Economic impact of COVID-19 and Government Response Yaw ... 19 - Governme… · of GHS3 billion...

Economic impact of COVID-19 and Government Response Yaw Appiah Lartey – Financial Advisory Leader, Deloitte Ghana

June 2020

The Economic Impact of COVID-19 & Government Response 2© 2020 Copyright. All Rights Reserved. Deloitte Ghana.

Content

3Overview of Economic Impact

COVID-19 Trend

Impact On The Economy

Government Response

Government Response

Managing The Impact

5

8

12

21

25

COVID-19 Trend

Impact on the Economy

Government Response

Managing The Impact

Final Words

16SME COVID-19 Fund (GHS 600m)

Section 1

Overview of Economic Impact of COVID-19


COVID-19 has slowed down economic activities and the impact could get worse in the next couple of months.

1.5%

COVID-19 Trends


-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Europe North America Asia South America Africa Oceania

Num

ber

of in

fect

ed p

eopl

e

Global reported cases by continent

Reported COVID-19 cases as at 1st June

COVID-19 Trend | WorldThe number of infections have increased rapidly over the past few months, with more than 6 million confirmed cases and over 370,000 deaths as at 1 June 2020

1,843

515.0k414.9k

286.5k 274.8k 233.2k 197.3k106.3k

29.3k 4.9k 27.1k 38.5k 33.5k 5.6k -

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

USA Brazil Russia Spain UK Italy India

Num

ber

Top 7 countries - No of reported cases and their death

cases

Reported cases Death cases

601,015

206,555 196,958 175,877 165,900 158,355 127,973

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

USA Brazil Spain Russia Germany Italy TurkeyNum

ber

of re

cove

red

infe

cted

peo

ple

Top 7 countries- No of recovered cases

Recovery cases

11,950 84,615

859,798

3,090,445

6,259,250

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

January February March April May

Num

ber

of cases

Cumulative global reported cases at month-end

Total number of casesSource: Worldometer

2,031,889 2,077,064

1,160,939

883,948

151,856

8,814

Source: Worldometer


COVID-19 Trend | WorldGhana has equally seen a rapid surge in the number of cases, adding more than 5,000 cases in the month of May 2020, taking the nationwide total to 8.070 cases,2,947 recoveries and 36 deaths as at 1 June 2020

5616

117

421

68

76

26

37

1247

Geographic distribution of cases

22

26

2

1

2 6 7 9 1116 275368 137

161

195 287

313 378

408566 636 641

8341,042 1,154

1,279 1,550

1,671 2,074

2,169 2,719 3,091

4,012 4,263

4,700

5,127

6,096

6,964 7,303

8,070

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Num

ber

COVID 19 cases in Ghana

Total confirmed cases New cases Total death cases = 36 Total recoveries = 2,947Source: National Security Council Secretariat ("NSCS")

Male60%

Female40%

Percentage distribution of Ghana's COVID 19 cases by sex

Male

Female

Source: NSCS

1

6

404

Impact on the Economy


Economic Impact of COVID-19 | General Impact

Disruptions in global supply chains, with significant supply

shortages and consequent price hikes

Slowdown in investments and remittances and resulting job losses

Volatility and collapse of stock markets due to

uncertainties

Decline in oil demand leading to decrease in oil prices and cut in revenue for oil exporting countries

Decline in tourism and international travel and

resulting job losses

Unanticipated increase in health expenditure

and resulting upsurge in public debt burden

Tighter global financing conditions despite

interventions through monetary policy to cut

interest rates

Lending will become more stringent since

most economies will not be doing well. Only

companies that can show that they can survive will successfully obtain loans.


Impact of COVID-19 | Specific Industry Impact

• Hospitality industry adversely impacted due to the closure of borders and general slowdown in tourism and demand for international travel.

• In Ghana, some hotels have reported revenue losses due to cancelations of room bookings and conferences scheduled for March, April & May 2020.

• Average occupancy rate of hotels are expected to decline from 70% to less than 20%.

Tourism and

hospitality

industry

Manufacturing

companies

• The COVID-19 pandemic is already ushering in a host of challenges to Ghana’s industrial manufacturers, especially those that depend on workers whose jobs cannot be carried out remotely.

• However, the extent of the financial impact depends largely on the type of product and its associated demand (whether the products are considered to be essential good or not)

From

hard

est to least h

it

Transport

(Aviation and

road)

• The next hardest hit sectors are the aviation and public road transport sectors.

• The airline / aviation industry will likely be especially hard hit because of a ban on international flights and even some restrictions on domestic flights.

