With more than 7,000 cases now confirmed across the continent, Africa is facing the reality of a ‘third wave’ of the coronavirus. Since Zambia’s first COVID-19 fatality succumbed on 2 April, it is becoming clear that Africa will not escape without loss of life or unprecedented challenges to our health systems and economies. Leaders across the continent are fast recognising the need for decisive action to save lives, households, businesses, and economies.
The coronavirus represents, first and foremost, a public health emergency. However, it is carrying with it an economic crisis that will have profound consequences for the entire globe. It is difficult to overstate this; never before have the world’s workers been asked to stay at home. Extreme restrictions on the movement of people and goods are bringing the world’s economy, designed on a ‘just in time’ principle of vast supply chain networks, to a grinding halt.
Around the world, leaders are being challenged to answer how they will keep their nation’s businesses afloat, and their workers in employment, during this period of enforced economic inactivity. If good, otherwise-profitable businesses collapse during this period, not only will the impact on livelihoods be catastrophic, there will be no possibility of recovery once the crisis has passed. Instead of the desired ‘V’ shaped bounce back to near-normality, the economic damage could well mean a long-lasting ‘L’ shaped depression, and the impoverishment of society.
The short answer to this question is that governments can and must offer respite, to help businesses conserve enough cash to carry them over this immediate period. The Organisation for Economic Co-operation and Development (OECD), has issued guidance to governments on the sorts of measures that could be applied, which include:
- Extending deadlines for taxpayers, both for filing and payment.
- Deferring tax payments
- Suspending penalties for late filing or payment, and remit some penalties where appropriate
- Suspending debt recovery activities (i.e. the garnishing of wages and bank accounts, asset seizures and sales etc.)
- Quicker tax refunds
- Suspending audits, and providing early tax certainty
So, how are some of our African peers responding, and do their actions accord with the OECD guidance, and the pressures their businesses are facing?
Kenya took decisive action on 18 March, five days after the country confirmed its first case of COVID-19. The measures announced are consistent with the OECD guidance, and tailored to the specific problems that Kenyan businesses are facing; for example, lifting all penalties on the non-compliance with tax deadlines, because companies were finding it near impossible to comply, with their staff away from the office and with the limitations of remote working in a continent with limited internet access.
To aid companies’ cash flow, the Kenyan government also announced that it would expedite the payment of all outstanding VAT refund claims, to be paid within three weeks. Furthermore, rates were cut for VAT, Turnover Tax, and Corporate Income Tax, to provide a stimulus, and to prevent undue losses and excessive unemployment. Lastly, a facility was opened for businesses – SMEs in particular – to restructure their existing loans.
South Africa was already in economic recession prior to the crisis, and on 27 March received a sovereign ratings downgrade to ‘junk’ status. Nevertheless, the government announced a wide range of economic support measures, following the institution of a nationwide three-week ‘lockdown’.
To facilitate the maintenance of trade, a full rebate of customs duties and exemptions on VAT for the importation of “essential goods” have been introduced. An initially restrictive approach was quickly moderated, and goods that are “critical to the health of the national economy and its revitalisation post the crisis” (Transnet communique, 29 March 2020) are now deemed essential, and exempted from the restrictions.
Deferments of tax payments have also been introduced, and to further aid companies’ cash reserves, a portion of a company’s PAYE can be temporarily deferred. To limit retrenchments and the impact of enforced unpaid leave on ‘furloughed’ employees, a scheme has been introduced to help employers pay employees for a three-month period, from 1st April.
Furthermore, the government has introduced a financial relief facility for Small, Medium and Micro-sized Enterprises (SMMEs) that can demonstrate a direct financial impact due to the COVID-19 pandemic (along with tax compliance and other requirements), which has been met by the establishment of a number of supporting funds financed by the private sector, and wealthy individuals.
