The world is experiencing yet another crisis, that is more aggressive and pervasive. Unlike the financial-economic crisis of 2008, the COVID-19 pandemic has been disrupted all industries, while giving advantages to select few like technology companies to thrive. Sectors like Aviation, Hospitality, Tourism, Entertainment, and main-stream businesses have suffered the wrath of the pandemic.
It seems to worsen by the day.
Did the economic crisis find you as a business leader? Or to put another way, are you managing a business during the present COVID-19 “tsunami” times? If yes, I bet your dominating goal is to navigate this period safely, supporting your business to continue serving your customers, and other stakeholders without being driven to its knees or closing. More than ever, cash is king during these times. So many opportunities are coming up. However, to tap into them, the business needs cashflow which has become scarce. Following the market uncertainties, many African economies have seen their credit scores downgraded. In Africa, large economies like South Africa had a downgraded country risk rating by Moody’s following the coronavirus reported cases. This meant that banks and other businesses operating in such an economy find it difficult to receive foreign capital, as the country is seen as high risk by investors.
The same thing we are seeing across many African countries. Capital hates uncertainty like that caused by a coronavirus.
For Uganda, here is the Credit Risk Outlook, to quote from, Fitch Credit Rating the report, dated June 2020:
“Fitch Ratings changed its outlook on Uganda’s ‘B+’ sovereign credit rating to ‘negative’ from ‘stable’ on June 24th, 2020, saying the decision reflects downside risks to public finances and growth from the coronavirus shock amid a build-up of government debt and persistent twin deficits, which are expected to continue into the medium term. The agency considers relatively high the current government’s budget deficit estimate of 7.5% of GDP in 2020 (from 5% in 2019) and projects it to widen to 9.4% in 2021. Meanwhile, the GDP growth is seen slowing sharply to 3% in 2020 from 5.6% in 2019 because of sweeping coronavirus-related disruptions. Standard & Poor’s credit rating for Uganda stands at B with a stable outlook. Moody’s credit rating for Uganda was the last set at B2 with a stable outlook.”
As explained, a credit rating for a country is used by sovereign wealth funds, pension funds, and other investors to gauge the creditworthiness of Uganda thus having a big impact on the country’s borrowing costs.” In times like these, the economy needs foreign capital inflows to ease any pressure on the Ugandan shilling exchange rate against major currencies. Businesses need funds to improve their liquidity. And that is what makes the coronavirus pandemic a bad one. Where to get funds to create capabilities to win?
What lessons have you learned?
The COVID-19 pandemic has created a lot of uncertainty and shaped business winners and losers. Some businesses have thrived (despite being declared non-essential), while some have remained closed, for months now. Some will not open again. To separate the businesses that have struggled or closed from those that have survived and thrived, what factors matter the most?
Let us first examine the factors that do not matter.
First, is size. Small businesses (which are the engine of growth for Uganda) may be considered more vulnerable, but this may not necessarily be true. While they may have smaller revenues, they are unlikely to have a large debt burden and a sudden customer flight shock. Because such businesses have built agility and nimbleness, they are more prepared to adapt to the new business order compared to large firms.
Second, pre-hard times financial conditions and performance also do not matter. Market leaders go under during hard times even when they were doing well financially before the hard times. It requires more effort to respond to a crisis than it is for a small firm. In times like these, the speed at which decisions are made is key.
To be continued…