Afsar Azize Abdulla Ebrahim “A turnaround exercise gives the company a chance of survival”
Immunization campaigns around the world play a huge role in restoring confidence in the global economy, observes the Director and Founding Partner of Kick Advisory Services. For Afsar Ebrahim, given its small size which limits its growth, the Mauritian economy is in dire need of foreign capital and investment. Likewise, we need to expand our market by refocusing on Africa. He also insists on the need to strengthen the partnership between the public and private sectors.
After contracting 15.2% in 2020, the Mauritian economy will begin a slow recovery. The latest estimates from MCB Focus show growth of 6.3% this year. Do you fall into the category of optimists or pessimists?
Of course I am and remain optimistic! The whole world has come to a standstill, but there are now signs that the health crisis will most likely be brought under control in the coming months. Vaccination campaigns launched around the world are playing a huge role in restoring confidence in the global economy. Regarding Mauritius, 25% of the economy has literally stopped. However, thanks to the combined efforts of the authorities, the private sector and the people of Mauritius, our country has remained ‘Covid Safe’ to this day. This bodes well for the recovery. Once the vaccination protocol is established, I think that the confidence and the tourists will return, even though we are far from our traditional markets and our recovery depends on how these markets cope with the health crisis as well as the desire of their citizens to travel long distances. The other challenge relates to access to air transport and the willingness of airlines to come to us. There is no such thing as a post-Covid period, but the risk management and trade-off we are willing to accept should show signs of recovery, but 2021 looks like another lost year, much worse than 2020, which has seen an aggressive first trimester. Our other traditional sectors, such as the textile industry, are expected to experience positive developments and the depreciation of the rupee will give the export sector a big boost. The construction sector will remain, I think, difficult unless massive investments are made in infrastructure. Financial services remain our bright spot, even though the blacklist is a major problem. So far, this sector has shown resilience and has continued to persevere. In my humble opinion, it can provide the necessary boost to the economy by becoming the engine of growth.
“The Covid-19 caused all savings to press the reset button” – Afsar Azize Abdulla Ebrahim.
What shapes should the stimulus curve take: U, L or saw-shaped?
It is difficult to give a definitive answer because there are so many things and variables that need to be considered at the same time. I call with all my vow for hockey stick curve growth over the next five years, but right now our small economy seems to be blocking growth. For real growth, we need capital, foreign investment and foreign investors to settle in Mauritius. We should also expand our market by refocusing on Africa and see how to get the most out of a new strategy. Covid-19 caused all savings to hit the reset button. There are many advantages that we must take full advantage of. One of them is the fact that the private and public sectors have traditionally worked together to move the country forward. We must continue to build on it. As we move forward towards our future, we cannot do things like in the past. I believe that a clear vision with a well executed strategy should get the economy back on track.
After ten extremely tense months, have you noticed a return of confidence within the business community?
There were indeed problems, but we must realize that the general global context is unprecedented. As I said, since our independence we have seen the country overcome incredible challenges when the public and private sectors worked in tandem. This time around, I believe it is again the key factor in Mauritius’ success. It is a competitive advantage that we must not allow to erode. Since Independence, we have had so many new entrepreneurs, so many new businesses, so many high value-added jobs created and today we have a growing middle class. In addition, we can rely on a pool of entrepreneurs, business leaders, professionals who work hard; they are fully committed Mauritians. Covid-19 has had a negative impact on everyone, but we need to refocus, realign our common interest and put our efforts at the service of a common goal. All we need is “A few good men,” like in the Tom Cruise movie from the early 1990s (I mean men and women).
“The hotel sites are very well located, the management is world class and the level of service remains legendary” – Afsar Azize Abdulla Ebrahim.
The start of the vaccination campaign is synonymous with hope and suggests the possibility of the reopening of borders. Assuming that air flights resume their normal operations from the second half of the year, how long will it take before we can once again welcome large numbers of tourists?
I think tourism professionals are more qualified to answer this question. However, I think it will all depend on the reaction of the long-distance tourism market. The Maldives are responding well. A working group bringing together the public and private sectors is working hard to prepare the reopening of Mauritius to tourists. The readiness of tourists to travel, even to a ‘Covid Safe’ destination, remains a mystery. The Premium visa is an innovative way to attract these professionals who are highly mobile, which will help cement new demand. Mauritius remains a destination of choice, but with the demand crisis, the recovery could be slow as not only may demand take time to recover and accelerate, but also,
Hoteliers have been on a drip since the start of the crisis. Four groups have already reached an agreement with the Mauritius Investment Corporation and should be recapitalized to the tune of Rs 8 billion. Some fear a possible collapse of the Mauritian hotel industry owing to the fact that in the long term, operators may not be able to support their level of debt?
Operators are strengthening their own funds thanks to this recapitalization exercise. Let’s not be too negative: the hotel sites are very well located, the management is world class and the level of service remains legendary. The management of these hotel groups is made up of seasoned professionals, who are well equipped to face current challenges. I think that with the Mauritius Investment Corporation (MIC), the support of the banks and the commitment of the shareholders, the storm in this sector can be overcome. The challenge is how long the crisis will worsen. Business risks have worsened with Covid-19 due to a demand crisis that has increased the level of financial risk for companies that are highly indebted. Finding the balance will remain a juggling exercise, but there is always the possibility of bringing in new capital or even disposing of assets. However, in the current climate, these two options will amount to a “distressed transaction” and therefore destroying value. Operators have the opportunity to view the 2021 horizon with cautious optimism.
