Measures to Mitigate the Impacts of Covid-19 Pandemic | Ronalds LLP

Mitigating the Impact of COVID-19.

Introduction

The Spontaneous spread of Corona virus disease 2019 in our generation reminds me of a story told by a twenty-eight year old French writer Albert Camus in his book La Peste (French),meaning The Plague in 1947.It is the story of a plague that spreads uncontrollably from animals to humans and ends up destroying half the population, sweeping the French Algeria city of Oran in 1899. Before Covid-19, the world had recently been faced with other respiratory disease in the genre of corona virus that threatened mankind; Read SARS and MERS.  Severe Acute Respiratory Syndrome (SARS) was believed to have originated from Guangdong, China, on November 16, 2002. It spread across many territories infecting scores of people and killing more than 700 individuals. A decade later, another respiratory disease was believed to have originated from the Middle East in June 2012 and later named Middle East Respiratory Syndrome – Coronavirus (MERS-Cov).

Even though the two were the most life threatening respiratory diseases in the recent years, the world has never seen a more devastating pandemic like the now famous Covid-19 for a long time. It’s outbreak from a regional crisis in China’s Hubei province in December 2019 to a global pandemic has got the world’s attention. It was not until mid -February 2020 when the Cases grew rapidly as the outbreak spread across Europe that the world realized that this was not a mere respiratory disease, a number of European countries like Italy, Germany and Spain started reporting their cases. It did not take time before the Americas became the new epicenter of the pandemic, United states is now leading the highest number of infections as at the month of June 2020. Initially there was a myth that Covid-19 does not affect people of African descend -premised by the previous infections. The first case hit African continent on 14th February through travelers returning from hotspots in Asia, Europe and the United States to Egypt.
In Kenya, the first case was registered on Friday 13th March 2020, it was a Kenyan national who had just return from United States via London. Since then, more than 95% of African countries have reported cases. The virus has so far spread very first in almost every part of the continent defeating the strategies put by various governments for its containment.

In-depth analysis of this shows that this could have been fueled by the position of Africa in the world’s economy. You see, Africa is the most sort destination in terms of growing population which provides cheap labor and diverse technical capabilities. Africa is still rich in natural resources, a reason why China and western countries are battling for their space in the continent. As at now, there is a presence of china in almost all the territories of Africa. Availability of manpower means there will be a persistent movement in and out of Africa to exploit the same, the worrying part is that this disease spread through human movements. The African healthcare system is still very weak and cannot contain the drastic spread of the pandemic, many African countries depend on loans from developed countries and Other International financial institutions. In fact, according to world bank report of 2013, posits that the Africa’s GDP is almost a third that of United States of America.

Covid-19 will take a toll on individuals and businesses. World Health Organization(WHO) recently pronounced that this pandemic will be with us for a while. Across the globe, nations came up with various measures to combat the virus including lockdowns, evening-to-dawn curfews and other propositions by the WHO. Whereas the measures helped in containing the virus to some extent, the continued upsurge in infections in Europe, Americas and in even parts of Africa is a sign of desperation. The impact these restrictions have put on businesses looks unsustainable and governments have had to rethink and adjust to live with the virus. Almost every government is now putting in place strategies to open up their economies. They have already reacted and put together comprehensive rescue packages that must now reach those businesses and freelancers who urgently need them at least with the aim of eventually overcoming the impact of this global crisis.

In Kenya, the curfews and lockdowns seemed to have not effectively contained the spread of the virus and the government is currently flexing the measures to relieve the businesses from the economic distress; meaning that, we might just have to live with Covid-19. A lot of measures have thus been proposed to cushion Kenyans from the impact. This has been done at various levels and I am glad to highlight some of them, specifically measures taken the government through CBK as well as financial sector wide recommendations:

Measures Taken by Financial Institutions to Mitigate the Impacts of Covid-19 Pandemic

Digital Platforms:

 On March 16 2020, the CBK announced a number of measures that banks through the Central Bank of Kenya have put in place to increase the use of mobile money transactions instead of cash. This was necessary to reduce the transmission and consequently spread of the Corona Virus through physical exchange of money.