• Road transports has not been spared as people are encouraged to stay home.

Oil & Gas

• World market prices of oil fell to an all time low of U$0/barrel putting some major economies at risk of deep recession. This development has adversely impacted the cash flow of oil and gas companies in Ghana

• As many people continue to work from home and avoid travel, the demand for oil and gas has plummeted in Ghana.


Impact of COVID-19 | Specific Industry Impact

• Decline in trading volumes and values of imported goods due to disruption in supply chain globally as a result of closure of many boarders.

• Shortage of some basic consumer goods imported from China and Europe have led to price spikes in Ghana.

• Overall decline in consumption of certain goods, especially those that are seen to be luxurious but not essential.

Retail /

Consumer

Products

Agriculture

• The agricultural sector is expected to experience adverse disruption in the supply chain. Low demand activities could cause perishable goods to go bad..

• If the pandemic continues, this could lead to shortage of food and spike in food prices.

From

hard

est to least h

it

Financial

Services

• Risk of loan default as incomes of businesses and individuals are adversely impacted by COVID-19.

• There is also pressure on banks to restructure loan facilities with possibility of granting moratorium on loan repayment and reduction of interest rate.

Construction

• As the coronavirus hit Ghana’s economy, companies will likely pull back on expansion, leaving a huge gap in the construction industry.

• Government of Ghana intends to adjust expenditures on Goods & Services and Capex downwards by GHS1.2 billion as a result of COVID-19 leaving most of the construction projects on suspension.

Government Responses and Proposed Measures for Businesses

The Economic Impact of COVID-19 & Government Response 13© 2020 Copyright. All Rights Reserved. Deloitte Ghana. 13© 2020 Copyright. All Rights Reserved. Deloitte Ghana.

Fiscal MeasuresThe Government is also implementing the following fiscal measures to mitigate the impact of the pandemic on businesses and households

External Financing The Government has secured the World Bank DPO of GHS 1.7 million and the IMF Rapid Credit Facility of US$ 1 billion

Utilization of Stabilization funds"The Government has lowered the limit on the GhanaStabilisation Fund from US$ 300 million to US$ 100 million. Also,the Petroleum Revenue Management Act (PRMA) is to beamended to allow withdrawal from the Heritage Fund toundertake emergency expenditure.

Adjustment in ExpenditureThe Government has adjusted its projected expenditure on goods and services and capital expenditure downwards by GHS 1.25 billion.

Tax IncentivesTo be discussed in the next section

Government Response | Fiscal Measures


Prime Rate & GoG Borrowing• The Bank of Ghana (BoG)

decreased the monetary policy rate by 150 basis points to 14.5 %.

• Amendment of the Bank of Ghana Act to allow for government borrowing from BOG up to 10% of previous year’s tax revenue in the event of tight domestic financing market conditions

Regulatory Reserve & Buffer

• Reduction in the requiredreserve requirement from 10% to 8%.

• Capital Conservation Buffer (CCB) for banks of 3.0% is reduced to1.5%

• This is the first time since 2019

that the Central bank of Ghana

has lowered the policy rate. The

aim of the Government is to

boost economic activities by

enhancing access to credit at

lower cost.

Commercial banks

• Commercial banks engaged to provide syndicated facility of GHS3 billion (US$500m) to support key industries;

• to grant six-month moratorium on principal repayments for selected businesses; and

• reduce interest rates by 200 basis points, also to increase credit supply to the private sector

Government Response | Monetary MeasuresThe Government of Ghana has initiated the following monetary measures to mitigate the impact of the pandemic on businesses


Government Response| Other MeasuresAs part of the various interventions made by the Government to mitigate the adverse impact of the COVID-19 outbreak onbusinesses, the following are also in place;

Coronavirus Alleviation Programme

to ease the impact of COVID-19 on businesses and households. It was funded with an initial seed fund of GHS 1 billion (US$166 million)

COVID-19 Fund

to receive donations to support CAPand to assist in the welfare the poorand vulnerable people.

As at end of April an amount of aboutGHS13 million (approx. US$2 billion)had been received into the Fund.

Absorption of Utilities

Government is to absorb 50% electricity bill for commercial users

for the next three months (April, May and June)

600 million GHS Scheme

for Small and Medium Scale businesses in the country. The loan scheme is expected to have a one-year moratorium and two-year repayment period.

SME COVID-19 Fund (GHS 600m)


SME Fund of GHS 600 million (US$ 100 million) | Background and Terms

• This is a soft loan facilities for SMEs in Ghana

• The facility is to be administered by the National Board for Small Scale Industries (NBSSI) in association with Business & Trade Associations and selected Commercial and Rural Banks

• The facility was launched on 7 May 2020.

