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How businesses can emerge stronger from Covid-19 pandemic

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East African businesses will need to rethink their survival strategies as consumer behaviour rapidly shift s amid dwindling incomes, if they are to emerge stronger in the post-Covid-19 period, a new survey recommends.

The report, East Africa’s Rebound, published on Tuesday by Boston Consulting Group (BCG) says employees must prepare to work in the new reality to ensure near-term business continuity in Kenya, Uganda, Tanzania, Ethiopia, Rwanda and Burundi.

“Covid-19 has had significant economic impact across East Africa, from macro to consumer-level. Global shocks and local restrictions aimed at curbing the virus spread have severely impacted businesses across sectors, particularly for small and medium-sized enterprises,” states the report.

So tremendous has been the impact that the International Monetary Fund (IMF) has revised its 2020 projection for global real GDP growth rate from 6 percent to 1.8 percent in the East African economic bloc.

Rwanda, Uganda, and Kenya swiftly placed stringent restrictions to flatten the infection curve, while other countries took less strict approaches. Across the region, imported cases are a major source of transmission, with implications for trade and cross border activities.

Mills Schenck, managing director from BCG’s Nairobi office said managing Covid-19 will be a challenge for East African businesses, as true prevalence across the region remains unclear, yet the economic impact has has been severe.

“Business leaders will need to tailor strategies for uncertain disease progression scenarios, global market dislocations, and shifting consumer behaviour,” he said.

To ensure near-term continuity, the study recommends that businesses must prepare employees to work in the new environment, as well as devise new methods of cash and liquidity management.

To stabilise demand and supply, firms will need to ensure products and services serve the preferences of customers, whose consumption patterns have changed to accommodate their low purchasing power.

The report also recommends use of data analytics to help companies make informed decisions when cutting costs and boosting brand confidence.

“Firms will have to hire and maintain a dedicated team to track data, assess business impact, and plan for different scenarios,” the study says.

Firms are encouraged to take advantage of the shifting supply chain dynamics, while capturing value from global businesses seeking to do the same to have an edge in the post-pandemic period.

Business development managers will have to ensure value proposition aligns with customer needs by adjusting product, portfolio and channel mix.

Since most consumers have moved online due to government directives aimed at containing the virus, business leaders are encouraged to invest in the digital customer experience.

“Most East African countries are beginning to transition from ‘flatten’ to ‘fight’, with open questions around the length of each phase, as well as the depth of economic impact and each sector’s recovery rate,” said Nik Nesbitt, chairperson of Kenya private sector alliance (Kepsa).

He added that the insights are key in ensuring businesses have a clear picture of the situation to enable them to strategically formulate and implement their recovery plans and establish more resilient practices.

Looking at macro-level impact in Kenya for instance, tea prices in the Mombasa Tea Auction declined by 18 percent year-on-year in May, reaching the lowest point since 2014.

Some staple food prices, the survey indicates, have increased, including a 19 percent rise for dry maize, a largely imported Kenyan staple, and a 20 percent higher retail price for teff flour in Addis Ababa.

Small and medium-sized enterprises (SMEs), which contribute significantly to the East African economy have been disproportionately impacted by the coronavirus.

According to a recent survey conducted by Kepsa, approximately 78 percent of micro-enterprises and 85 percent of small companies in Kenya have reported a high to very high impact of the pandemic on their business versus 70 percent of large companies.

A separate study in Uganda reveals only about 17 percent of microenterprises can withstand the current situation for over one year, compared to small (33.3 percent), medium (67.2 percent), and 90.5 percent of large companies.

According to BCG experts, governments can support businesses to capitalise on opportunities.

By reducing barriers to trade across the region, local manufacturers will be empowered to scale up and become more cost-competitive.

“This may include public infrastructure investments that countries such as Kenya are including in their recovery programmes.”

Another lever, the experts say, is to provide clear incentives to set up businesses and investments in priority sectors that have a potential regional or global footprint. This includes clarifying the regulations on special economic zones and export processing zones.

‘While the challenges ahead cannot be understated, we firmly believe that East African businesses can take decisive actions to ensure immediate continuity, while exploring potential opportunities to rebound ever stronger,” said Patrick Dupoux, BCG head of Africa.

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Digital offerings, he added, can be a ‘no regrets’ move for businesses in the region, many of which are already pursuing this opportunity with governments creating an enabling condition for digital business models.