These measures include:

  • Removal of charges for mobile transactions up to Kshs. 1,000 and for transfer between mobile money wallets and bank accounts.
  •  Increased transactions limit to Kshs. 150,000
  • Increased limit on mobile money and daily transactions to Kshs. 300,000.

Bank Borrowers:

On March 18 2020, the CBK announced emergency measures to mitigate the adverse economic impacts on bank borrowers. These Measures include:

  • Provision of relief to borrowers on loans
  • Provision of one-year relief period on personal and mobile money loan
  • Enabling MSME (Micro, Small and Medium Enterprises) & Corporate borrowers to assess and restructure loans
  • Commercial banks to bear cost of extending & restructuring loans
  • Banks, to waive all charges for balance inquiries
  • Restrictions of fintech financial service providers from listing citizens from CRBs

Monetary Policies:

On March 23, the CBK’s Monetary Policy Committee (MPC) resolved to:
  • Reduce the Central Bank Rate (CBR) from 8.25% to 7.25%
  • Reduce Cash Reserve Ratio (CRR) from 5.25% to 4.25%
  • Enable banks to release Ksh.35.2B additional liquidity to directly support distressed borrowers due to COVID-19
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Measures by the government to Mitigate the Impacts of Covid-19 Pandemic

The Kenyan government has put in place several measures to combat the economy from the negative impact of the pandemic. Some of these include:
  1. Directing the KRA to settle the payment of all verified VAT refund claims to Kshs. 10bn within 3 weeks
  2. Directing all the government ministries and departments to clear all payments of pending bills of at least Kshs.13bn.

Partnership between the Kenyan Government through Central Bank of Kenya and World Bank

The Kenyan Government has partnered with the world bank to issue grants to strengthen the health system which faces an extraordinary challenge to contain the spread of COVID-19 and care for the infected, the world bank has also issued grants to the government to cushion the economy from the effects of the pandemic. The world bank has approved $50 million support to address Covid-19 Pandemic through Kenya Covid-19 Emergency Response Project, world bank report April 2, 2020 reveals. It further approved $1 billion loan to Kenya to help close a gaping budget deficit and tackle the economic shocks from the corona Virus pandemic.

Economic Recovery Strategies

According to the information from the Central bank, a survey done at end of April 2020 indicated that three quarters of the businesses do not have cash beyond two months and cannot survive the effects of covid19 beyond the month of June. The Kenyan government has promised to provide guarantees for loans given to Kenya-based small and medium-sized businesses, it therefore implies that government commits to repay banks a share of the loans should the small traders default. SMES should take this opportunity to gain from this stimulus package offered by the government. From our analysis, the government has come up with great steps to bring businesses back to life. However, it remains to be seen how the government would address its greatest challenge which is the criteria to be used while identifying which businesses qualify for these funds, given the challenges that most SMES undergo in their operations e.g.
  • Lack of proper book keeping
  • Non-compliance with statutory regulations on taxation and other frameworks
  • Lack of good corporate governance structures
  • Lack of business continuity strategies
  • Unsustainable business models which cannot survive the impacts of covid-19
This means that SMES need to work closely with professionals to help them package themselves in order to benefit from these programs, they also need banks to support them and bridge the gap between the disbursements since they are the custodians of these funds from the government. We therefore believe that the government should have provided proper guidelines for qualifications, nevertheless, it is incumbent upon the SMES to visit intermediary banks and find out the conditionality

Measures that can be taken by SACCOs to Mitigate the Impacts of Covid-19 Pandemic

Loan Rescheduling/ Restructuring to members

The of effects the pandemic in the economy is unforgiving and the SACCO members, purchasing power has significantly reduced. This is due to less disposable income or job losses and therefore the societies need to re-look at the impact on their loan books, engage members who had active loans prior to the pandemic to review the underlying terms and conditions by possibly extending the repayment period.

