On Wednesday the 22nd of April 2020, the second session of the four-part virtual conference series on Crisis Management for African Business Leaders was held in collaboration with Havard Business School.
This session titled Liquidity: Managing Cash Flow When Sources of Revenue and Cash Flow Dry Up, was moderated by Kunle Elebute, Chair, KPMG Africa with three outstanding panelists: Welela Dawit, CFO, GE Africa; Admassu Tadesse, President and Chief Executive, Trade and Development Bank; and Sim Tshabalala, Chief Executive, Standard Bank Group.
The session began with an update on COVID-19 from a pan African perspective by Dr. Michel Yao, Head, World Health Organization (WHO) Afro, Emergency Operations. Dr Yao spoke extensively on the preparedness and response of African countries to the COVID-19 pandemic as he also mentioned the geographical distribution of the confirmed cases and deaths in the African continent.
He also spoke about the challenges affecting different regions in Africa, stating factors such as: effective coordination of the different levels and stake holders involved in giving a decentralized response to the pandemic; Insufficient testing capacities of different African countries; Inadequate relay of information to the World Health Organization by some countries; Low level contact tracing especially in countries that have high community transmission; Effective confinement in Africa and; Insufficient Personal Protective Equipment.
In commencing the panel session, Kunle Elebute, Chair, KPMG Africa, spoke on some potential impacts of the pandemic on African countries. He mentioned critical factors such as: revenue pressures and debt sustainability issues, pressure on exchange rate sustainability, multi-faceted impact across the business and operating model as well as specific sectors, pressure on income and purchasing power, strain on social welfare frame works that support the poor. Moving on, he expressed concern on businesses saying that managing liquidity at the challenging time will be very critical. Hence, proactive and well thought decisions will be well required. Such decisions would include: establishing the cash position of the organization, taking action to defend and improve the current cash position, proactively communicating and managing relevant stake holders.
Welela Dawit, Chief Financial Officer of GE Africa, speaking from the perspective of a multinational conglomerate CFO, shared some key points in managing cash flow when sources of revenue and cash flow dry up. She mentioned the importance of accepting the challenge and becoming the leader of change. There is need for the leader to press forward making sound thoughtful and fact-based decisions as well as taking a very pragmatic look at what you are in. She went on to explain that the leaders of organizations also have to understand the situation to know when the organization will run out of money. Also, develop immediate and long-term game plans and create stake holder engagement.
Admassu Tadesse, President and Chief Executive, Trade and Development Bank, started by expressing the importance of liquidity as a life line not just to sovereigns but also households. He went on to say that the uniqueness of the effects of the pandemic is its abnormality. It is abnormal in the sense that it is not just a shock, but a set of shocks happening globally across the world. Hence, there is a total deflation every where as the system itself is experiencing some kind of shut down. The problem this has for companies and sovereigns is posed in the question of how to model so many factors that are going wrong at the same time as they are not sequential. However, this is not just a firm level of management that is required, there needs to be a global response to deal with the systemic problem. The challenge for Africa would be trying to picture what will be the fiscal stimulus of the effects of the pandemic in the African context as this has a huge impact on liquidity.
Sim Tshabalala, Chief Executive, Standard Bank Group, also speaking from a banker’s perspective made four strong points in addressing the issue being discussed. He started by laying emphasis on the fact that the global and South African industries entered the ongoing crisis in a very strong liquidity position. He went on to say that the African continent has done well in terms of reforms put in place after the global financial crisis. These reforms are very necessary on their own terms and with hindsight, they would also be very useful in this crisis. Secondly, banks can certainly assist clients very well in this crisis, but there are some things that they cannot and should not do. Commercial banks cannot increase the dollar supply in the economy as this should be done by the central banks in each country. Commercial banks need to stay in their lane as they need to continue to be faithful transmitants of monetary policy.
Central banks have taken certain decisions in different parts of the world to stimulate more borrowing than lending, hence, commercial banks have an obligation to pause on interest rate cuts immediately and provide additional lending support to their clients. Thirdly, banks can still do more to minimize the distress faced by personal clients and keep the business clients at least to give over. Lastly, the commercial banks will be able to do a lot more lending in support of the post pandemic recovery. Register here to get more information.
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