economies will experience dislocations as the virus spreads and countries adopt restrictive responses that curb manufacturing activity at regional hubs, including in Northern Italy. As a result of depressed activity, the United Nations projects that foreign direct investment flows could fall between 5 and 15 percent to their lowest levels since the 2008-2009 global financial crisis.
• The novel coronavirus pandemic, or COVID-19, is predicted to have an impact on the global economy. Where the global real Gross Domestic Product (GDP) grew by 2.9 percent in 2019, it is forecasted that COVID-19 will cause the global real GDP growth to decrease by 0.5 percent in 2020 compared to the previous year, to 2.4 percent growth.
• Given the sheer size of the expected COVID-19 ruin, various treasuries maybe compelled to augment the expansionary monetary policy with the expansionary fiscal policy which may require lower tax rates.
• The greatest risk is that if national interests are not balanced some t administrations globally might opt for policies that will keep them in power but will never take their nations out of the COVID-19 quagmire.
• The ripple effects of COVID-19 are dire and can potentially push lenders like China Exim Bank into liquidation. Investors are not spared either or rather they are the hardest hit since they will not be in position to recoup expected return on their investments and in the unfortunate event of liquidation stand to lose a lot or all. When lenders like that are pushed into liquidation this in turn may result in debtors having to comply to strict terms of payment for the lender to avoid liquidation. This will impact economies globally for such global lenders.
•  Governments are going to be deprived of the corporate and individual taxes they collected during the once thriving coronavirus-free industrial epoch. Unavoidably, service delivery is going to significantly deteriorate in short to medium term. The possibility of social upheaval due to the groundswell of discontentment amongst citizenry cannot be ruled out.

Technological Impact

• The outbreak of COVID-19, also known as novel coronavirus, has led to revised growth forecasts for global IT spending.
• The current forecast shows the IT industry growing by 4.3 percent in 2020 compared to the previous year. That is down 0.8 percentage points from a projection made earlier in 2020.
• The data from the March 2020 forecast provides two possible scenarios for the impact of the coronavirus pandemic on global IT spending. In the “probable” scenario the IT spending is projected to grow by 3.7 percent compared to 2019. The “pessimistic” scenario shows a growth of 1.3 percent in 2020.

COVID-19 Impact on Zimbabwe Business

Positive Impacts

Technology

• It might not be doom and gloomy as initially feared because every problem comes with the opportunities and it’s only those who can provide solutions to these problems who carries the day.
• They will be increased revenue for internet service providers and mobile network operators like TelOne, NetOne, ZOL, Econet and Telecel as people will be using up more data  to connect, whether for work or for pleasure (to avoid boredom) and increased revenue from calls as well.
• Imagine for schools and universities, classes can be done online hence there is need for someone to provide enabling learning platforms to facilitate this kind of learning.
• For shops and construction businesses there is need to explore, to what extend can robots be utilized and avoid complete shutdown. Urgency is of essence.

Online-Service Providers

• For entities that already provided their services on-line like DPO Zimbabwe, ZOL Zimbabwe and YoAfrica it is highly likely that demand of their products will increase as people are recommended to work from home.

Working from Home

• From an employers’ perspective, if employees are working from home operating costs decrease (no transport costs, administration costs (tea and lunch) to name a few).

Business Opportunities

• More business opportunities will arise to entities that are risk takers (share prices are decreasing and some businesses whose model is dependent on to imports are closing thus more opportunities to venture into a variety of industries).

Time Management

• Entities can harness virtual resources which can save time by having certain products or services available online and in a repetitive manner.

