• Proactive strengthening of balance sheets with deleveraging
• Debt factoring through SPVs or through financiers
• Systemic risk assessment

“On the morning of Friday 18 July 2009, Hloni Matsela, managing director of Botswana’s biggest brewer, nearly fell off his chair. The radio was broadcasting a speech recorded the previous day by the new president, Ian Khama. Disturbed and dejected, Matsela listened to the announcement that in two weeks the government would impose a 70% levy on alcohol. “I must caution you”, Khama told his people, ”that if you adopt the ‘we don’t care’ attitude and continue drinking….we are even going to hike it….until whoever wants to buy alcohol fails to do so.”

The above frequently cited encounter is meant to show the unpredictable nature of business as experienced by Botswana Breweries, the largest brewer in that country which runs an oligopolistic business model. To compound this situation, trading times for beer outlets were also limited to prohibit sales after 8pm as well as banning beer sales on Sundays. No single sales, market or investment return forecast could project the presidential decree and the legislative impact on the status and prospects of this company before the announcement was beamed to the public. The ripple effects would cascade with a domino effect like a deck of playing cards with social implications to stakeholders such as addicted consuming customers and financial repercussions to the company’s suppliers, employees, creditors, beer traders, bankers and shareholders such as pension funds who might have had a heavy and concentrated investment exposure in the company.

On November 1, the levy took effect. The brewer marked up its products by 30%, later raising the price again to account for inflation. Within weeks, sales of western-style clear beer had fallen by a quarter, and traditional beer sales were down 12%. By February, the serpentine conveyor belts which normally churn out Grolsh, Castle and SAB Miller’s (AbInBev) lagers stood idle. Already, the contents of the vast storage drums were close to going off. If the market didn’t recover immediately, 3,5 million cans’ worth of lagers would have to be poured down the drain. In addition to the highlighted experience, President Ian Khama indicated that he would increase the levy.

Every organisation is vulnerable and exposed to a broad range of risks which deserve the crafting of solid risk management frameworks. With the context of COVID-19, US-China trade and currency wars, climate change, terrorism and other phenomena, these factors implore various economic stakeholders to be highly alert to risk by placing risk management on high priority in business management and decision making matrices.

An enduring fascination of science and science fiction is time travel. Much time and money has been invested in it, both as a scientific pursuit as well as an entertainment initiative within the realms of cinema and literature. Its allure lies in mankind’s twin yearnings of being able to undo an undesirable past and to get a look at the future so as to be better prepared for it. The unimaginative reality, though, is that we live in the here and now; we cannot revise the past regardless of numerous attempts at revisionist history. We cannot go into the future and return to the present to prepare for it. The closest we get to time travel is learning from the past in order to understand how it shapes the present and how it can serve as a barometer to understand what may or may not happen in the future. Zimbabwe and the rest of the world may not be able to indulge in time travel, but we certainly have memories. However, we are not shackled by our memories. Rather, we are enlightened by them. Which is why some businesses in Zimbabwe and the rest of the world are moving forward, have moved forward and will have to move forward despite the challenges influenced by the coronavirus and other disturbances.

History is replete with examples which illustrate the unpredictable nature of life and business as influenced by several factors as well as random and unexpected events many of which are referred to as “Black Swans” with far-reaching consequences. Due to space constraints, I will not get into the details of the world’s leading Black Swans but will highlight a number of them which the corporate world can learn from in terms of how the affected people were exposed as well as how they responded to the circumstances they found themselves in. Below is the list:

• The Asian Financial Crisis – 1997
• The Dot Com Crash – 2000
• Chernobyl Disaster - 1986
• September 11 Crash – 2001
• Global Financial Meltdown – 2008
• European Sovereign Debt Crisis – 2009
• Fukushima Nuclear Disaster – 2001
• Crude Oil Crisis – 2014
• Black Monday China – 2015
• Brexit – 2016

Many people wish they had the crystal ball in which they could see the future direction of financial markets. However, that is not the reality of the situation most people find themselves in. Economic stakeholders are reminded to stick to the golden rules of due diligence, diversification in various forms, hedging, rebalancing and continuous monitoring. The inherent risks in business can never be brought down to zero but can be mutated in as much as they are impossible to predict. With this in mind, Nassim Nicholas Taleb, a Finance professor who coined the term “Black Swan” encourages people and organizations to always assume that a Black Swan event will take place and plan accordingly.

There is something about Africans, more particularly about Zimbabweans to be overly critical without doing that which is supposed to be done or even suggested. It is the sense of urgency and dispatch which are usually the missing pieces and the culprits in times like these. For some people, postponing execution to a future convenient day is sedative. You can own many time-telling devices but you do not own time. Gambling with business and pretending that you own the gambling slot is self-deception.