At a sectoral level, companies in manufacturing, agriculture, ICT, essential retail, and media experienced an average market cap decline of less than 10 percent, versus about 10 to 20 percent for energy, real estate, logistics and finance, and more than 20 percent for nonessential retail, travel and tourism.

In Ethiopia, 43.6 percent of microenterprises fully ceased operations in the 14 days prior to the survey, versus 26.9 percent of relatively larger firms.

To cushion against these severe shocks, governments across the region have announced economic packages ranging from 1.4 percent to 3.3 percent of gross domestic product (GDP). These packages are largely aimed at providing liquidity to companies.

“Effective cash management for businesses will involve establishing a cash office early on to manage inflows and outflows, monitoring liquidity positions, and securing financing.”

Banks play a key role in providing liquidity to businesses across the region, as many currently restructure their loan books to avert non-performing loans and to ensure business continuity.

According to the Central Bank of Kenya, Kenyan lenders have restructured more than Sh600 billion loans, approximately 10 percent of total gross loan books.

“On the supply side, businesses will need to actively manage suppliers, improve end-to-end planning, and optimise logistics and distribution. We see examples of these levers applied across the region,” states the BCG report.

For instance, many tourism operators engaged with customers at the start of the crisis, encouraging them to reschedule rather than cancel upcoming reservations.

In Nairobi, some hotels were converted into isolation facilities for patients and healthcare workers who did not want to expose their families.

This saw them retain some demand during the immediate crisis, while contributing meaningfully to the national health response.

Moreover, to solidify supply, businesses in Kenya that sourced heavily from China sought alternative markets, though many reverted once China reopened.

Going forward, businesses must be able to plan dynamically, since the duration of the pandemic remains unclear.

Global analysis on how other countries are approaching recovery and outcomes to date can be instructive.

For example, early indications from both China and the US reveal different recovery rates by sector—food retail and pharmaceuticals are recovering quickly, while vulnerable sectors such as energy and hospitality are slower to come back.

BCG has developed a proprietary integrated decision support tool, Light- house, which leverages real-time data monitoring and analytics to help private and public sector clients conduct scenario planning and dynamic decision making.

In Ethiopia, for instance, Ethiopian Airlines developed a mobile app for cargo customers, which includes a number of self-service features such as flight schedule checks, cargo tracking and charter requests.

Governments, the survey notes, can create enabling conditions for digital business models.

“For instance, Rwanda’s post Covid-19 recovery plan includes increased spending on digital infrastructure and scaling up of high-tech jobs and skills, with the goal of becoming an outsourcing destination for call centres and other services.”

Credit Bank in Kenya launched an online banking platform to allow corporate customers to process checks remotely, just as restrictions were being implemented.

In Uganda, Jumia partnered with the United Nations to launch an online platform for SMEs to connect with consumers, despite movement restrictions. The consumer can request products, to be packaged by market agents and delivered by a Jumia rider.

Consumers have already adjusted spending, driven by financial necessity and personal adjustments to the new reality of social distancing.

Business value propositions need to align with evolving needs, which may require changes to products.

“For instance, Sokowatch, a B2B company that enables informal retailers to order products via SMS or mobile apps, has increased their shop partners since the crisis started by promoting same-day delivery offers that traditional suppliers cannot match,” the research exemplifies.

Governments can support businesses to pursue this opportunity by implementing social protection measures to cushion household finances.

Kenya is providing cash transfers to vulnerable households, and Rwanda plans to extend cash transfers to more households, particularly those earning incomes in informal sectors.

“Insofar as businesses can adapt, governments can support those smaller businesses in particular while protecting consumption.”

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AfDB Says East Africa Still Africa’s Fastest Growing Region

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The African Development Bank (AfDB), through its East Africa Regional Economic Outlook 2020, says that East Africa is still Africa’s fastest-growing region, despite the disruptions brought about by COVID-19.

Economic disruptions caused by the COVID-19 pandemic have pushed East Africa’s 2020 growth projection to 1.2%, rebounding to 3.7% in 2021.

However, the projection is under the baseline scenario that assumes the virus is contained by the third quarter of this year.

In the worst-case scenario, in which the pandemic persists until the end of 2020, growth is projected to slow down to 0.2%, still above Africa’s predicted average of -1.7% and the global average of -3.4%.

Prior to the COVID-19 pandemic, the region’s economic growth was projected at more than 5%, well above the continent’s average of 3.3% and the global average of 2.9%. However, COVID-19-induced shocks and the locust invasion have contributed to job losses, increased humanitarian needs, and aggravated poverty and income inequality.