Ahead of its announcement of a lockdown on 30 March, the Uganda Revenue Authority (URA) announced changes to the way its services are offered “in recognition of the current situation regarding the impact of COVID-19 on the business community, and to support taxpayers in meeting their obligations.” The Ugandan government’s COVID-19 Business Continuity Measures include the deferment and rescheduling of tax payments, the lifting of penalties for late submission of tax returns, and the encouragement of voluntary disclosures, through the waiving of penalties and interest.
Not only do these measures support companies’ cash flow, they raise immediate revenue for Government, and leave company staff open to focus purely on business-critical activities during this crisis, as well as acknowledging the difficulties of administrative staff working remotely in Africa.
The measures that these African countries, and a range of others around the world, have taken to offer respite to their private sectors contrast sharply with the limited actions that Zambia has announced to date.
Whilst some tax relief measures were announced on 27 March, they will not offer any material respite from the crisis. Indeed, what has been noticeably absent so far is any acknowledgement that Government can — and should — offer substantial respite at all; or, that by insisting on a ‘business as usual’ approach to tax collections, it is likely to force the closure of many businesses, great and small.
“Not only do these measures support companies’ cash flow, they raise immediate revenue for Government..”
Whereas other countries are expediting VAT repayments to aid company cash flow, there has been no mention of the approximately $1.2 billion that is still owing to the mining industry, and which leaves it extraordinarily vulnerable to the economic crisis now unfolding.
Unfortunately, Zambia is ill-prepared to face this crisis. The condition of the nation’s finances means that it will have to seek financial assistance from the likes of the World Bank or the IMF, and seek some debt relief from bilateral partners, if it is to offer the full economic support package its private sector will need. But there is a queue forming.
Late to the party?
Eighty-five countries have so far approached the IMF for short-term emergency assistance in recent weeks. If multilateral institutions are to come close to meeting these demands, additional resources will be needed. At a video conference of African finance ministers, co-chaired by South African Finance Minister Tito Mboweni and Ken Ofori-Atta of Ghana, ministers called for debt relief “for all of Africa…[which] should be undertaken in a coordinated and collaborative way,” the UN Economic Commission for Africa (UNECA) said in a recent statement. It was agreed that the proposals should be in place and ready for formal approval by the IMF and World Bank at the multilaterals’ spring meetings on 15 April 2020.
Proposals for funding will need to indicate the precise amount of money that countries are applying for, and details of the allocation of funds. Will Zambia be ready to submit a proposal by the agreed date?
Immediate action for Governments
What approach would such a proposal need to take? The management consulting firm, McKinsey & Company, has published several recommendations for tackling COVID-19 that address Africa-specific challenges and constraints, including overburdened health systems and limited fiscal capacity.
Among them is the need to anticipate the precise impacts that COVID-19 will have on a country’s economy, and to offer a short-term stimulus package to help businesses — particularly those in strategic industries and/or which are major employers — to survive the crisis.
“Unfortunately, Zambia is ill-prepared to face this crisis. The condition of the nation’s finances means that it will have to seek financial assistance from the likes of the World Bank or the IMF. But there is a queue forming. ”
A loss of tax revenue is inevitable, says McKinsey, so governments urgently need to reduce non-essential spending. Once immediate emergency measures have been put in place, governments should look ahead to the future, and identify ways to ensure financial stability post-crisis.
McKinsey also suggests that development institutions “take bold steps” to support African countries, businesses, and households. They could provide incentives for governments to make “smart investments” that address the immediate needs of the pandemic response, and help to build up the resilience of healthcare and economic systems for the future.
Development institutions could also help governments design effective fiscal and business stimulus packages. And, they could support countries in expanding their healthcare systems by improving access to critical healthcare supplies (such as testing kits and masks), and boosting the capacity of the healthcare system by increasing the availability of healthcare professionals, and the number of hospital beds.
Time is of the essence
McKinsey’s recent paper makes an unequivocal plea to the governments of African countries that have, so far, been slow to respond adequately:
“Expand [your] efforts considerably, increase the urgency of action, and identify big, bold solutions on both the health and economic fronts. Given the potentially devastating impact of the pandemic on health and livelihoods, nothing less will do.”