Here are a few considerations and suggestions which I sincerely hope will add value to corporate leaders as they manage their businesses during these volatile times as highlighted in the following bullet points:

• proactive strengthening of balance sheets needs to be done with a lot of deleveraging. With IFRS9 now in play and Basel 2 Accord on the horizon, commercial banks and the central bank will be very strict in terms of how they extend financial assistance to the corporate world in as much an $18 billion stimulus package is now in place. The package is a paltry figure as it cannot quench the demands of our present situation. The central bank, which had previously highlighted the need to wind down the operations of ZAMCO, might give this quasi-government entity more life in order to save industry and commerce at large. However, they will not be throwing those TBs like confetti as this could be tantamount to steroid banking with serious damage to the whole economy. Nobody can begrudge them, why should they support corporate dinosaurs which were on the verge of extinction before COVID-1 because of bad management and poor business models? These companies might be left on their own and collapse thus cleaning our economic ecosystem of various toxic debts. This should not come as a surprise as the central government and the apex bank have been adopting more liberal policies judging by the way they ‘liberalised’ the foreign currency exchange market in order to appease the free-market exponents and the creditor-multinational financial institutions such as the IMF and the World Bank. Both the fiscal and monetary authorities will be careful about adding more debt into our ecosystem as this can backfire through a severely weakening currency and increased country-risk profile. This could be viewed as an effort to displace politics with economics and they might have some comfort of doing just that as elections are three years away from today. A home for such business entities could be the corporate museum and we might see them on History channel one day;
• Corporate leaders should also consider debt factoring through various financiers or creating their own Special Purpose Vehicles with a view of selling their debtors’ or loan books to interested investors. For the investors, the opportunity cost of holding non-yielding debt assets in the form of Non-Performing Loans can be offset by potential capital gains through debt-to-equity swaps in the indebted companies or buying severely discounted assets with upside potential for recovery in the long term;
• Opening options and lines of capitalisation on new projects or re-capitalisation of existing operations is necessary. Important to any entity is its financing strategy. Debt finance is more suitable to a business entity during an economic boom as opposed to a depression. Let us not forget that many companies collapsed even after they got recapitalised just after our country adopted the multi-currency system. A lot of rights issues and bank financing could not entirely save those companies. There is more to a business than just accessing finance. Factors such as business models and management style or strategy will be considered by more discerning financiers as investment decisions will be made with far much rigour and discipline as downside risks have mounted. Not many investors or financiers will be willing to provide debt finance so the safer option is only long and patient capital. The same investors will also be aware of the allure of high-short term debt investment yields and the risks that such instruments carry. So, issuing corporate debentures might be tricky at this moment as subscription might not yield the desired results. Patient capital could be provided by pension funds and insurance companies. In this regard, it would be wise for business leaders to start looking at this route and to take the necessary steps in order to tap into this patient equity finance pool. Patient capital helps to cushion businesses from the harsh economy which could be operating at a snail-pace thus insulating business entities from total collapse as most pension funds have liability profiles which are long term in nature. Such pension funds do not put immediate pressure for investee companies to generate cash. Our insatiable appetite for debt which in most cases is just meant to satisfy and quench our consumption demons with very little tangible capital expenditure to show for but just to stroke our egos. The debt financing packages that some companies might lean on may be the albatross around those entities’ necks and soon, rather than later, they will choke themselves on that debt finance which they would have stuffed through their own volition;
• The reluctance by some shareholders to shore up capital for their investee-companies, often clothed in too-big-to-fail rhetoric, may prove to be disastrous. This is the time to think and act. Many shareholders and managers of great companies showed great courage and skill in acting after the Lehman Brothers’ collapse during the 2008 global financial crisis. However, we should not forget their failure to act before the economic meltdown;
• Companies need to diversify clientele base according to several segments of the market such as age, income, geography and gender because focusing on a specific segment of the market might leave any business exposed to concentration risk. As companies embark on strategies to diversify their target markets, thought should be given to proper market segmentation with bespoke product development and service delivery. In essence, the business should not have a ‘one-size-fits-all’ approach as customers are diverse in cash cycles, size and other factors. Business entities must tailor-make products that are in sync with the needs of each market segment by engaging their minds towards questioning what exactly their diverse clientele base demands;
• Companies need to divest from short-term thinking and place emphasis on long-term sustainability. In the third-world, focusing on short-term problems seems to impede long-term sustainability of various solutions adopted as economic stakeholders act with panic and emotions. We lack visionary foresight in our management of business as we attempt to please the immediate concerns of various stakeholders especially shareholders with the example of paying generous dividends from profits earned with little left for re-investment into the business. As long as business managers do not think beyond today’s challenges, many companies will be in a constant fire-fighting mode, moving from one crisis to another;
• Management should also consider systemic risk which affects many businesses as counter-party risk is getting more pronounced in our environment. There are many companies which will go under after having tried to save their lives through the judicial management route. With this context, management must exercise due care regarding who supplies their company or who they sell to especially if it is not on a cash basis. Imagine having paid a lot of money to a supplier who has gone bust or relying on a client who is about to go under the hammer. Thus, management must be well-informed about the environment and the stakeholders they are dealing with;
• Risk management and prevention is now featuring prominently on the agenda and in the policies of most investors, not only for their own investment institutions, but with an attention on the companies that they are invested in. Risk rating of many emerging risks is also vital. A company’s approach to risk management is a key enabler to the sustainability of its business. Emphasis is increasingly being placed on the need for proactivity and preventing various risks out-rightly. Wide enterprise risk management with strategic plans being assessed for risks that could impact on the achievement of set objectives should be done. Risk management should form an integral part of a firm’s business strategy. Companies should regularly monitor and assess external factors that could affect the achievement of business objectives. Business managers ought to have strategic plans that are responsive to changes in the macro-economic environment. Managers must have mechanisms for identifying and managing operational risks. All employees must be periodically trained on risk management. Companies must have business continuity plans to guide them in case of risks. There should also be a shared understanding of key risks that affect business operations. There should be timely communication to all key stakeholders of the company regarding the adequacy of risk management systems in place.;
• Selling non-core assets during this period is advisable before asset prices become even more depressed as the country goes through a lean period. This is not the time to keep some assets just for window-dressing purposes or for flaunting to our erstwhile foes. This right-sizing process is a better one as opposed to taking an expensive loan or selling those “dead” assets at a song through an auction;
• Prepare for impending opportunities as things get volatile. When opportunity meets preparation, the offspring is often called luck. Situations like these are also times of unprecedented opportunity. A stroll down the memory lane will remind many business leaders that after the disintegration and collapse of the USSR in the late 80s during the twilight stage of the Cold War, a lot of the nouveau riche entrepreneurs we now admire as wealthy Russian oligarchs emerged and made their money in just a few years.  Names like Roman Abramovich and Mikhail Khodokovosky of Yukos Oil come to mind. These were entrepreneurs and investors who maximized on the opportunities that were presented by a chaotic transformation of a society. A lot of lessons can be drawn from studying how they built their empires from assets which they bought for a song;
• Companies should exercise due diligence with qualitative and quantitative frameworks through company operating policies, manuals and internal controls or guidelines. As business managers craft risk management frameworks, they should not be too prescriptive to their employees as this can stifle innovation that could spur companies to greater heights. A degree of liberty and an enabling working environment should be allowed. Such risk management frameworks should include detailed and effective risk analysis and management systems, regular monitoring and updating as well as documented response strategies to counter the identified risks. Many skills are needed to craft robust risk management frameworks. As such, companies ought to enlist the services of technical experts and consultants. The skills’ base can help a lot by having a comprehensive look at risks. Checks and balances are also critical as well as provisions for various risks the companies are exposed to. Companies should also adopt personalised qualitative supervision through the exchange and supply of information with internal and external stakeholders;
• Investing in risk research regarding prevention and management might be considered by many as detrimental to income statements in the short-term but the dividends in the long run far surpass the costs. Our nation is now blessed with a plurality of media houses, publications and research firms which can help companies in this regard.

