Hospitality businesses appeal for bailout (1)


what they can do to prepare for COVID-19 recovery

The economic effect of COVID-19 to the world economy may not be known until the Pandemic has fully be contained. However, experts like Sarathy, a professor of international business and strategy says

“My gut feel is the impact on the economy is unlikely to last more than two financial reporting quarters, so we’re talking about six months, with the bulk of negative effects in the April to June quarter and the July to September quarters,” says “By then I think the impact should be dying out and business should start being able to pick up its travel.” He goes on to say that one reason people are not flying is partly fear of contagion, so lower fares may not overcome that fear. I perfectly agree with him.

This is the uncertainty of this virus and until the airlines are back into full operation, the tourism industry will not pick up and the hoteliers and other tourism-related businesses will be out of business. Businesses within the tourism industry are interconnected. The industry is driven by demand and supply.

Thus if a tourist living in the UK decides to come to Ghana for a short holiday, he will begin by firstly shopping for the cheapest available flight then move to accommodation and other ancillary services he may need whiles in Ghana. If he or she does not get a suitable flight that meets the budget then coming to Ghana may not happen and the hotelier will not receive his cash because no business did happen.

I tried to simplify this scenario for us to understand the gravity of the current situation in which we find ourselves. For now, my focus is on those offering accommodation services in Ghana.  Currently, many airlines are grounded and many have laid off their staff.  With the closure of some international airports, the lockdown of some countries, and the ban on social gatherings, patronage of hospitality facilities, particularly hotels are in limbo. The ILO has already reminded us that, based on different scenarios for the impact of COVID-19 on global GDP growth, the estimates indicate a rise in global unemployment of between 5.3 million (“low” scenario) and 24.7 million (“high” scenario) from a base level of 188 million in 2019. By comparison, the 2008-9 global financial crisis increased global unemployment by 22 million.
Underemployment is also expected to increase on a large scale, as the economic consequences of the virus outbreak translate into reductions in working hours and wages. Domestically, the ban on social gathering which prior to the ban generated some incomes for hotels has also been stampeded. Data available to the B&FT from 16 hotels in three regions have shown that a total sum of almost GH¢63.1million – equivalent to US$11.8 million (Bank of Ghana, March 19, 2020 mid-rate of 5.3480) – has been lost due to cancellation of room bookings and conferences scheduled for the months of March and April. Of the 16 hotels, one is based in Eastern Region, one in Bono Region and 14 in the Greater Accra Region.

The hotel in the Eastern Region has lost some GH¢1.7 million while the hotel in Bono Region lost about GH¢2.16 million after cancellations of room bookings and conferences over the two-month period. The 14 hotels, including some five-, four-, and three-star hotels based in Greater Accra lost about GH¢59.2 million as a result to the cancellations. Many of these cancellations happened after the president’s directive against mass gatherings and the announcement of travel advisory by the information minister, all in the bid to contain and prevent the spread of the coronavirus in the country.

We are told that Kempinski which has about 400 workers are letting 340 go home. They are closing about four floors and other hotels are laying off up to %90 of their employees. The Ghana Hotel Association has called for a bailout. Their proposal includes the following;

  • A clear Bailout and Rescue plan (financial and practical) laid out by the government for both staff and business owners
  • Transparency on timelines for Bailout and Rescue Plans so businesses can prepare logistically and rationally for the turbulent times ahead
  • Utility tariffs – reduce by at least 65 percent till December 31, 2020
  • Water tariff – should be reduced by 65 percent till December 31, 2020
  • Suspend the Tourism Levy of 1 percent, and use current reserves to aid in Hotel Bailouts.
  • VAT – reduce the Output Rate for hotels to match the 3 percent Input Rate paid by all suppliers
  • Property Rates – Reduce by 50 percent
  • EPA/GHAMRO/ARSOG – Suspend these charges until further notice
  • Stop banks from charging the principal & interest on loans over a period of at least six months
  • SSNIT to support by paying a portion of employee’s contribution as salary over a six-month period
  • Unpaid Leave for Staff members during layoffs for a minimum of three-months per year asap – or
  • Union annual salary increment requests should be suspended during said trying times

The bail out is indeed necessary, however, there is indeed a need to also consider unemployment benefits. The irony of this situation is that last year, the hospitality facilities really made a big hit out of the “Year of Return”. One question being asked is how the profits or gains were used.  However, some may argue that no one anticipated this scenario and ever believed this pandemic could be so devastating on the tourism industry. The reality is that whatever bail out government may provide will not change the challenges they are experiencing even though it might support them in some way, however considering the longevity of the effect of the Pandemic, they need to consider the following measures suggested by Pierre Verbeke, Director Hospitality Advisory Services at EHL Advisory Services;

  1. Consider all the support possibilities that the government and other official bodies have at your disposal? In some countries, you may get a lump sum to cover a part of the costs. In others, there are measures in place for continued payment of employees, up to a degree, so that you do not immediately need to severe the relationship with your staff.

2. Talk to your bank and ask them what they can and will do?

In some countries the banks are themselves supported by the government, the national bank or by supranational instances, so that they can renegotiate loan terms with small businesses. In other cases, banks have already pledged that they will not charge for debt renegotiations or for creating new mortgages and new loans.

Whatever the country’s infrastructure, it will be a necessity for the interested party to start the discussion and go to the bank with a plan that includes recovery scenarios showing what has been done to limit the damage and what will be done once business returns.

3. Talk with suppliers and look at how you can reschedule some payments or how you can re-arrange your supply when things will pick-up again?

One rather under-used system is ‘vendor consignment’. I have used it in the past when managing cash-strapped properties. This allowed me to only pay the supplier once the goods have been actually sold and allowed for a different cash management, keeping more cash in the property.

Although not widely known in the hospitality industry, now may be the time to start this discussion with your suppliers. I see it as a win-win situation that benefits both parties: one forking out less cash, the other being ensured of continued business.

Some invoices may be worth paying in instalments, instead of in one lump sum.

Insurances can be paid per month, same as with certain taxes.

In some countries today, breweries have decided that the cafés and restaurants they own should not pay rent for 1, 2 or 3 months. This is certainly something worth pursuing with

your landlord. Whereas in the past a landlord may have thought of the rent in an unemotional way, knowing he could easily find new tenants, this situation is different. It affects every player in the market and, coming out of this crisis, there may not be so many candidates for rent.

4. Talk to your team, regularly updating them on what it is you are doing and how they could help.  After all, their livelihood is also at stake and they suddenly face as much uncertainty as you do. They may have solutions or thoughts that could help the business.

It would also be beneficial to see how, in respect of local labour laws, the worktime can be rearranged if and when business picks up again, as we all anticipate that a slow recovery will probably be the most realistic scenario.

Philip Gebu is a Tourism Lecturer. He is the C.E.O of FoReal Destinations Ltd, a Tourism Destinations Management and Marketing Company based in Ghana and with partners in many other countries. Please contact Philip with your comments and suggestions. Write to [email protected] / [email protected]. Visit our website at or call or WhatsApp +233(0)244295901/0264295901.Visit our social media sites Facebook, Twitter and Instagram: FoReal Destinations

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