EAC trade volumes have dropped by 40% due to the restrictions on the movement of people and goods. The volumes of EAC trade dropped significantly after February when coronavirus resulted in tight freight controls at key border points, allowing the passage of agricultural and food products only.

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At the height of the pandemic, AfDB provided support including $212 million to Kenya, $165 million to Ethiopia, $4 million to South Sudan, and $10 million to Seychelles to help them mitigate the effects of the disruptions.

Overall, AfDB projects that Africa’s GDP will contract by 3.4% in 2020, dropping by 7.3% from the pre-COVID-19 growth projection. In addition, the bank says that cumulative GDP losses could range between $173.1 billion and $236.7 billion in 2020-2021.

See Also:

East Africa Deals Hit KSh38.5 Billion by April

Kenya to Experience Slowest GDP Growth in East Africa in 2020

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Corona travel ban costs civil servants Sh30bn in perks

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Corona travel ban costs civil servants Sh30bn in perks

The National Treasury building in Nairobi
The National Treasury building in Nairobi. FILE PHOTO | NMG 

World Bank report says Kenya will save up to Sh2.5 billion monthly from reduced local and foreign trips by employees of national government, counties and parastatals

Civil servants are missing out on Sh2.5 billion in travel benefits and subsistence allowances monthly after restrictions imposed to curb the spread of coronavirus suspended meetings and out of town assignments.

The World Bank in its latest review of Kenya’s expenditure says the country will save up to Sh30 billion in the year to June 2021 or Sh2.5 billion monthly from civil servants reduced local and foreign trips — which often involve lavish travel allowances.

The pause in meetings has denied employees of the national government, the county governments, and parastatals opportunities to boost their wages through perks such as mileage, sitting and subsistence allowances earned from local and foreign travels.

The untaxed allowances have the effect of more than doubling an employee’s pay, making the civil service the preferred employer for many Kenyans.

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“With continued limitation of daily subsistence allowance (DSA) and travel-related costs, the government could save up to Sh30 billion in the second half of FY2019 and first half of FY2020 as a result of restrictions imposed to contain the spread of Covid-19 on domestic and foreign travel, training and workshops,” said Felipe Jaramillo, the country director for Kenya, in the report.

The civil service looks set to save additional billions of shillings following the work-from-home directive given that hospitality and training cost taxpayers Sh15.1 billion in the year to last June or an average of Sh1.25 billion monthly.

Employers have pushed their staff to work from home in the wake of the Covid-19 pandemic, which has drastically changed the way business is conducted.

Kenya suspended international passenger travel, closed schools indefinitely, closed bars and golf clubs, imposed a daily dusk-to-dawn curfew and banned public gatherings to curb the spread of the virus that has infected 10,294 people and killed 197 locally.

President Uhuru Kenyatta last Monday announced a phased reopening of the country from the Covid-19 lockdown, lifting restrictions on travel in and out of the Nairobi Metropolitan Area, Mombasa and Mandera and allowing air travel to resume.

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But the Treasury says that restrictions on meetings, travel and trainings for civil servants will remain in the coming months, denying public servants fat perks.

The World Bank reckons that public servants use the travel perks to enlarge their salaries.

“While daily subsistence allowances (DSA) paid in connection with domestic and international travel fall under ‘other goods and services’ rather than the wage bill, DSA appears, at times and in part, to be used to supplement formal remuneration,” Mr Jaramillo said.

The highest-ranking public servant is entitled to Sh22,000 for a day’s stay in Naivasha, Mombasa, Kisumu, Nairobi, Kilifi, Lamu and Kwale — explaining why these towns have become popular with government retreats.

The lowest-cadre worker travelling to these towns is entitled to a Sh4,200 allowance per day.

Senior civil servants earn Sh18,000 per day for retreats held in Nyeri, Eldoret, Kericho, Kakamega, Kilifi, Embu, Nanyuki, Nakuru, Lodwar and Garissa. The lowest-ranking officials earn Sh3,500.

The deal gets rosier for civil servants travelling abroad who receive an average of Sh50,000 per day in allowances.

The allowances structure shows that the payouts are higher for visits to the more frequented places like Arusha in neighbouring Tanzania and Addis, the African Union headquarters (ranging between Sh60,930 and Sh21,150), while rarely visited places like war-ravaged Afghanistan attract the lowest stipends of between Sh51,750 and Sh16,110 per day.

The Treasury singled out overseas trips — which often involve hefty travel allowances and huge entourages — and hospitality or entertainment spend by government departments — as examples of wasteful spending.