Keeping close relationship with members

Most people are now disturbed mentally, economically, psychologically and even socially. They need emotional support too. Societies should offer support centers that provide counseling to its members as part of CSR. A phone call that is not business related but find out the welfare of members can go a long way strengthening the relationship between the society and its members. A friend in need is a friend in deed.

Advising members to adopt alternative ways of doing business

The statistic has shown that most businesses are going to die due to the impacts of the pandemic in the economy, this especially to those business that still depend on the old ways of operations. It is this time that they so badly need financial and risk expertise offered by the societies to help the sail through this turbulence economic conditions. They need to be advised to adopt technologies like e-commerce and teleconferences to sell their products and maintain close relationships with their clients during lock-down. Member education has never been critical than this time.

Adoption of digital platforms

Like banks, Sacco’s should adopt digital platforms of transaction business with members to ensure social distancing and reduce presence in the banking halls. They too will be able to take advantage of the abolished money transfer fees in certain digital platforms.

Introduction of special Products-short term loan to cushion members.

This should be specifically with intention of helping its members to come out of this economic depression. The loans, unlike the normal ones which have some complicated requirements, should be easily accessible without too much conditions.

Living with Covid-19:
The Silver Lining

Many a times we have looked at the negative effects of Covid-19 to the economy and the livelihood of mankind. However, our analysis reveals that there are some positive impacts of the pandemic that can improve our lives and businesses. These include:

Improved family and business Relationships

We all have been having busy work schedule, running up and down with little time to listen to some people in our lives. These could be our valued customers, friends and families who need our attention. The COVID-19 situation has positively impacted the way you relate and maintain relationships. You get to spend your time with your family and plan your work better. As life slowed down, we have found ways to stay connected with people, even if it’s virtually. In business, we are now able to connect directly with our customers and hold virtual meetings anytime when need be

Improved Technology and Innovations

Companies across the world have started thinking about coming up with product & service ranges that enable you to be as connected as you are with your teams and also your loved ones. This has opened a new way of thought. Strategies to ensure business continuity are now being implemented, Countries are now using robots to deliver Medicines in the Hospitals, other developed countries like Singapore, Germany, Japan and Sweden are using robots in manufacturing. All these may as well lead to breakthroughs & innovations. You see, they say necessity is the mother of invention and innovation happens for nothing, but when the environment demands it.

Working From Home

We can say this one is going to beat traffic challenges that have been a big head ache to many governments. Running businesses remotely is no longer something that we think is impossible. May companies including Facebook, Capital One, Amazon, Microsoft, Zillow and others, have announced that they’ll extend their work-from-home programs

Improved Health Care

Just like after war and any natural calamities, mankind thinks differently, Innovation in health care system must now rise. This pandemic found most medical facilities in deplorable conditions, it has treated every government in the world equally. Any proper thinking government must have realized the need to improve its medical facilities since there is no wealth in the world more than life.

Improved Hygiene

People are now aware of how important it is to keep yourself clean. The idea to keep clean is the new way of survival, this reduces chances of contracting some disease. That’s not going to change, and that’s something we cannot. We were all aware of the need to maintain hygiene but now we have to do it more than ever before.

Rethink of Cost Model

There has been unprecedented rise in technology owing to the effects of pandemic. Many businesses are now realizing that there are some unnecessary costs that can be abolished. They are now focused more on ‘Rethinking Cost-Benefits Analysis’. CFOs should now rethink their cost accounting model. This includes reduction of unnecessary office space since employees can now work remotely, scrapping costs that are directly related to supervision because employees can now self-supervise, booking of meeting venues are not necessary anymore since zoom have taken its place, corporate meetings can now be scheduled with less cost, performance is now based on work output as opposed to presence in the office. Companies should now invest on tech-based equipment to enhance their efficiency in operations.
Covid-19 advice

Ronalds LLP

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