• August 9th, 2020

Covid-19: Lessons in risk management for SMMEs



On 11 March 2020, the World Health Organisation declared the novel coronavirus (Covid-19) a global pandemic setting the stage for frenzied responses from governments around the world. Namibia, like many others, responded by declaring a state of emergency and subsequently a nationwide lockdown. While this was a necessary step to contain the spread of Covid-19, the lockdown meant the closure of many Small, Medium and Micro Enterprises (SMMEs) except those declared as essential services. This article highlights the top five risk management lessons for SMMEs as a result of the coronavirus outbreak and its subsequent consequences on the business environment.

Establish a business continuity management plan
A Business Continuity Management (BCM) plan is a contingency plan of sorts. Quite simply it is a plan to ensure the survival and/or continuation of operations of the business during a period of turmoil such as a natural disaster or, as is the case now, a nationwide lockdown. This may include operating from alternative premises, implementing alternative communication channels and identifying key personnel required for the continuation of operations. A BCM plan will look different for different businesses and, for most informal traders it is unlikely to be documented. For cousin the Kapana seller, for whom operating from Single quarters market is a prohibition during the lockdown, a BCM plan entails preparing the grilled meat at home and introducing a delivery service. Quite simply a “don’t come to us, we’ll come to you” approach. For others in the consultancy business, BCM encompasses the acquisition of Zoom/Skype facilities to enable virtual engagements with your clients. Many businesses would have reacted differently to the risks posed by the global pandemic and it is likely those with a well-established BCM plan that would have minimized losses during this period.
    
Ensure your business is optimally insured
Insurance is perhaps the most common means of risk transfer in the business world (and yes, the transfer of risk is an acceptable risk management technique). There are various pecuniary and casualty insurance products available to provide cover for financial losses to your business. One of the more popular pecuniary insurance products is the Business Interruption or “loss of profits” insurance where the payout is triggered by the business’s inability to operate (at all or full capacity) as a result of predetermined factors such as the loss of equipment or fire. The nationwide lockdown has resulted in unprecedented business interruption and as such many businesses with the appropriate cover may be eligible to claim from their Business Interruption policies. As is the case with all insurance policies, it is important to understand your cover and specifically, the exclusions in your policy. Nonetheless, it may be time to have another look at your business’s all-risk policy and ensure you are sufficiently covered.
In neighbouring South Africa, the nationwide lockdown has resulted in the looting of many business establishments. It is therefore imperative of a business owner to consider general insurance products covering the business against theft and riots as well as physical damage to properties. 

Consider alternative sales techniques
While Covid-19 poses serious sustainability risks for many individuals and businesses, the forced shutdown has resulted in significant savings in monthly expenditure for many others whose stream of income remains unaffected. There are undoubtedly transport related savings whether it is from the lack of a daily commute or not travelling over the Easter weekend. The stay at home movement has further resulted in savings on the monthly entertainment budget (spare a thought for the Burna Boy concert ticket holders). SMMEs can take advantage of this excess cash flow to assist with their own cash flow needs during this time. This can be achieved by aggressively pushing prepaid sales in the form of vouchers or gift cards where payment happens now and the service or product is rendered in future (once the lockdown has been lifted). Naturally, the business will have to offer some sort of discount to entice the customer into prepayment. It is easy to think of the idea for pre-paid vouchers in the context of the hospitality industry. Certainly, Timo’s Lodge in Lüderitz can offer discounts on overnight accommodation, Manketti tours can offer discounts on their camel riding activities in Swakopmund. After-all, once this lockdown is over we’re all headed to the coastal towns for a much-needed breather. The idea of vouchers is not unique to the hospitality industry though, the opportunity similarly exists for the vehicle tyre dealer in Eveline Street and Afroprint Line’s sale of Namibian branded hoodies and t-shirts. It goes without saying that this only works if customers trust that your business will be around after the lockdown. Your business brand and customer service should, therefore, be watertight, which raises the issue of another risk type, Reputational risk that also requires active management by SMMEs.
Register your business

In response to the devastating impact, the coronavirus is anticipated to have on many sectors of the economy, the government rolled out an economic stimulus and relief package totalling N$8.1 billion with the bulk of this earmarked to support businesses and households. The business package is, particularly focused on businesses in the sectors most affected by the pandemic. These relief measures include small business loan schemes and tax-back loan schemes which your business would only be eligible for if it is duly registered with the relevant authorities/regulatory bodies. An unregistered guesthouse, for example, would, therefore, find it difficult to prove eligibility for the relief measures despite being adversely affected by the Covid-19 pandemic. The same is true for many informal traders, who, despite making a decent income from their trade have not registered their businesses with any authority and are unable to take advantage of some of these and other relief measures available for SMMEs.

Embrace technology
During a pandemic that has killed thousands of people and crippled many businesses, it is hard to imagine that there is a winner, but if you must, Information Technology is certainly right up there. While IT comes with its risks such as cybersecurity and software or hardware failure, it is undoubtedly the saving grace for many businesses during this pandemic and it is time that Namibian businesses embrace the alternative methods of communication and doing business provided by the advancements in IT. SMMEs should start thinking of the opportunities that come with technology such as the use of drones to deliver products and online marketing campaigns and tools where the target audience is identified based on purchase behaviour and social 
preferences. 

More good news on the IT front is that the Electronic Transactions Act that, amongst others, aims to provide for the legal recognition for electronic transactions is in the penultimate stages and will soon be in full effect. This is a big win for e-commerce and SMMEs could be at the forefront of leading this E-commerce transformation. Moreover, the Ministry of Basic Education recently announced that only about 2% of learners can access online education. There, therefore, exists a largely untapped market for businesses like NOI Coding kids whose focus is on early childhood development in the IT and Computer programming space.

*Lazarus Shikesho is a certified Financial Risk Manager. He writes in his personal capacity.


Staff Reporter
2020-05-11 09:48:55 | 2 months ago

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