“I’m not sure we can revive the tourism industry without Air Mauritius” – Afsar Azize Abdulla Ebrahim.
The State tries at all costs a rescue maneuver for Air Mauritius, which is on the verge of death. Financially, how far will the national aviation company be able to hold when we know that we still have very little visibility compared to the reopening of the sky?
Air Mauritius is a textbook case in itself. It is the pride of the nation, but it seems to have grown over the years without any infusion of capital and it has continued to leverage its balance sheet through leasing. Even when it suffered the infamous hedging losses, no capital was injected. These losses were reimbursed through operating cash flow. From an accounting point of view, I think the current situation was inevitable. Administrators do a good job of reducing financial commitments. I’m not sure we can revive the tourism industry without Air Mauritius. I think all of Mauritius is hoping to see the administrators save our national company.
The government’s decision to postpone the moratorium on redundancies until next June has meant that we do not end up with a real social tragedy. But what will happen after the end of this moratorium? Will companies be sufficiently consolidated not to have to carry out degreasing operations?
Putting people first is a laudable strategy to prevent a humanitarian tragedy. That being said, some inefficient and loss-making businesses are currently being artificially kept alive at the expense of taxpayer incomes. There is no one-size-fits-all solution, as these companies are not currently insolvent. They could experience a cash shortage at the end of the moratorium, but that will depend on each operator and the industry in which they operate. It’s hard to predict how the future looks when there is no safety net, but we need to find ways to restructure: lay off 20 people to save 80 or risk losing 100 people altogether? This is the difficult compromise and I think the law should be flexible in order to save businesses rather than jobs. –Afsar Azize Abdulla Ebrahim
Due to a lack of cash flow, a large number of companies are in financial distress. What about the demand for restructuring exercises? What industries do they come from?
In the face of a major crisis, all businesses must press the reset button. We are facing two problems: a demand crisis and a slowdown in demand. In the first case, the balance sheet must be supported by a rescheduling of equity and debt with conversion of short-term financing into long-term financing, taking advantage of the moratorium and the disposal of non-core assets. . If it is a slowdown, the Profit & Loss account should be analyzed line by line by reassessing the margin, revising the cost calculation by activity, eliminating waste and reorganizing all the operations. In addition, the financial costs will be reduced as a result of the management of the capital structure. At KICK Advisory Services, this is the type of strategy that we help companies put in place. Nowadays there are many demands coming from various industries.
Should we expect an increase in demand for turnaround exercises in the coming months?
Recovery exercises should not be viewed as a negative development. On the contrary, they give businesses a chance to survive. There are many examples of successful turnaround strategies: Apple, Fed EX, Starbucks, and even Netflix. That said, yes, at KICK we believe there will be an increase in demand for this type of support for turnaround strategies.
“The financial services sector has all the ingredients to get the country out of its current situation” – Afsar Azize Abdulla Ebrahim.
At Kick Advisory Services, what methodology do you use to help struggling businesses get back on track?
We bring an entrepreneurial approach to our solution; which in itself is very practical. Our methodology begins with ensuring that, above all, we receive relevant, timely and reliable data. We test the assumptions of any forecast. We identify potential partners and prepare a business case to negotiate with banks for restructuring. We also provide strategic advice when needed. Business valuation is an essential part of our advice.
How are your SWOT analyzes carried out in this very special period?
The SWOT is not the solution but only a business assessment tool. The key these days is to apply an entrepreneurial and innovative spirit to find ways to address weaknesses in restructuring, and to do the same to capitalize on strengths. These are short-term, quick-impact measures, while containing immediate threats. If the business survives, we’ll look at the opportunities.
As Mauritius enters a new normal, how important is it for companies to change their business model?
A business model cannot be static. Often, business leaders become complacent because of their success and wait for a crisis to begin the thinking process. The Covid-19 has forced all business leaders to press the “reset” button. They had to adapt to a new standard by making their companies more agile, more responsive to changing market needs. They had to build a resilient workforce, with a mindset capable of facing adversity. Entrepreneurial leadership at the board level is paramount in these uncertain times to drive change.
As of October 1, Mauritius is on the European Union’s blacklist. So far, the impact on the banking and non-banking financial sector has been able to withstand the shock. While waiting for the “delisting” which will not take place before 2022, will the solution for the financial sector lie in its ability to move upmarket and offer products and services with higher added value?
Don’t get me started on this topic! Considering all the policies and rules that have been implemented, the inclusion of Mauritius on the European Union’s blacklist is beyond my understanding. We are all familiar with the hypocrisy surrounding high-level politics around this particular blacklist issue. No one will dare to call the Netherlands or Delaware a tax haven, or even the UK, and I will not comment on the possible geopolitical reasons for this listing. But the truth is, the Mauritius International Financial Services Center is well regulated, run by top notch professionals (except, I admit, for a handful of cowboys, but these exist in all jurisdictions) and that it is supported by our independent judiciary through a business-friendly legal framework. The new companies in the offshore sector were incorporated during the period of closure. That says a lot about the resilience of this sector. In fact, I firmly believe that the financial services industry remains our asset. It has all the ingredients to pull the whole country out of its current predicament. Its ability to create jobs and add value to the economy is phenomenal. We have already put in place the right legislation. All it really takes is some coordination of our offers in the market, light regulation, while continuing to comply with all money laundering and terrorist financing standards, and a clear “Go-to-Market” strategy. –Afsar Azize Abdulla Ebrahim
