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Zambia's Default Fears
African 'debt tsunami' - Zambia

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Zambia's default fuels fears of African 'debt tsunami' as Covid impact bites

This article is more than 6 months old

Aid agencies say debts should be restructured or cancelled due to the pandemic and warn other countries could follow

People await for food to be distributed by the World Food Programme and World Vision in Simumbwe, Zambia, on 22 January.
People await for food to be distributed by the World Food Programme and World Vision in Simumbwe, Zambia, on 22 January. Photograph: Guillem Sartorio/AFP/Getty
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Bill and Melinda Gates Foundation
About this content
Ollie Williams
Wed 25 Nov 2020 07.15 GMT

Zambia has become the first African country to default on its debts since the pandemic, leading to fears that a “debt tsunami” could engulf the continent’s most heavily indebted nations as the financial impact of coronavirus hits.

A hastily-arranged G20 finance minister meeting in Saudi Arabia failed to sort out Zambia’s debt, after the southern African country missed a $42.5m (£32m) coupon payment on its bonds in October. Missing another payment on 14 November meant a technical default.

Zambia’s finance minister, Bwalya Ng’andu, was quick to blame the banks and asset and fund managers who wanted to see more transparency over an estimated $3bn debt to China, but who refused to sign the necessary confidentiality agreements, he said.

‘People are suffering’: G20 to call on private lenders to suspend debt repayments
Read more

Ng’andu said on state television, “The position of the Chinese banks is: ‘You’re not going to give anybody any information without the confidentiality agreements in place’.”

 Zambia External Bondholder Committee, a consortium of lenders that own 40% of Zambia’s outstanding Eurobonds, said in a statement they had had no direct discussions with authorities. As a result, the “lack of engagement and transparency does not provide for the conditions that would otherwise allow bondholders to consider providing near-term relief”, they said.

Other organisations, including the International Monetary Fund (IMF) and World Bank, have said Zambia has taken on more debt than it could handle. Even before the pandemic, Zambia was due to pay $1.7bn to service its debts this year – equating to more than 8% of the country’s GDP for 2020.

But coronavirus plays a key role in the recent default. As financiers negotiate with finance ministers over repayment terms, the virus is depleting Zambia’s already fragile healthcare resources.

“As I speak it’s raining outside,” said Eneya Maseko, a programme manager for Oxfam in Zambia, who said the arrival of the wet or rainy season would bring additional challenges like cholera and potentially a second wave of Covid-19. So far Zambia has recorded almost 18,000 cases of the virus.

“This era we’re in comes with serious health challenges. We need healthcare providers to have some level of preparedness,” Maseko said.

But the Zambian government is now debating a budget that would see less money spent on healthcare and more on servicing debt repayments.

“It is simply immoral for bondholders to demand full repayment and to make huge profits on Zambia’s debt while the country struggles with Covid-19, a major economic crisis and spiralling poverty levels,” said Sarah-Jayne Clifton, director of the Jubilee Debt Campaign, which estimated that some financial institutions will make a 250% profit on their Zambian bonds.

Africa leads calls for debt relief in face of coronavirus crisis
Read more

Neighbouring governments are rattled: if Zambia has had to default, they could too.

“Ghana looks very risky to me,” said Tim Jones, head of policy at the Jubilee Debt Campaign. He said Angola, Chad and Congo-Brazzaville were also at risk.

separate study by the Institute of International Finance warned of a “debt tsunami” as global indebtedness topped $277tn in the third quarter of this year. In emerging markets, which are more likely to default, debt has risen by more than a quarter.

This potential wave of defaults could have catastrophic effects on already fragile healthcare systems, aid agencies warned.

“At a time when hospitals and healthcare systems are buckling under the strain of Covid-19, it is perverse that poor countries are having to pay $3bn a month in debt repayments to rich banks, investment funds or the World Bank, while their populations fall further into poverty and destitution,” said Chema Vera, Oxfam International’s interim executive director. “Debt needs to be cancelled, postponing it is futile.”

