The outbreak of the COVID-19 pandemic has thrown the global economy onto a deep economic crisis. Both public and private sectors jointly responded by developing measures aimed at minimising the economic devastation. The measures included business rescue services and Sisa Njikelana is one of the providers of such services. Jambo Africa Online’s Publisher, SAUL MOLOBI, engaged with him in unpacking these interventions.
The distinguished academics Margaret Chitiga-Mabugu, Martin Henseler, Ramos Mabugu and Hélène Maisonnave have written in the 26 November 2020 edition of the peer-reviewed publication, South African Journal of Economics on the ravages the outbreak of the COVID-19 pandemic have inflicted on the global economy since it was first discovered in China in November 2019. Since then, it soon spread like wildfire to other continents and countries. Two months later on 30 January 2020, the World Health Organisation (WHO) declared it a public health emergency of international concern. As it spread unabated, causing mayhem from one country to another, the WHO was forced to declare it a global pandemic on 11 March 2020.
South Africa wasn’t spared. The country recorded its first case on 1 March 2020 and after 12 days the number of infections had increased to 16. Disaster was looming considering the challenges our public health system is facing. To contain the rapid rise of infections numbers that were already hitting 927, government declared a state of emergency on 16 March for 21 days.
Although we have a relatively well established private healthcare system, its exorbitant fees makes it inaccessible to the majority of South Africans. By September 2020, the country had 80 registered medical aid schemes serving only eight million out of a population of 59,9 million people. With the increased unemployment rate since the outbreak of the pandemic, it means the number of people will medical insurance has drastically been reduced.
“The first lockdown entailed several measures, including total closures of economic activities that were deemed non-essential; closures of schools, colleges and universities, the prohibition of gatherings and closure of all borders, among other measures. Most of the world, among them South Africa’s trading partners, also implemented some form of lockdown which included the closure of borders, and no non-essential trade and travel.
“The pandemic hit the South African economy at a time that the economy was already under substantial strain. Economic growth had fallen to 1.5% in 2019 compared to 3% in 2010. Indeed, in the fourth quarter of 2019, the economy had entered a technical recession. Unemployment had soared to 27.3% the first quarter of 2019 and by the third quarter it had reached 29.1% (according to Statistics South Africa). At the same time, while poverty was at had registered… at a high of 49.2%,” wrote the academics.
Concurring with the academic quoted above, Craig Kesson, Executive Director: Corporate Services at the City of Cape Town, speaking during the Dullah Omar Institute’s webinar themed ‘The impact of COVID-19 on South Africa’s Metros, said matter-of-factly: “The full extent of this shock is still unfolding, but the implications on the finance stream include shifting in the property market, reduced commercial activity and trade, tourism sector slow down, increased unemployment, increased poverty and dependence on state grants, humanitarian relief and exacerbated inequality.
“Broader societal suppression methods to the pandemic, including travel restrictions, lockdown and other social distancing requirements has translated into an economic shock. This shock has been further amplified by the credit rating downgrade of the country and the city.”.
In his Budget Speech on 24 February 2020, Tito Mboweni, Minister of Finance, delivered the contextual analysis of the country’s economic and social situation which was alarming. He posited the following:
- The economy contracted by 7.2%
- 2.2. million jobs were shed in the second quarter of 2020
- Unemployment spiked to its highest levels at over 32% in the fourth quarter of 2020
- Revenue collection from taxes dipped well below expected returns
- Less disposable income at the household level
- Poverty and Inequality was increasing.
The above are the reasons why the lockdown which was initially declared for 21 days, still persists to this day – though, granted, it has since been eased down to level 2 it’s this week’s adjustment back to level 3.
Business turn around and rescue interventions
The economic lockdown has cast many companies into financial distress. “Though it’s extremely challenging,” says Sisa Njikelana, “it shouldn’t be all doom and gloom. Companies in distress should consider enlisting the services of business rescue practitioners to develop turn-around strategies to save them from closing down.”
An accredited business rescue practitioner, Sisa is the CEO of MESERETI – an enterprise and systems engineering, management and strategic consulting company. “Our philosophy is to provide support and add value on key and frontline services in any workplace at enterprise, institution levels or economic sector at national level.”
But what do we mean by a business turnaround? “It primarily means putting a poorly performing company, economy or even an individual on a financial recovery path,” posits Sisa. “It is about bringing stability into the life of a company by making improvements that will ensure it stays afloat and grows.”
In South Africa, Business Turnaround and Recovery Programme (BT&R) has its origin in the Declaration of the Presidential Jobs’ Summit in October 1998, andfocuses on preventing job losses and increasing employment. It also seeks to inspire enterprises to be more vigilant about job retention so as to mitigate a decline in performance or productivity that may lead to job losses. The programme provides non-financial assistance to organisations and companies to increase productivity, profitability and service, as well as to save and retain existing jobs.