All the aforementioned points form a plethora of reasons why business leaders should apply their minds as they navigate this volatile business landscape. This is an opportunity for corporate leaders to reflect and to give prominence to risk management as they build and manage anti-fragile companies. Europides (480 BC – 406 BC) is an ancient Greek poet and playwright who wrote some surviving plays and was a major influence in the world of his times. A line from his work that rings through the centuries is: “How can you think yourself a great person, when the first accident that comes along can wipe you out completely”. We have faced a plethora of vicissitudes and surely, due to the resilience we have built over time, we will not succumb to this COVID-19 challenge

Malvin Chidzonga is an innovative and dynamic finance and investment practitioner. He has extensive exposure and experience in the whole spectrum of the financial service sector. He is animated by the desire to optimally explore, identify and create financial advancement opportunities for people and organizations by harnessing financial potential inherent in them as well as connecting various dots, opening doors and shining the spotlight on them in order to craft great outcomes for society at large. He began his financial service career at Agribank, then joined CFX and Interfin Bank before his stint with Jiang Xing Trading Co in Beijing, China. Upon his return to Zimbabwe, he joined Zimnat Lion Insurance before moving to Comarton Consultants. Whilst at Comarton, he worked with Atchison Actuarial Consultants on the crafting of several financial models for various non-financial organizations. Amongst other posts he has, he is the current Principal Officer of the Sports Industry Pension Fund, a position he has held since the Fund’s formation in 2013. He is now a full-time member of the Nivteil Financial Ventures’ team.