Negative Impacts

Tourism and Hospitality

• Bringing the matter home, for the same year Zimbabwe received close to 2,580,000 tourists which equates to 0.18% market share.
• To date we have lost close to USD$116 million (In 2018 Zimbabwe made USD$1.386 billion, multiplied by 2 months or 1 month [since 80% of Zimbabwe tourists come from Africa which was seriously affected in the past month]/ 12 months).
• GDP is going to be negatively affected. The national room occupancy of 53% achieved in 2018 is going to take a beating this year around.
• Over USD$100 was made in the tourism industry and definitively the payback period, return on investment, Net Present Value (NPV) will be greatly affected.
• The said investment was put to upgrading the infrastructure to well-inviting lodges, hotels and the Victoria Falls airport inter alia improvement initiatives you can think of. Interestingly, China is in the middle of things due to its ever-increasing economic stature and has become Africa’s lending partner. Now in light of worldwide economic paralysis, the boggling question is whether or not African states will be able to service their debts or risk losing important collateral that the loans were secured against? This will further exacerbate the status quo.

Trade (Imports and Exports)

• Zimbabwe imported commodities worth $4.8 billion in 2019, with 75% of the imports coming from South Africa, China and Singapore. With recession hit South Africa confirming a surge in Corona infection Cases, an industrial shutdown for the regional powerhouse will negatively impact Zimbabwe.
• A drop in trade with South Africa may curtail imports of critical commodities such as electricity (imported from South African power utility, Eskom).
• The local industry is beginning to feel the pinch from the drop of imports of auto spares, electronics and other goods from China which experienced a decrease of 17.2% in merchandise exports in January and February.
• In-terms of Exports China consumes approximately 50% of the World’s metals and mining resources.
• A prolonged disruption to production in China results in a fall for commodity prices like platinum, chrome and nickel which account for millions in export earnings for Zimbabwe.

Mining Industry

• In mining, Zimbabwe is set to lose 60% of its mining output which is worth over US$400 million according to the Chamber of Mines.
• The dire situation threatens viability of most chrome miners who have been battling to stay afloat in the midst of plummeting global prices and demand for chrome.
• Entities like Zimasco, Mutorashanga Mine will lose as the demand for chrome will decline due to the buyers being on a lock down period.

Exports

• Another key export commodity for Zimbabwe is raw tobacco which contributed US$523 million of foreign currency in 2019.
• Over 66 countries in the world consume Zimbabwe’s highly regarded flue cured tobacco with China, South Africa, Belgium and Russia being the biggest buyers.
• The tobacco auction season was set to begin in April and it’s inevitable that there will be disruption to the marketing season which relies on physical interaction between farmers and buyers. It is highly likely that the price of the golden leaf will further decrease from an average of US$2.03/kg for 2019 season due to a decline in global consumption.
• Entities like Tobacco Sales Floor, Boka Tobacco Floors, Mashonaland Tobacco Company will highly be impacted by the Corona Virus pandemic as some of the farmers may fail to deliver the tobacco.
• The interbank market will also be affected by the dip in tobacco export earnings as they are a key source of foreign currency for the formal sector.

Diaspora Remittances

• Close to 4 million Zimbabweans live in the diaspora, the country received over US$620 million in remittances in 2019. The remittances play a key role in supporting millions of dependents back home who are feeling the heat of the economic meltdown.
• Income for Zimbabwean expatriates will be severely affected by travel restrictions and lock down in their host countries which will mean reduced income for them
• This will negatively affect consumption and demand on the local markets especially real estate, hardware and fast-moving consumer goods.

Transport Industry

• As COVID-19 cases continue to increase locally and several countries have undergone lockdown and closed their borders with Zimbabwe, this has impacted cross border transport operators who ply lucrative routes such as Harare to South Africa.
• An example will be Inter-Africa buses which ferry people to different countries which include South Africa, Zambia and Botswana.
• During the lock down period, only Zupco buses and Commission Services will be allowed to carry people, this negatively impacts other transport operators as they will receive zero revenue during the 21 days lock down period.

Production Sector

• Production in Zimbabwe seemed undeterred by the outbreak of corona virus at the beginning of March 2020; but as the confirmations of a number of infections locally increased, this posed serious recession risk.
• However, the production sector was also named as one of the key sectors which must not cease operation during the lockdown period. The challenge that will be faced will be how to access the produce as there is transport hindrance and also for some of the production to be done there is need for raw material (which is imported) and since most countries closed their borders with Zimbabwe, those raw materials cannot be accessed.
• The lock down in the local market will also put pressure on various producers and the Small to Medium Enterprises who are mainly operating on thin budgets or in survival mode due to economic decline.

