East African businesses will need to rethink their survival strategies in a period of rapid consumer behavior shift and dwindling liquidity if they are to emerge strongly in the post-Covid-19 period, a new survey states.
The report, East Africa’s Rebound , published on Tuesday by Boston Consulting Group (BCG) says workers 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 a 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.
The virus has had a tremendous impact across East Africa, with the International Monetary Fund (IMF) revising 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 established stringent restrictions to flatten the curve, while other countries took less restrictive 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 journey for East African businesses, as true prevalence across the region remains unclear, yet the economic impact has already been severe.
“Business leaders will need to tailor strategies for uncertain disease progression scenarios, global market dislocations, and shifting consumer behavior,” he told the Nation.
To ensure near-term business continuity, the study recommends that businesses must prepare employees to work in the new business environment, as well as devise new methods of cash and liquidity management.
To achieve the stabilization of 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 believes the use of Big Data analytics will help companies make informed decisions regarding 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.
To create an advantage in adversity, the research sees a solution in capitalizing on shifting supply chain dynamics, while capturing value from global businesses seeking to do the same.
Business development managers will have to ensure value proposition aligns with needs by adjusting product, portfolio, and channel mix.
Since most consumers have moved online due to government directives in 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 adds 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-over-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 in Addis Ababa.
Small and medium-sized enterprises (SMEs) contribute significantly to East African economics and have been disproportionately impacted by the coronavirus.
According to a recent survey conducted by KEPSA, approximately 78 percent of microenterprises 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 33.3 percent small, 67.2 percent medium, and 90.5 percent large companies.
According to BCG experts, governments can support East African businesses to capitalize on opportunities.
By reducing barriers to trade across the region, local manufacturers will be empowered to scale 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,” Patrick Dupoux, Head of Africa for BCG said.
Digital offerings, he adds, 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 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 banks have restructured Sh273 billion of 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 optimize logistics and distribution. We see examples of these levers applied across the region.
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 health care workers who did not want to expose their families.
This retained 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 out alternative markets, though many reverted once China reopened.
Businesses must be able to plan dynamically since the duration and shape of the pandemic across East Africa remains unclear.
Global analogs 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, Lighthouse, 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 centers 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 a product, 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.”
