How Covid-19 Pandemic Could Impact the Flow of Business

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Sampa Kang’ombe is an Associate at Corpus Legal Practitioners, one of Zambia’s leading corporate law firms, in the Banking and Finance.

Brief Background of Covid-19

Covid-19 was first detected in China, it is a flu-like illness with symptoms such as a cough and fever. It has spread rapidly over roughly 194 countries and has affected over 360,000 people with 15,000 deaths recorded and over 100,000 recoveries.

Zambia has reported 3 cases so far. In this period we have seen schools close two weeks earlier and we have also seen restrictions on public mass gatherings and social distancing measures and guidelines mandated to prevent infections.

Further restrictions have been imposed on all international travel. It is from the result of these restrictions that the nation has experienced a reduced consumer spending pattern as well as reduced sales revenue.

Impact on the Flow of Business

Covid-19 is stretching companies especially small business owners as it is creating a situation where companies that did not have any cushion in place are being forced to close down. This is because they can no longer generate revenue and cannot meet the obligations that they have.

These obligations are things like lease agreements, supply contracts, and even employee salaries. With the reduced revenues experiencing now, it means if it persists your business will not be paying someone or someone will have to be compromised. Many businesses will begin to default on these obligations especially the small businesses.

Survival in this Period

As a business, you will need to review your contracts and obligations. Categorize them into two: the essential and the non-essential. If you have many non-essential obligations during this period it may be time to start thinking of cutting them off for the timing being.

For the essential obligations on the other hand you will have to plan ahead and determine what should be implemented should the pandemic hit harder, 3 cases may be considered as a small number but what happens when things reach to an extent of shutting down as has been seen in other neighboring countries.

There will also be a need to reconsider your expenses and to e collaborative with even your competitors and third parties in order to survive this period.

Key Players and their Roles

• Financial Institutions

The main aim and goal for the banks will be to continue existing relationships. Ultimately it’s time for banks to start considering that some people will begin to step up to them and ask for a moratorium on their loan or a hybrid where they pay the interest and not the principal or vice versa during this period.

They could also result in delaying enforcement of default on loans if a business fails to repays as a direct result of Covid-19. This should be understood by your bank in this period especially if you are a long-standing client.

• Emergency fund

This is a fund that should be provided to help small businesses during this period, Banks should be looking to set up one though they should be mindful as it will be dependent on their cash flow. Like any other business, the banks too will need to survive.

One way though they could create a fund is for financial institutions to join together and form a fund through syndicated loans, this can then be borrowed on the market and used to help small businesses.

• Landlords

They have to start thinking of reducing rentals, for the time being, just to allow business owners to survive and in an event that a business is shut down there should be an option to suspend rental obligations as there is no revenue being generated.

Practical Measures the Government can implement

In this situation, the Zambian government can find it’s self very lucky as they have a blueprint from other governments around them how are currently handling this situation. But in a practical sense, they can cut down on taxes to stimulate spending on the economy during this period and help employees survive.

Things like income taxes and business taxes should be put on hold, this will greatly help businesses last during this period as their obligations to the government are less and businesses can stretch out a bit more.

The government should ensure through the competition Consumer Protection Commission that no prohibitive pricing of goods is implemented during this period by companies.

There can also be a declaration on the suspension of certain payments to help keep small businesses afloat and lower the interest rates with caution, to avoid further decreasing the value of the kwacha to the dollar.

Lastly, the government can seek to expedite funding from the IMF, these funds may be used to stimulate the market and also help small businesses with loans. There several measures that the government can implement but they are all dependent on the economic strength.

Key Insights:

• Review all your contracts and obligations during this period.
• Determine the essential from non-essential obligations.
• Government has a blueprint that they can follow during this period in terms of measures to implement.

 “Being in isolation is to stop the spread of the Coronavirus, but for  us to survive as businesses, we need to be collaborative.”