The coronavirus pandemic is an unprecedented challenge on a global scale. In just a few short months, the COVID-19 outbreak has disrupted trade, brought the travel industry to its knees and wiped trillions of dollars from stock markets worldwide. S&P Global Ratings predicts a global recession this year, due to market volatility and increasing credit pressure.1
All over the world, containment measures are crippling production and spending, with a momentous economic impact. The Organisation for Economic Cooperation and Development (OECD) has cautioned that this pandemic could be the biggest threat to the global economy since the 2008 financial crisis.2
In Africa – where economies and health systems were already under pressure before the emergence of the novel coronavirus – the impact of Covid-19 could be far more devastating over the long-term than that felt in Europe, Asia and North America.
WHO director-general Tedros Adhanom Ghebreyesus has advised that “Countries with weaker health systems must act aggressively to contain spread among early cases and prevent community transmission.”3
Taking this advice to heart, African governments have already begun implementing a series of robust measures to control the spread of Covid-19. These include quarantine and social distancing regimes, border closures, and bans or restrictions on travel.
Impact on regional trade
China’s economic slowdown since the emergence of the novel coronavirus has had a substantial knock-on effect for African businesses dependent on trade and tourism with the world’s most populous country.
In many African nations, Covid-19 has already delivered both a supply- and demand-side shock. The measures being implemented to contain the virus, such as social distancing, national lockdowns, factory closures and travel restrictions, have hobbled supply chains, curtailed output and hurt commodities.
The drop in oil demand caused by the virus – despite stimulus efforts by policymakers around the world4 – has deep impacts for oil producers and exporters on the continent, including Libya, Algeria, Nigeria, Angola and Ghana.5 Other countries hit by depreciations in industrial commodities include South Africa (particularly iron ore) and Zambia (copper).
African exporters of soft commodities like coffee, tea, flowers, cocoa and fisheries are also battling due to subdued Chinese demand. Countries impacted in this context are Rwanda, Ghana, Ethiopia, Kenya, the Ivory Coast and South Africa.
Additionally, many African countries are reliant on Chinese imports like textiles, electronics and household goods – and countless SMEs have been forced to shut down due to supply chain disruptions and a lack of stock.
This is a fast-developing situation and a lot can change from day to day. As at 29 March 2020, here is a brief overview of the measures that the various governments on the continent have put into place:
Economic support packages
Several African countries have announced economic support packages, especially for SMEs impacted by the health crisis and economic fallout.
South Africa, for example, is launching a Temporary Employer/Employee Relief Scheme for companies in distress who are also contributors to the Unemployment Insurance Fund (UIF). This program aims to pay salaries directly to employees to avoid retrenchments. 6 Additionally, the Department of Small Business Development has made over R500 million available to SMEs in distress; the Industrial Development Corporation has put a package together with the Department of Trade, Industry and Competition of more than R3 billion for industrial funding; and the Department of Tourism has made an additional R200 million available to assist SMEs in South Africa’s beleaguered tourism and hospitality sector.7
In Mauritius, a wage support scheme will also be rolled out to provide financial support to employees who may lose their income on a temporary basis due to the impact of COVID-19.
Several tax rules are being temporarily relaxed for compliant SMEs across several African countries. South Africa, Mauritius and Kenya will fast-track value-added tax refunds in the next few months as well as delay certain categories of tax payments without penalties.
In South Africa, the following measures have been announced89:
- The South African Revenue Service will give tax subsidies of up to R500 per month (over the next four months) to employees earning R6 500 or less per month under the Employment Tax Incentive; as well as work towards expediting the payment of reimbursements from twice a year to monthly.
- Tax compliant businesses with a turnover of less than R50 million may delay 20% of their pay-as-you-earn liabilities over the next four months; and a portion of their provisional corporate income tax payments without penalties or interest over the next six months.
- The government is exploring the temporary reduction of UIF contributions (for employers and employees), as well as employer contributions to the Skill Development Fund.
In Mauritius, the following initiatives are being implemented10:
- The Mauritius Revenue Authority announced that taxpayers that are unable to submit their tax returns or remit payments on time due to the pandemic will not be subject to penalties or interest.
- A “double tax deduction” and a 5% tax credit will be available until 30 June 2020 on specified IT purchases, to encourage remote work.
- Companies also may be eligible for enhanced tax deductions for plant and machinery acquired between 1 March 2020 and 30 June 2020.
In some countries, banks have been asked to suspend and extend loan repayments for affected businesses, as well as increase borrowing limits.
The South African Reserve Bank recently introduced an interest rate cut of 100 basis points, which will provide some relief to consumers and businesses. Additionally, commercial banks have been exempted from provisions of the Competition Act, allowing them to develop unified approaches to debt relief and other necessary measures.11
The Bank of Mauritius announced five key measures to shore up the economy. The central bank cut its cash reserve ratio by a percentage point, released five billion rupees ($130 million) to fund struggling businesses, directed banks to suspend capital repayments on loans for impacted businesses, eased credit impairment rules and issued a “savings bond”. Further, the island nation’s commercial banks will provide a 6-month moratorium on capital repayment of home loans; and households earning less than MUR50 000 will be relieved from paying interest on their home loans for a temporary period. 12
WHAT CAN YOUR BUSINESS DO?
While these interventions by the public sector will provide some businesses on the continent with support, it is essential for all companies impacted by the pandemic to take action now and develop a continuity plan for the months ahead.
Essentially, your business needs the tools and technologies to stay agile, manage fast-changing regulations and rules, and control risk.
- Is your company ready for remote work? Where operationally relevant, making sure every employee has the IT assets and support required to work from home – both during and after lockdown periods – is an essential aspect of any COVID-19 business contingency plan. Solutions that facilitate team communication, data accessibility and digital workflow management are ideal in this environment.
- Improve supply chain communication and monitoring As you adapt to new trading challenges, you may want tools to communicate with your regional and global business partners in various languages, and monitor supply chain risk more comprehensively. An automated solution can provide electronic collection, standardization and organization of business partner information, with workflow tools that allow you to digitally route assessments, requests and reminders to the relevant stakeholders.
- Manage exports more efficiently As export rules change, you need to confidently maintain export control classifications for products and generate accurate documentation. An export management solution can reduce your risk of non-compliance, while making clearance, screening and document creation processes more efficient.
- Gain complete control over imports A purpose-built import solution can help you to securely exchange the trade data required for the importation of goods into any country around the world, from purchase order to final delivery. With a complete, automated system for consolidating the necessary information for import filing – and the tools to validate that data against current regulatory content – you can optimise efficiency in your supply chain.
- Know who you’re doing business with In turbulent times, it’s critical to continue protecting your business against risk that could be hiding in your business relationships – especially if you’re planning to adapt your trade lanes. You need a trusted solution for screening potential and existing business relationships against current global lists for restricted persons, companies, and sanctioned or embargoed countries.
The way forward
We can help you to steer your business through this dynamic environment during 2020 and beyond.
Contact the Thomson Reuters Africa ONESOURCE team for more information by filling the form on this page.