“The UN security council could pass a resolution to compel private creditors to accept a debt restructuring,” said Jones, who argued that private lenders are proving the hardest to negotiate with when it comes to debt restructuring deals.

The terms of Zambia’s default will be negotiated next month when the IMF visits the country to discuss a potential $1.3bn loan. These terms could provide a template for other countries that are on the verge of default.

“For the ordinary Zambian those things they require to live a decent life and be in good health will be very difficult to expect from government,” said Maseko. “I am really struggling to think of a worse case scenario.”

Self-Funding or Loan:
Which Should You Consider for Your Business

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Self-Funding or Loan: Which Should You Consider for Your Business By Daniel Chukwuemeka Madu

Running a business requires funds. As such, you will need an appropriate source of monetary access to set up and maintain your business. The amount of funding you'll need will depend on the size of the business. However, one thing is sure, whether you want to run a small-scale startup or go all in and start a big brand, you'll have to decide which type of funding you'll opt for.

To access funds for your business, you will either have to self-fund your business or get a loan through banks or investors. In this article, we'll highlight some of the factors to consider when choosing which funding option is the most viable for your business and general financial life.
Factors to Consider When Choosing a Funding Option

Below are some of the circumstances that can suggest the type of funding you should opt for. Note that this is not a completely exhaustive list. They include:

The Nature of Your Business

The type of business you want to run will play a key role in whether you'll need to self-finance or seek a loan. If you're starting a small-scale business that you can run alone, servicing the business from your savings may be the right choice. This is because you can cut costs and do some things yourself while having 100% ownership of your business.

On the other hand, if your goal of business is developing a large brand that employs a series of staff, you may seek to get a loan or investors. The sheer size of your business may swallow your personal finance without getting to the level you may want your business to be. As such, you should consider getting a loan for a big business venture.

Your Financial Capacity

Before you decide on your funding option, you should consider placing your financial strength against the monetary requirements of your business and know if you can still have at least 50% of your savings intact by the time you finish funding your business. If your savings go below 50% then maybe you'll need to get a loan.

Available Collateral at Your Disposal

You may be seeking to run a capital-intensive business and so must need funding from a loan system or through investors. In view of this, you will need collateral that you will pledge as security for the loan to be issued to you by your lender. Most times, there is a provision for a loan based on the collateral you have and the possibility of recouping the loan plus interest. If you don't have collateral, a friend or acquaintance may help you in exchange for a deal. In a case like that, ensure that every agreement is well documented to avoid misunderstandings in the future.

Advantages of Self-Funding

There are several advantages to financing your business and they include:

You gain 100% control over your business when you self-finance it. No lending institution can lay ownership or control of your business
You can channel the potential interest you should have paid in loan servicing into expanding your business 
You'll be compelled to live within your means since you are the one financing your business from your pocket

Disadvantages of Self-Funding

Financing your business from your pocket puts a strain on your family's financial status. You may struggle to cover your living costs
You're always on the brink of losing your finance if your business fails
You may not have the opportunity to tap from the networking and mentoring resources of investors.

Advantages of External Finances

There is a potential for exponential growth. The funds from loans and investors can propel your business to a greater level
You'll gain insight and connection from investors who would not want their investment to fail
Your personal financial status will have stability.

Disadvantages of External Finances

You may not have the full control you need over your business
You risk losing your collateral if you're unable to redeem your loan
Your business may suffer from the constant removal of funds for debt servicing.

Final Verdict 

If your company is a small business startup, you may not feel the financial brunt of servicing the monetary requirements of the business from your pocket or personal savings. However, you should also consider the issue of putting all your eggs in one basket. If your business fails, you may go down with it. Also, if you have a family, you need to consider the effects that funding your business from your savings will have on their life and yours. While you may have solid faith in your business scaling, you shouldn't toy with the possibility of putting the financial burden on your family except if you can finance your startup enough to have something left for you and your family.