Informal Sector

• Informal traders at various home markets such as Glen View Furniture Market, Mbare and others will be severely affected by the lock down just as the much as the whole value chain that relies on the informal traders such as steel, wood, plastics and other raw materials.
• Some entities have encouraged their employees to work from home but however not all kinds of jobs or profession allow such kind of arrangement e.g. construction workers they must be at the construction site.  Halting of e.g. construction it means construction companies and companies that directly relies on them (like steel or cement manufacturers) all become victims of the COVID-19.

Working from Home

• During the lockdown period most entities would end up shouldering the burden of employee costs when they are sitting at home during a period of possibly reduced business. This is especially true for those who cannot work from home such as reception staff, cleaners and messengers etc.

Crisis Management and Response

• It may be ideal for the government to consider tax waivers on payroll taxes and mining royalties for the worst affected industries such as tourism and hospitality so as to save thousands of jobs that are now on the line because of the deadly pandemic

However, the Reserve Bank of Zimbabwe intervened and responded to the financial vulnerabilities caused by the COVID-19 Pandemic and implemented the following measures:

• Increasing the medium-term bank accommodation facility for supporting productive sector activities by an additional ZWL$ 1 billion to ZWL $ 2.5 billion. The additional amount will be targeted at financing the 2020 wheat planting programme;
• Reducing the Statutory Reserve ratio from 5% to 4.5% in order to free some funds to the banks to enhance their lending activities;
• Reducing the Central Bank’s policy rate from 35% to 25% with the expectation that banks will also follow suit and adjust their lending rates to meet the requirements of their customers that are being adversely affected by the pandemic; and
• The issuance of the Open Market Operations Corporate Bills to enhance the monetary targeting framework that is necessary to support the exchange rates and to stabilize prices in the economy

In-terms of the fiscal mitigatory measures to contain the impact of COVID-19 the following measures were done:

• Treasury will ensure that ZIMRA expedites processes on refunds and requests for extension of the time period within which tax is payable without accruing interest and penalties for companies that shall experience COVID-19 related cashflow challenges;
• ZIMRA is working on a programme to expedite processing of VAT refunds from the statutorily prescribed 60 days;
• In recognition of the significance of the health sector, Government has availed a number of tax incentives for production and importation of essential drugs and health related capital equipment;
• Duty and tax relating to testing, protection, sterilization and other consumables was suspended.
• The 2% Intermediated Money Transfer Tax will ordinarily be channelled towards COVID-19 related mitigatory expenditures;
• Treasury has also concurred to the unfreezing of over 4,000 health sector posts and creation of an additional 200 medical posts with a view of scaling the response to the COVID-19  pandemic; and
• Treasury will initially be availing an amount of ZWL $ 200 million per month to vulnerable groups in different societies under a Cash Transfer Programme over the next 3 months and both the amount and duration of payments will be reviewed as necessary

Ethical Considerations for Businesses (Under Lockdown and those Currently Operating)

• Entities that are continuing with operations need to comply with the COVID-19 Pandemic requirements (social distancing and self-isolation) so as to avoid it spreading at the workplaces.
• As for the businesses on lock down, there is also need to act within the lock down rules (for instance only travel within the 5 km radius, if working during the lock down  better to work from home and also whilst working at home maintain the social distancing requirements as well as the quarantine.
• As the COVID-19 Pandemic is an unfortunate event not in control of the employees, it will be most preferable for entities to continue providing employees with their benefits so that they can be able to sustain during this period.
• For entities which are continuing operations, if a suspected COVID-19 case arise they should report the case before it has spread.

Author

Masimba Makunike is an Associate Advisor at Training and Advisory Services. He is an expert in International Financial Reporting Standards (IFRS) and International Public Sector Accounting Standards (IPSAS).He holds a Bachelor of Commerce  in Accounting Degree and a post graduate Certificate in Theory of Accounting (CTA) and Initial Test of Competence (ITC) with ICAZ. He has considerable  experience in both advisory and trainings in Financial Reporting