I was a member of four crisis response teams while working at International Finance Corporation (IFC): In 1998, we supported the restructuring of Korean businesses affected by the Asian financial crisis; in 2003, we provided emergency liquidity to companies in Indonesia to combat SARS; in 2008, we launched the Global Trade Liquidity Program, a G20 endorsed response to unlock global trade affected by the global financial crisis; and in 2014, we supported SMEs and farmers in the Ebola affected regions of West Africa. These were timely and impactful responses that had positive outcomes in all targeted sectors. Covid-19 is different. While the pandemic is attacking the developed world in ways not predicted by any, it has left the emerging economies in the southern hemisphere relatively untouched. In Africa, Covid-19 has given us a needed break to learn from the experiences from government responses in China, South Korea, Iran, Europe and now the United States and hopefully strengthen our health systems. But what about the private sector and the millions of jobs at risk? How can we better prepare to support this sector?
African economies are growingly vigilant with main efforts concentrating around ring-fencing their countries from the corona virus by cancelling arrivals from affected regions. They are also assessing the readiness of their health sectors while increasing health expenditures. The IMF and World Bank Group have responded fast to the crisis announcing multi-billion-dollar emergency response facilities. Central banks plan to use some of these facilities to pump liquidity in stressed systems and increase expenditures. However, monetary easing may not have the expected impact because the drop in demand may not be correlated to a lack of liquidity. Furthermore, government led emergency responses like increased infrastructure expenditures to boost employment may be affected by disruptions on global supply chains in Asia quickly followed by additional disruptions in Europe and the United States. As individuals and as participants in our communities, we are told we need to strengthen our immune system to combat this virus. African Businesses alike need to strengthen theirs to sustain this crisis by strengthening their balance sheets, lowering costs, introducing best in class governance and enhancing management capacity.
Small to mid-sized companies (SMEs) are by far the region’s largest employer which is why they need to be near the top of the list of African governments’ and development institutions’ agendas if downside effects are to be reasonably contained. Governments must work closely with the IMF, World Bank and the African Development Bank to strengthen their fiscal and monetary tools to help consumers and the private sector confront the approaching crisis. However, it’s not a single solution that is going to lessen the effects of this pandemic.
In the past, commercial banks have played an important role as channels for private sector crises response in Asia and Africa. The long-term impact expected from the Covid-19 pandemic positions SME, VC, PE and Venture Debt funds as equally critical channels for DFIs and Governments to combat the effect of the Corona virus. These funds are better able to direct lasting crisis responses such as (i) balance sheet stabilization through systemic recapitalization; (ii) mobilization of local funds from pension and insurance funds though guarantee schemes; (iii) debt restructuring to de-leverage balance sheets and create more sustainable payment profiles; and (iv) advisory assistance to support employers as they guide and help employees and their families; among many other possible solutions. Working with local businesses in each of these areas will have a material impact on their ability to continue to deliver important products and services to their customers while ensuring their financial sustainability.
Today, Africa counts with dozens of active funds in the region. It is time to include them in the dialogue on how to prepare for the inevitable arrival of Covid-19 in the region. DFIs, Governments, #AVCA, #EAVCA and fund leaders need to rise to the occasion. We at Tiserin Capital are ready to use our crises response experience and on the ground presence to support this effort.
German Vegarra, CEO & Founder – Tiserin Capital
Tiserin Capital (tiserincapital.com) is an SME #impact fund seeking to unlock value and accelerate returns by addressing head on two core challenges affecting SMEs in the region: poor governance and weak management capacity. Tiserin Capital focuses in Eastern and Southern Africa in sectors like agribusiness, FMCG, retail health and education. Its Principals, German Vegarra and Aida Kimemia, are alumni of the #International Finance Corporation (IFC) and have a combined 40+ years of experience investing over US$2billion in Emerging Markets. Tiserin Capital is anchored by #Britam Holdings, one of Africa’s largest insurance and asset management groups and #Capria, the largest fund accelerator in the Emerging Markets. The team is based in Nairobi, Kenya.