Meanwhile, a lot of thriving businesses took loans from investors to establish and expand. Business is all about risk-taking and you may not scale on your business without risks. As such, you can take a loan and improve your business. However, first take a look at your business from an outsider's perspective and decide if your idea is logically plausible before committing to a loan from investors.

Business Tips to Ensure Returning Customers
Business Tips

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Business Tips to Ensure Returning Customers 


Written by Daniel Chukwuemeka Madu

To grow and sustain your business, there are some deliberate business actions that you should take. Some of these actions may include maintaining quality products or services, running strategic advertisements and PR, maintaining proper business funding, and so on.

However, another factor that also contributes significantly to ensuring your business stays afloat is having a solid base of returning customers. With a deep-rooted structure of loyal customers, your business will thrive beyond your competitors. The good news is that there are strategies to ensure that you grow the base of your returning customers.

Who are Returning Customers

Returning customers are those loyal individuals that steadily patronize your business by making purchases. With returning customers, you don't necessarily need to preach to them about the quality of your goods and services, they already know and are coming back to buy. While returning customers take a while to build, they are important cogs towards ensuring your business grows and thrives.

Returning loyal customers are important because they increase the probability of the next purchase from your business and they are more cost-effective than getting first-time customers. Moreso, loyal customers are also more likely to refer your business to their families and friends. 

Tips to Building a Base of Returning Customers
So now you know the importance of returning customers, let's highlight some tips to help you ensure you grow the number of returning customers in your business. They include but are not limited to these:

1) Prioritize Excellent Customer Service

One of the leading factors that determine whether a customer returns to patronize your business or not is the quality of the customer service you've rendered. Quality customer service gives your customers a strong sense of value within your customers and the reward is often a show of loyalty. Most people cannot resist returning to a business enterprise where they are treated like royalty. 

Some of the ways you can execute good customer service could be through;

Being friendly

Respond promptly to any issues or inquiries that your customers may have. Offer incentives like free samples of your product or service, handwritten notes of appreciation, adding something extra to your customers' package, and so on. Offer a special discount on your products or services once in a while.

While offering incentives and special discounts are good from the perspective of a customer, you should try to find a balance and not offer too many incentives to the detriment of your business.

2) Respond to Feedback

Feedback about your business is an important gauge of how your customers feel about certain parts of your business. As such, you should find appropriate channels that your customers can use and relay the feedback that they have about your business. Ensure that there is also an outlet that lets them know that their feedback has been heard. Social media is a good tool to gather customer responses and feedback.

3) Personalize Communication

Another classic strategy for winning customer loyalty is through effective communication. You should consider personalizing your communication by addressing your customers by their names when talking to them. 

Also, note your customers' preferences and keep up with them, remember significant dates in your customers' life like birthdays and anniversaries and celebrate them. There are many other ways you can personalize your communication with your customers depending on your type of business.

4) Utilize the Power of Social Media

Social media has become an indispensable tool that businesses can use to both markets their brand and also keep up with their existing customers. However, simply having a social media account is not enough to attract and keep customers, you need to be actively engaged. 

Apart from showcasing your products and services on your business social media profile, you can also use social media to respond to clients' feedback and concerns. No matter how trivial the concerns may be, as long as it has to do with your business, you should find an appropriate way of replying and calming frayed nerves.

Understandably though, you may find it difficult to keep up with the day-to-day operations of your business and still have time for social media. As such, you can always hire a professional social media manager to handle that branch of your business. The social media platforms you can use depends on your type of business. However, top social channels include Twitter, Instagram, Facebook, YouTube, Pinterest, and so on.

5) Analyse Trends in Your Business Niche and Keep Track of Your Competitors

It is important to analyze trends in your business niche and improve accordingly. You should be flexible to adapt to the changing business landscape while also keeping your customers in mind.

In the same vein, keep track of the activities of your competitors and borrow some strategies that they employ in serving their customers.  

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