From IAFEI October 2020 Quarterly Bulletin
By Jacques van Wyk, CEO of JGL Forensic Services and member of IAFEI Technical Committee
Originally, we were told lockdown would last for three weeks. We hang onto that like a drowning man to a flotation device. But it has the lockdown was repeatedly extended – albeit finally with less severe restrictions – we all became obsessed with when we could see a return to our historic normal.
Now, almost five months in, we are, reluctantly and with not insignificant amount of grief, becoming resigned to never seeing a return to the old normal. Instead, we now talk about our new normal , and how best we can adapt to it.
The fallout from the last five months has been staggering.
Although we are now at Level 3 lockdown restrictions, with approximately 70% of the economy reopened, entire segments have been left decimated. The tourism, travel, entertainment and hospitality industries have perhaps been hardest hit. Our acclaimed wine industry too, is on its knees, reeling from months of an inexplicable ban on the production, sale and consumption of alcohol.
A report released by the Treasury in June states: “The lockdown has taken a severe toll on an already fragile economy. The limited data available suggests a steep contraction across all sectors over the past three months. Construction, retail and hospitality were particularly hard hit, and retail sales restrictions had significant knock on effects across the economy. Reduced global demand an border closures, alongside uncertainty about the application of lockdown regulations, further hampered activity.
“The Rand has depreciated by 18.1% against the US dollar since January. In comparison, an index of emerging market currencies weakened by 4.6% over the same.. South Africa’s risk premium – the additional return that investors demand be compensated for higher levels of risk – stood at 5.2% at 50 in June 2020, compared with three point 2% at the end of 2019. Bond yields have stabilized due to Reserve Bank purchases of government bonds but remain higher than before COVID-19. This indicates uncertainty about SA’s long term growth and fiscal position, and means government pays more to borrow money.”
The South African government’s R500 billion fiscal relief package offers a glimmer of hope to struggling households and businesses. But its weak fiscal position going into the crisis means it simply cannot afford to fully offset the effects of the pandemic.
There’s no escaping these hard facts:
Total government debt to GDP is set to pass 80% this financial year.
An estimated 3 million jobs have been lost to dated due to the pandemic. And with every income earner supporting an average of at least four to five others the impact of these job losses directly affects upwards of 12 million people.
In a survey in June, over 1/5 of South African households reported a child or adult going hungry within the past seven days . In the newspapers, we read profoundly disturbing stories almost daily of children suffering from hunger and malnutrition, but some forced to eat roadside plants to survive, as money for food ran out as far back as April.
How can you help?
So, as a CFO what can you do to ensure your company successfully weathers the storm?
The important thing to remember is that it is not necessarily the strongest or largest organisations that will survive but rather those that are best able to adapt to the new circumstances.
It is simply not possible to account for all risks.
The effects of COVID-19 are likely to be felt for months and years to come, and there are many variables, including staff, operations, suppliers, customers, liabilities and other key stakeholders.
The key is to avoid emotional decision making, and try to obtain as objective and insightful understanding of foreseeable business trends as possible.
As a CFO, your focus in the short and medium term is to maintain your company’s liquidity and cash flow. This can be achieved by:
- Reassessing the strength of the balance sheet
- Diversifying and securing new lines of credit if needed
- Monitoring and managing receivables
- Proactively engaging suppliers
- Driving sales in a disrupted market
- Focusing on realistic cost savings
- Reconfiguring your workforce
- Utilizing government support and tax relief programs at
- Rightsizing your core business.
In the midst of all those, however, it’s vital not to lose sight of the importance of enforcing basic operational practices. Surviving COVID-19 does not mean existing operational principles no longer count!
If you have a strong balance sheet and cash reserves, you will be better positioned to seize opportunities, outdistance your competitors, innovate and grow more quickly in the ensuing recovery.
There’s never been a more opportune time for CFO’s to step up and be true leaders here. Your company is looking at you to:
- Demonstrate leadership and cool under pressure decision-making
- Keep morale high
- Manage fear and anxiety and ensure that quality information reaches decision makers on all levels.
“The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenge and controversy.” – Martin Luther King Jr