Spending on foreign and local trips setback taxpayers Sh12.5 billion in the year to June 2019, up from Sh3 billion five year, reflecting a rise of 18.7 percent.

Central government hospitality spending has tripled from Sh3.9 billion in the year to June 2014 to Sh9.8 billion last year. Counties spend undisclosed billions on entertainment like to conferences and training.

Parliament suspended all foreign travel effective March 13 and directed that all conferences, retreats and workshops be held within precincts of Parliament in Nairobi in the wake of the virus outbreak.

Committee meetings have also been curbed, save for those that touch on budget and health that a critical in allocating cash and shaping policy decisions in the fight against coronavirus.

This has stopped the allowances gravy train given the perks have the effect of doubling the MPs basic salary, which stands at Sh580, 000 monthly.

The total take-home for Kenyan MPs rose to Sh1.1 million per month when perks from mileage, sitting and responsibility allowances are factored in.

Foreign and local trips cost taxpayers Sh33.4 billion in the year to June 2019, up from Sh20.3 billion five years ago.

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UK offers work permit to non-graduate Kenyans

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UK offers work permit to non-graduate Kenyans

UK Prime Minister Boris Johnson
UK Prime Minister Boris Johnson. FILE PHOTO | AFP 

Highly skilled Kenyans without degree-level qualifications will from next year be allowed to apply for work permits in Britain under post-Brexit immigration rules, enabling them to compete with job-seekers from the European Union and other regions.

Britain’s new points-based immigration system, set to be implemented from January 2021, has lowered the requirement for job applicants to minimum skill level of A-level or equivalent from degree-level under the 27-member EU bloc system.

Britain’s Home Office says the new system will “provide greater flexibility and ensure UK business has access to a wide pool of skilled workers”.

The relaxed visa rules will enable Kenyan professionals in fields such as IT, accountancy, plumbing and electrical works to compete with other migrants.

Britain projects a huge climb in job vacancies after the new post-Brexit immigration system ended free movement of labour between it and the EU following the departure from the bloc earlier this year.

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“An applicant’s job must be at the minimum skill level of A-level or equivalent, rather than degree level under the current system,” said the British home office.

There is no planned formal route for lower-skilled workers to enter Britain, although seasonal and sector-specific schemes may be created.

Britain has lowered the minimum general salary threshold for skilled migrants by 26.67 percent to £22,000 (Sh2.97 million) per year, or £1,833 (Sh247, 628) a month, from £30,000 per year currently.

This follows a January 2020 proposal by Migration Advisory Committee (MAC), an independent entity that advises the British government, which had recommended £25,600 (Sh3.46 million) minimum annual pay for migrant skilled labourers.

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“Under the new system, those wishing to live and work in the UK must gain 70 points – and points are awarded for criteria such as having a job offer, holding a PhD relevant to the job, speaking English and earning more than £22,000 per year,” says an advisory by Britain’s Home Office.

“There are also additional points for those with job offers in ‘shortage occupations’.”

The relaxed visa rules will also benefit Kenyan students who will now be allowed more time after completing studies in the UK universities.

Under what Britain’s Home Office calls “Graduate route”, which opens in the Summer 2021, Kenyan students, just like other international ones, will be allowed more time to stay in the UK to look for jobs than the four months under the EU rules.

International students completing undergraduate or master’s degrees will be able to stay in Britain for two years and those completing a PhD three years.

Britain says the new “Graduate route” system will “make it easier for some of the best, international graduates to secure skilled jobs in the UK and contribute to the UK’s economic growth”.

“Leaving the European Union means the UK will be open to the brightest and best from around the world – and Kenya is very much a part of that,” British High Commissioner to Kenya Jane Marriott said in a statement on Monday.

“I’m particularly pleased that the new Graduate Route will be opening in summer 2021, allowing Kenya and the UK’s fantastic and talented minds to work even more closely together.”

After nearly four years of politicking, haggling and delays that cost the political careers of two Prime ministers – Theresa Mary (2019) and David Cameron (2016) – the UK formally left the EU on January 31.

There is, however, a transitional period that ends in December 2020.

UK Home Secretary Priti Patel said Brexit has allowed “British people take back control of our borders and introduce a new points-based immigration system”.

“Now we have left the EU, we are free to unleash this country’s full potential and implement the changes we need to restore trust in the immigration system and deliver a new fairer, firmer, skills-led system from 1 January 2021,” Ms Patel said in the statement.

“Britain is open for business and ready to welcome the best and brightest global talent.”

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