eBusiness Weekly
The extension of the lockdown to five weeks, even with growing flexibility and more exemptions for productive sectors, will increase the economic strain and cause significant economic damage to many businesses and households.
This in turn will require more Government support and intervention, putting strain on national finances, if a total meltdown, high unemployment and hungry families are to be avoided.
It is now probable that the measures to control the spread of Covid-19 will, in terms of economic damage, be of the same order of magnitude as allowing the disease to run riot through the population. The major difference between the two options is that several tens of thousands of lives will be saved by the controls, and that in turn makes recovery easier and future income support cheaper, since there will be far fewer orphans.
This is just pointing out the difference in the economic options, ignoring the human suffering which obviously must be a high priority to any society and which can and does override most pure economic analyses.
But the economic costs still have to be calculated and economic measures still have to be in place to see what damage can be minimised.
The economic damage has many causes and effects.
Even in the productive sectors — and agriculture, mining and manufacturing are now all exempted — there is still major disruption, not only from the original lockdown provisions but also from the costs of restarting production, finding raw materials and other inputs, protecting staff and finding markets.
Many exempted businesses are in financial trouble, largely from having to deal with restricted and closed markets for their products. Many of these businesses are looking at payrolls and planned pay rises and are trimming staff where they can do so easily, usually contract and casual labour, and will certainly be postponing plans they might have for pay rises to cope with inflation. And if they have severe strains, then the closed businesses have more.
The unexempted businesses are in far worse trouble, since they have to cope far longer with zero revenue. Assorted predictions have been made and advice given on how to avoid bankruptcy or even meet payrolls and other fixed costs.
Although some measures have already been taken by most to minimise damage to income and expenditure accounts and balance sheets, for example by requiring all staff to apply for leave during the lockdown, this does not solve the lack of cashflows to meet required payments.
With close on three quarters of economically active Zimbabweans in the informal sectors the damage grows and is multiplied. Many in these sectors live from hand to mouth. Their financial reserves are low. The Government has started direct payments, but these buy little more than maize meal and beans, and even then the recipient has to be in the right queue at the right time to get the maize meal.
The biggest effect on the economy from the zero income in much of the informal sector is that a lot of the final customers of the formal sector will not be spending money beyond basics.
When clothing shops, for example, are allowed to re-open they will almost certainly find far fewer customers spending on average a lot less, and being in that position for some time as they first rebuild their little businesses. We will see more darned clothing and more repaired shoes on the streets rather than people buying new and replacing.
Banks have said they will be able to do something, at least reschedule loan repayments and lend a bit more, so long as the monetary authorities ease up on some controls, such as the level of statutory reserves and the definition of a bad debt. But there are limits and either there are trivial assets for further collateral or assets have already been pledged.
So the Government, in the end, is going to have to step in. Some intervention is fairly easy, allowing banks to do more and allowing tax payments to be spread for example. Other interventions will require guarantees, allowing banks to make loans based on past customer performance without necessarily having adequate collateral. This has been done in agriculture, with a varied record of success and failure but some sort of system of control can maximise success.
But even then the Government is going to have to come up with more money. There are sound arguments to channel support to business through banks, since bank managers are supposed to know their customers rather well and have the advantage that they can see the state of bank accounts of customers and can see how these are being used and managed.
This will save a lot on bureaucracy and in any case a bank can probably police Government loan money better than a room of ministry officials.
Government loans, grants and guarantees will probably come with a price tag, specifically minimising job losses and salary cuts and probably requiring agreements on mark-ups or even pricing. The Government will want any support it offers to do a double job, getting the economy restarted and reducing human suffering.
And if you are running a Government you have to look at both factors, not just the viability and the profits of a business which is all owners and shareholders have to worry about.
To retain fiscal discipline with extra demands, both in keeping productive sectors producing and in giving basic support to the hundreds of thousands who may, temporarily we can all hope, be without income, the Government is going to have to re-budget much of its expenditure, with the capital programmes being the first victim.
Already capital expenditure has been swung from some ministries into the health ministry to get long delayed maintenance and improvements to health infrastructure paid for.
The private sector is going to have to be more active in its relationships with the Government and in helping to find innovative and creative solutions. The Government is far more ready than it has been since independence to talk to business sectors, treat them as important, and sit down to discuss joint solutions. Part of this is the policy of the new dispensation, part has arisen as a result of successful support and collaboration during the Covid-19 emergency.
But there is still a tendency for business to ask for help, rather than presenting well-thought plans and programmes that will need Government support. A successful restart to economic activity is going to require everyone to see the problems of the rest of society, not just their own, and figure out ways of coping with a range of serious damage at the lowest possible cost.
Business should not be shy of contributing to this new concept. As we have already noted, re-opening a factory without having any customers who can buy what you make is not that much of a gain.
So running a business, re-opening a business, keeping a business viable will require business owners, managers and shareholders to look at the big picture as well.
