Wednesday, June 12, 2024

Too little too late


Ever since the Corona virus began hitting the nation, measures were put in place to curb the menace, which seemed to be effective. From the health perspective, the caseload remained low for a long time and I believe, much credit is due to the measures taken at Bole International Airport and related quarantine directives.
We were thus able to prevent the virus entering into the country to a certain extend. However, it eventually found enough ground to cause an exponential increase in the caseload, especially over the past month or so and the end is not insight. With people crowding around markets and bus stations for example, there is no stopping the virus from spreading anymore. Remember what happened during the Easter holidays. And then the unfortunate political unrest created only more fertile ground for the virus to strengthen its grip on our society.
COVID-19 however bites much deeper into society than the health sector alone. As in all countries, the economy suffers heavily with companies, big and small, loosing business, seeing their earnings go down and reserves evaporate, while informal workers and the self-employed are losing their jobs and income.
The Government was quick to think about measures to be taken to curb the impact of COVID-19, both from a health and economic perspective, including the following:
On April 30, the Council of Ministers approved a set of economic measures to support firms and employment, like forgiveness of all tax debt prior to 2014/2015, a tax amnesty on interest and penalties for tax debt pertaining to 2015/2016-2018/2019, and exemption from personal income tax withholding for 4 months for firms who keep paying employee salaries despite not being able to operate due to Covid-19.
The Central Bank has provided 15 billion Birr (0.45 percent of GDP) of additional liquidity to private banks to facilitate debt restructuring and prevent bankruptcies. It has also provided 33 billion Birr of additional liquidity to the Commercial Bank of Ethiopia.
Such measures raised hopes for business owners and investors that they would receive much required support to keep their business heads above the water. After all, laying off employees because of COVID-19, is prohibited, while income has dwindled, and recurrent costs and loans taken out to develop the business have to be paid.
However, from what I learn and observe, the high-level measures and directives don’t seem to trickle down to the ground. Business owners are forced to continue to pay the income tax for their workers and some private banks fail to support their business clients as directed. Three months down the road many SMEs have landed in dire straits indeed. Why forcing business owners to continue paying income tax for their workers, who in fact do not even work? And what is the use of offering new low interest loans, while demanding that outstanding loan payments have to be serviced first? The fact that payments cannot be made is exactly the reason for applying for additional credit!
Admittedly, banks have taken some initiatives to support business, like waiving some service charges, and lowering the interest rate for certain sectors. However, these efforts fall far short of what businesses need. Banks are in my opinion rather untransparent in any case when it comes to providing information about the services they render. Clients have no way to make easy comparisons between banks and inform themselves about services they are looking for. In other countries online information is available and accessible for all to see and decide which bank to talk to first. And when asked about the above described COVID-19 supportive measures, bank and branch managers have responded to clients that they are not aware. How is that even possible and what confidence does that create that the bank is there to provide support and services to its clients?
These are trying times, both for the country’s health sector and the economy, the consequences of which cannot be mitigated or solved by the Government alone. Instead we need an effective and coordinated mitigation plan of both the public and the private sector. We need to see effective cooperation and take proactive measures before things are out of hand. Banks should play a pivotal role here, be creative in finding solutions to help business not to go bankrupt but provide light at the end of this tunnel and hope to recover from the crisis they are in. The Council of Ministers and the Central Bank have opened the door; it is up to the tax authority and private banks to take their responsibility now and apply solutions in the public and national interest, not only their own. The business community have kept their workers on the payroll while allowing many of them to stay home. It is unfair not to support them as directed. Otherwise it will simply be too little too late for many.

Ton Haverkort

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