Business literature identifies seven essential elements of turnaround and these are crisis management by taking control; performing critical cash management; reducing assets; arranging short-term funding; starting cost-reduction measures; and appointing new management. “The Strategic objective of business rescue is to save jobs and create conditions conducive for job retention and creation,” Sisa says matter-of-factly, “if layoffs are to happen, this has to come when all other options have been exhausted – we have to provide for turnaround retraining or alternative employment opportunities. The critical success factor is stakeholder management to ensure the process has a but-in from everyone.
“We start by designing, developing, deploying and improving integrated systems of people, money, materials, machines, processes, energy, knowledge and information. Our argument is that business processes can be redesigned to encompass the complete range of critical processes, from manufacturing and production, to sales and marketing, client services, increased return on investment, service improvements, cost reduction in an enterprise, institution or entity for both private and public enterprises. Our network of experts possesses a wide range and variety of skills and expertise that ensures excellent and quality services to our clients. We continually develop and advance our practical and technical expertise in line with evolving customer needs and technological innovations.”
As strategy consultants, MESERETI aims to advise enterprises at the highest-level on strategic decisions in an unbiased fashion, using deep industry knowledge to deliver the best results. For Management Consulting, which generally implies advising enterprises to solve issues, create value, maximise growth and improve business performance. “Such is also done through our associates who provide objective advice and expertise and ensure an enterprise develop any skills that it may be lacking,” Sisa says reassuringly.
MESERETI has been selected by Productivity SA to serve on a panel of service providers to render services to its Business Turnaround and Recovery (BT&R) programme, an initiative funded by the Unemployment lnsurance Fund (UlF). This initiative bid intended to enhance Productivity SA’s capacity and capability to reach more companies facing economic distress. It provides support to enterprises facing economic distress and initiatives or schemes aimed at minimising the retrenchment of employees or preventing job losses, as per the prescripts of the Employment Services Act.
The BT & R programme has four intervention mechanisms of which all or some of the interventions will be applied for each distressed companies. These are as follows:
- Productivity improvement
- Efficiency of operations
- Effective utilisation of inputs
- Capacity Building of labour and management
- Change Management due to introduction of new things
- Refinement of Operation Procedures/Production Planning (or Replanning)
- Facilitation of access to finance
- Restructuring of debt
- Refinancing and Capital acquisition or Loans or Equity
- Access to grants
- Facilitation of access to markets
- Develop new market strategy and plan
- Facilitate market re-penetration
- Assist in (feasibility of) refinement of current or new products and services.
- Environmental and social interventions
- Introduction and refinement of policies and procedures
- HR management and labour relations
- Environmental issues – clean production, energy management, etc.
The following are criteria for companies to apply for business rescue:
- Have physical premises at which their business processes take place;
- compliant with UIF regulations (In other words: Employee’s should be contributing toward UIF, thus enabling employers to provide a U19 form or payroll list as proof);
- Have a valid tax clearance certificate;
- Have two years’ audited financials or independently reviewed management accounts proving the decline/distress of the business;and
- Have the potential to turn around as a distressed business.
Who is this crusader of business rescue?
Sisa Njikelana is former Member of Parliament (2004 to 2014), who also served as Chairperson of the Portfolio Committee on Energy, as well as in various parliamentary committees. He was educated in the Eastern Cape and later at Ruskin College, Oxford University. He also holds a Certificate in Leadership Communication from Rhodes University. He also has experience in local government having served as a Councillor for three years in the Eastern Metro Local Council in the Greater Johannesburg Metro Council from 1995 to 1998. As a councillor in the former Eastern Metropolitan Local Council, he worked intensively in the Alexandra Development Project from 1995 to 1998. As a member of the Executive Committee he was responsible for Urban Planning and Development. He sits as an executive and non-executive director on a number of boards.
He is also the Senior Policy Advisor and Industry Specialist for UNIDO in the South African Industrial Energy Efficiency Project in National Cleaner Production Centre. He was a research fellow at the Centre of Competition, Regulation and Economic Development at the University of Johannesburg from 2015 to 2018. A former Chairperson of SA Independent Power Producers Association. From 2014 until now a Trustee at Studies in Poverty and Inequality Institute and also member of Nuclear Industry Association of SA, Fossil Fuel Foundation and SA National Energy Association. He is also a patron of Production Technologies Association of SA as from August 2019.
The experience he garnered in parliament prepared him for his role as entrepreneur particularly in the energy industry and enterprise engineering services.
Sisa Njikelana is available on www.mesereti.com and has offices in Johannesburg and Durban