Coronavirus: The changed face of risk to business

Tuesday March 24 2020

A man uses hand sanitiser before in a Bus Park

A man uses hand sanitiser before in a Bus Park in Kampala. Since the outbreak of COVID-19 in other countries, sales of hand sanitisers have soared. Photo by Eric Dominic Bukenya 

By Ismail Musa Ladu & Dorothy Nakaweesi

Until the Coronavirus (COVID-19) reared its ugly head, businesses in the country only worried about traditional risks such as supply chain disruptions, volatile inflation and shocks resulting from foreign exchange uncertainties.
This is in addition to fear of political agitations as the country moves towards an election year (due in early 2021), let alone spending sleepless nights worrying about non-tariff barriers hindering flawless trade between the regional countries.

Business risk implies uncertainty in profits or danger of loss and the events that could pose a risk due to some unforeseen events in future, which causes business to fail.

Business captains in the country noted that the emergence of COVID-19 was beyond their wildest imaginations as they were busy forecasting against the “traditional business” threats, not knowing that a virus that started in a far flung corner of the world (Wuhan, China where the outbreak of COVID-19 was first reported), could send shivers down to the country’s key economic sectors.

While traditional risks such as supply chain disruptions and cyber incidents continue to be primary concerns for businesses worldwide, the Allianz Risk Barometer survey shows that volatility of the weather and changes in legislation and regulations were growing threats in 2019.

The Allianz Risk Barometer, an annual report identifying the top corporate risks for the next 12 months and beyond, missed the COVID-19 threats (and related danger), currently impacting businesses and the global economy.

This means in the eyes and works of many financial forecasters and researchers, this Coronavirus threat, currently resulting into unwanted interruptions in the business operations was either unlikely or at the bottom of their priority list.

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The annual Allianz Risk Barometer, published by Allianz Global Corporate & Specialty incorporates views of 2,415 respondents from 86 countries across 22 industry sectors.

Opportunities
In his address to the nation on Coronavirus last week on Wednesday at State House, Entebbe, President Yoweri Kaguta Museveni noted: “On the side of the economy, there is no doubt that some sectors like tourism, hotels, sports, entertainment will be hit by the phenomenon of this disease.

“However, others like the manufacturing sector will get a boost. The blocking of imports should, therefore, get the long-sleeping Ugandans to wake up and use the huge amount of money they long earned by turning our market into a dumping point for foreign goods to build our own manufacturing capacity,” President Museveni said.

According to President Museveni, through the Buy Uganda Build Uganda policy, those willing to upscale their manufacturing capacities shall be helped.

He said: “Everything you have been importing, except for petroleum products, now make it here. The $7 billion you have been using to import, keep it here. Turn misfortune into an opportunity.”

Experts’ take
Dr Ramathan Ggoobi, an econmomics lecturer at the Makerere University Business School (MUBS), says Small and Medium Enterprises need to keep alive.

This, he said, “means protecting themselves. While doing so, employees should be given clear and simple messages on how to avoid the virus.”

He is also of the view that businesses must cut costs as this is not the time to think of expanding. The economist further warned against hoarding in anticipation of making a killing in profit, describing the tendency as a risky business.

He said: “If you do this, you may end up with expensive goods. Before you know it, cheap ones will be on the shelves. China is beginning production and traders have started making orders.
This means China is going to be producing in an era of low demand. With this, China might be forced to cut prices on new orders, so speculators might lose money.”

Mr Stephen Kaboyo –Lead Partner at Alpha Capital, said small businesses will naturally be hard hit by this development. But they need to adapt or adjust as the pandemic slowly paves way to normalcy.

Likely impact
Experts say Uganda is at the tipping point as evidenced by the ongoing struggle to deal with the disruption in supply chains.

“Eventually, stocks will run out and businesses will come to a complete halt. In reality, Coronavirus will bankrupt more businesses than kill the people,”Mr Kaboyo said.

This is because most business were slow or didn’t detect the risks to allow them put in place a concrete contingency plan.

The economic danger is just as great as the health risk. Therefore, “both the public and private sector must put their heads together to find ways of either mitigating or solving this problem,” Ms Madina Guloba, a senior research fellow at Economic Policy Research Centre (EPRC) said in a separate interview last week.

Going forward, “The government must at all times try to be prepared for this kind of pandemic.”
Mr Corti Paul Lakuma, a research fellow with EPRC, noted that this is a new threat to businesses.

“Just see what is happening with supply lines, most of them are either cut, or beginning to get closed. Access to borders is either restricted or completely denied. Shipping was the first to get affected. Most airlines are now grounded because of COVID-19, this is no small matter because the whole economy will suffer,” said the research fellow EPRC.

President Museveni last week on Wednesday ordered for the closure of schools and suspended religious gatherings across the country in attempt to prevent the spread of coronavirus, although there was no confirmed case of coronavirus be the end of last week.

Public rallies and cultural meetings were also suspended for 32 days. Ugandans were also banned from travelling to high risk countries including: Italy, France, South Korea, China, USA, United Kingdom, Netherlands, Switzerland, Sweden, Belgium, Germany, Spain, Norway Austria, Malaysia, Pakistan and San Marino. Returning Ugandans from abroad will be quarantined at their cost.

Several analysts are also of the view that measures such as suspension or deferring some taxes should be undertaken by the government and in the same spirit a special fund to support different categories of businesses should be considered.

Analysts are also calling for reduced interest rate, asking the sector regulator to prevail over the banks on this matter.

An insurance expert, Mr Maurice Amogola, in an interview with the Prosper magazine revealed that unless such scenarios becomes a permanent fixture, there is no way the insurance can cover it, saying once it is declared a pandemic, it is within the realms of government to deal with it.

This means businesses that are suffering as a result of COVID – 19 are on their own unless the government steps in and bail them out, something Mr Amogola says is not beyond the government reach.

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