Background

Terms

• The facility will have a one-year moratorium with 5% interest rate

• A two to three-year repayment period for micro, small and medium scale businesses

• The processing time will take up to 2 weeks from completion of application

• The facility is to be administered through an online technology portal which is yet to be launched.

• The concessionary loan is expected to be used for procurement of raw materials for immediate use, general operational and administrative expenses and any other need that impacts the business positively and retains human resources


SME Fund of GHS 600 million (US$ 100 million) | Sectors to benefit

Healthcare and pharmaceuticals

Manufacturing

Agri and Agro- business – food and beverages

Water and Sanitation/PPEs

Tourism and hospitality and other services

Education

Textiles and Garments

Commerce/Trade


SME Fund of GHS 600 million (US$ 100 million) | Minimum eligibility criteria

• Micro, Small and Medium Enterprises (self-employed, limited liability, sole proprietorship, partnership, joint ventures)

• Must be located in Ghana

• Enterprises running for at least six months from March 2020

• Registered businesses/enterprises –RGD/District Assembly (Micro/Informal)

• Must have a TIN Number

• Businesses/Enterprises that are adversely impacted by COVID showing evidence

• Businesses/Enterprises that are producing goods or services that support the fight against COVID

• Member of an association, a trade group or registered with NBSSI

• Businesses with between 1 -99 employees


SME COVID-19 Fund (GHS 600m) | Where to get further information or assistance

NBSSI District

Business Advisory Centre

Your business

associations

Dedicated Call Centre

NBSSI Website

Participating Financial

Institutions.

Managing the Impact


Managing the Impact of Covid-19| On BusinessesBusinesses can Adopt the Following Measures to Control the Economic Impact of COVID-19 on their Businesses

Fund Raising SolutionsStakeholder Management

Action Plan –

Utilise whatever Government support is available

Take advantage of COVID Funding support available from banks and NGOs

Seek support from existing fund providers

₋ Lenders

₋ Shareholders

New fund providers who can act quickly

₋ Asset based lenders

₋ Alternative lenders: many ready to lend in the wake of COVID-19

Action Plan –

Communicate regularly with all your key stakeholders

o Lenders

o Shareholders

o Employees,

o Suppliers (incl. landlords),

o Customers

o Authorities (tax, government etc.)


Managing the Impact of Covid-19| On BusinessesBusinesses can Adopt the Following Measures to Control the Economic Impact of COVID-19 on their Businesses

Contingency PlanningContracts

Action Plan – Review your legal entity structure to identify

pockets of value

Understand critical assets, contracts, customers and suppliers

Action Plan –

The COVID-19 is likely to lead to legal / insurance claims

Keep track of the financial impact of:

₋ Breaches of contract

₋ Additional costs incurred


Managing the Impact of Covid-19 On Cash FlowsCash is said to be “king” so must be Managed Carefully in Times like this.

Inventory1

Receivables2

Managing Inventory

• Minimise order quantities and batch sizes, increase order and production frequency

• Review your constraints and bottlenecks of your business operations and streamlineproduction to avoid over stocking

• Dispose of slow moving and obsolete stock by offering discounts or any other promotionalstrategy

Managing Receivables

Raise invoices ASAP and in a timely manner

Monitor cash collections daily by prioritizing customers with large debtor balances first

Engage with customers, and be proactive in minimizing the risk of disputes and latecollections

Managing Payables

Map your business’ critical suppliers to determine priority of payment

Make sure that payment is performed through the agreed payment method

Payables3

Final Words

© 2020 Copyright. All Rights Reserved. Deloitte Ghana. The Economic Impact of COVID-19 & Government Response 26

“COVID-19 will reshape our world

We don’t know when the crisis will end

But we can be sure that when it does,

Our world will look very different”

Joseph Borrell


Final WordsFlatten the curve – Stay home, Wash Hands Regularly and Keep Physical Distance

Stay at Home Wash your hands Keep your physical distance

Stop the spread of COVID-19


Contacts

Yaw Appiah Lartey

Financial Advisory Leader

Deloitte Ghana

Office tel: +233 307 086 336

Mobile tel:+233 244 158 377

Email: [email protected]

Dennis Brown

Manager, Financial Advisory

Deloitte Ghana

Direct: +233 302 775 355

Mobile: +233 243 320 5800

Email: [email protected]

mailto:[email protected]:[email protected]


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Economic impact of COVID-19 and Government Response Yaw ... 19 - Governme… · of GHS3 billion...

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