How CFOs are preparing for the impact of coronavirus in South Africa

CFOs reveal how they are staying on top of the Covid-19 situation, and what they've done so far.

The coronavirus, also known as Covid-19, which emerged in the central Chinese city of Wuhan late last year, has spread rapidly around the world over the past week.

With its first case of the coronavirus, South Africa is now on high alert. Organisations are starting to have conversations about the impacts of the virus when it starts spreading and ways to reduce the risks to their businesses and industries. 

On 28 February, an international conference that was expected to host accountants and lawyers in Cape Town was cancelled as security has been increased amid growing fears of a global spread of the virus. The conference was set to be held on 17 to 19 March at the Cape Town International Convention Centre

In a statement The International Association of Restructuring, Insolvency and Bankruptcy Professionals (Insol) CEO Jason Baxter said: 

“As you can imagine, much deliberation has gone into making this difficult decision. However, the health and safety of our delegates around the world and staff is our top priority.”

He added that, as more information has become available regarding the spread of the virus and the further restrictions on travel and quarantine protocols in certain countries, “we recognise the potential negative impact this can have on all of you”.

One of the industries that has already been directly impacted by the coronavirus is the travel industry. Flight Centre Travel Group CFO Euan McNeil (pictured) says that, from a South African perspective, there has already been a shift in consumer buying patterns with a definite decline in demand for higher risk locations. 

South Africans are preferring to travel domestically and swop overseas destinations for lower risk and more rand-friendly options. “In general, we find South Africans are resilient travellers and adapt quickly to tough circumstances,” he adds. “We’re naturally working hard to ensure our offering caters well to these changing needs.”

In terms of corporate travel, Euan says a few corporates have adapted their travel policy and, in some cases, put a travel freeze to certain destinations. “From a South African perspective, the current high-risk destinations aren’t currently high-volume travel routes so we haven’t been as impacted as other countries but this may change.” 

He adds: 

“It’s very clear that global air travel has been significantly impacted by the virus already. IATA [International Air Transport Association] estimates that the virus could result in lost global air revenue of between $63 billion and $113 billion. Naturally, that puts a lot of strain on airlines and the travel industry as a whole, so it’s certainly something we will monitor closely.”

Another industry that is already taking strain from the coronavirus is the tourism industry. V&A Waterfront CFO Narriman Taliep said their executive committee recently had a 30-minute chat about the coronavirus. “Corona is a global health situation. We understand, following the trend in China and USA, the immediate impact is on the ability to travel internationally and supply chain. Stigmatisation and perception are also noted and a real issue.”

With the first confirmed case, Narriman has made an observation that the travel industry could be impacted as follows: 

  • In the retail space, where sales are dependent on foreign spend – reduction in tourists could mean a short-term impact on rental growth, and an immediate impact on tenant affordability, and in some businesses the quantum of turnover rental could be impacted. 
  • Supply chain – goods and services that are imported or exported to or from countries such as China could be delayed. Lifts and escalators in particular, which are fundamental to any building structure. This means late delivery of buildings can cause loss of rental income or poor customers experience. 

Financial Models

The coronavirus will also affect the financials of businesses. 

Euan says that his team is running data on a daily basis to ensure that they are able to adapt quickly to the changing trends and buying patterns from their corporate and leisure customers. “There is a lot of uncertainty around how long the impact will last and where the next high-risk destination will be. The key is remaining agile and ensuring we stay close to our customer needs. It is also important for us to manage our cost base closely and ensure we are able to make quick changes if needed.”
 
The V&A Waterfront is heavily dependent on tourist spending, particularly from the USA, UK and EU. It also depends on a smaller percentage of tourists from the Asian market. “We believe our retail sales coming from tourists are about 60 percent and a large part hotel occupancy is driven by international markets,” Narriman said. “The Waterfront also enters into partnership lease arrangements where we participate in the success of any business trading at the precinct, so we share in the upside and downside when faced with challenges beyond our or the tenant’s control.”
 
For this reason, it is standard practice for the V&A Waterfront to understand the financial risk and profile of their tenants. 

Preparations Underway 
 
Along with understanding the financial risks, the V&A Waterfront has started making preparations for the coronavirus, including: 

  • Understanding risk exposure i.e. financial, operational and strategic, and keeping their business and stakeholders informed of their exposure. 
  • Raising staff awareness around virus, perceptions and stigma, procedures they have in place and who is responsible for decisions i.e. Department of Health and National Institute for Communicable Diseases (NCID). 
  • Tenant notification and engagement. 
  • Understanding the supply chain impact and communicating in advance and finding short term alternatives. 
  • Staying calm and engaged. 

According to Euan, Flight Centre is already adapting to the changing trends and ensuring they’re well prepared for any further change in demand. “Just as South Africans are resilient travellers and able to adapt well to any change in circumstances, we like to ensure that our business has the same approach.” 
 
In terms of gaining insight to the situation, Narriman says that they are tracking media coverage, working with HR for best practice to raise awareness and working closely with Transnet as the port, cruise terminal and harbour are “easy” ways for the virus to enter the country. They are also relying on the education of people on the ground on how to assist, help and understand as they are the first point of contact when engaging with the public. 

Euan adds: 

“I think it's important during this time to avoid believing everything you read in the news.  Currently, we are following guidance issued by the World Health Organization as well as our Industry body ASATA – Association of South African Travel Agents.”

Upcoming strategies

For the mining industry, the impact is not material at this stage, however, Harmony Gold CFO Boipelo Lekubo says that their health executive and her team are in the process of devising an appropriate strategy to deal with the risk should it come to that. 

On Tuesday, 10 March, world financial officials will discuss ways to bolster their economies against the impact of the spreading coronavirus outbreak.