Building Resilience – Adapting to Climate Change, Mitigating Risks, and Shocks

Introduction

Research indicates that 43% of businesses never reopen after a disaster, and 25% of the companies that do, fail within a year.¹ The lockdowns and social distancing restrictions imposed by governments in response to the COVID- 19 pandemic crippled local and international trade and led to substantial declines in purchasing power from job losses and reductions in remittances. Farmers faced challenges accessing inputs, such as seeds and fertilizer, at the beginning of the planting season and reaching markets for their produce. In countries such as Nigeria, Gabon, and Angola, the oil price shocks that coincided with the beginning of the COVID-19 pandemic led to local currency devaluations and a significant contraction of the economy, further worsening the situation. These shocks further exposed the fragility of the African food ecosystem and led to the partial and full closure of many businesses.

The sad reality is that risks, shocks, and crises are the new normal in the food and agriculture landscape. Clearly, we can only expect more human- made and natural disasters linked to climate change, future pandemics, economic shocks, and social crises. This chapter will highlight strategies for building your resilience as a business leader and provide you with systems and structures for strengthening your company’s ability to withstand future crises.

Building resilience as a business leader

A 2020 publication by Deloitte² described resilient leaders as

genuinely, sincerely empathetic, walking compassionately in the shoes of employees, customers, and their broader ecosystems. Yet resilient leaders must simultaneously take a hard, rational line to protect financial performance from the invariable softness that accompanies such disruptions. Resilient leaders take decisive action - with courage - based on imperfect information, knowing that expediency is essential.

The lessons from entrepreneurs who continued to thrive despite COVID- 19 and climate change shocks reveal that they possessed a few critical attributes and values outlined in this quote. More specifically, they had faith that they would survive the crises and even would thrive through it. They were life-long learners who acquired knowledge and, as a result, could anticipate risks and effectively mitigate or adapt to them. They could clearly articulate their vision and passion for the company before, during, and after the crises. These entrepreneurs were agile, ready to respond to disasters, and prepared to work with others in the ecosystem to solve problems effectively. They demonstrated empathy in terms of how they engaged with their team members, suppliers, distributors, and customers, giving them confidence about their effectiveness as leaders and showing that they cared about these stakeholders in both the short-, medium-, and long-term. In addition, these entrepreneurs were effective communicators and had strong interpersonal and relationship management skills.

Box 8.1: SNAPSHOT OF COMPANY RESILIENCE IN APRIL/MAY 2020 DURING COVID-19 FROM THE NOURISHINGAFRICA.COM HUB

Farm Fresh (Gambia)

Farm Fresh is the first physical and online (delivery) fruit and vegetable store in Gambia.

While the company experienced a drastic reduction in in-store customers, their online sales and delivery increased by 400%. Led by founder Modou Njie, Farm Fresh also created a series of popular packages including the “Stay Home Package,” which included 14 staple and popular products (i.e., rice, sugar, potatoes, onions, cooking oil, tomato paste, corned beef box, sardines, powdered milk, tea, coffee, mayonnaise, and butter); and the “Immune System Booster Package” comprising of moringa powder and assorted fruits.

Shambapro Limited (Rwanda)

Shambapro is an agtech company that provides farmers with access to quality farm inputs. Through its online platform, farmers can search, order, and pay for farm inputs by Mobile money and have their purchases delivered to them anywhere in the country.

During the COVID-19 crisis, once agriculture was deemed an essential service in Rwanda, founder, Kelvin Odoobo, saw a new selling opportunity for the company’s e-commerce platform, aggressively turning to popular social media platforms in Rwanda, including Twitter, Facebook, and WhatsApp, to promote its products, direct more traffic to its portal, and engage with potential clients who were now spending most of the time online because of the lockdown. Based on the feedback and validation of this tactic, Shambapro proceeded to create and launch a new product called Shambapro Urban Home Garden Kits - a packaged bundle of seeds and services delivered to urban homes aimed at helping them engage in farming and serve an assortment of fresh organic vegetables on their tables. Shambapro now supplies everything needed for the customers to set up an urban farm in their homes, help them set up, and give them online management tips.

Agrimod Solutions Centre (Kenya)

Agrimod Solutions Center is a Kenyan based organization that provides specialized services in organic farming systems and technologies to agripreneurs toward promoting food security, environmental sustainability, and biodiversity.

Because of the need for social distancing, Agrimod's expert trainers shifted focus from field training to online conferencing via Microsoft Teams because of the pandemic. The Agrimod experts interact with agripreneurs over some time per day, sustaining its client base and driving new interests. According to Agrimod founder David Adeoye, “the response is so overwhelming, and we are certain to carry on beyond the pandemic." Agrimod Solutions has been able to reach a wider audience because of its move to digitizing operations.

In addition to clear attributes and values, entrepreneurs who thrived during

the COVID-19 pandemic took decisive actions in response to the shocks.

• • They ensured the health and well-being of all employees and other critical stakeholders: This demanded a change in work- styles and workplace engagement, from shifting to remote work and embracing digital tools for communicating with and serving farmers, customers, and other stakeholders, to changing their entire business models and operations to decongest their factories and ensure social distancing.
• • They stabilized their businesses and adapted to the new realities: This included renegotiating loans, supplier and distributor agreements, and payment terms to preserve cash and to cut unnecessary costs to ensure business continuity and give confidence to customers and employees. They also pivoted their business model to respond to the changing needs of the consumer or customer and address new gaps in the market. During COVID-19, some palm oil producers started manufacturing soap, using their valuable raw materials, given the increased focus on handwashing. Biscuit manufacturers, recognizing the shift away from snacks given the lower purchasing power of consumers and price sensitivity, introduced bread options.
• • They built resilience into their business: These entrepreneurs invested in technology, innovation, insurance, and currency hedging strategies. They also engaged in scenario planning, considered worst-, base-, and best-case scenarios, and developed mitigation and adaptation strategies to mitigate risks.
• • They worked with other industry actors to shape their ecosystems:

Recognizing the urgent need for an enabling policy environment that support entrepreneurs during shocks and crisis, the entrepreneurs worked directly or through industry and sector associations to shape policy transformation and implementation. More specifically, they wrote articles and opinion pieces, engaged in webinars and policy dialogues, and joined committees to ensure that agriculture and food were considered essential and that appropriate policies were developed to support the sustainability and growth of the sector. They also supported governments at the local, state, national, and regional levels to reimagine and plan for a different future and actively tracked the implementation of policies to ensure coherence, transparency, and a level playing field.

As an entrepreneur, you must make a concerted effort to build your resilience as a leader and to imbed risk management into your company’s DNA. Complete the worksheet below for an honest assessment of where your company stands on some key indicators.

WORKSHEET 8.1: HOW RESILIENT IS YOUR BUSINESS?³

Company Data

Have you:

• • Maintained updated emergency contact information for employees, vendors, suppliers, customers, and other key contacts?
• • Made accessible all important data or files for decision-making if you were unable to access your facility?
• • Organized all your critical documents and information so they are easily accessible when needed most?
• • Regularly backed-up your data. Is your data stored in a reliable place? Is your data easily accessible remotely?

Employee Engagement

Have you:

• • Put in place systems and structures to protect your employees and keep them safe during a health, social, or economic crisis or a natural disaster?
• • Assembled a "team” of individuals within the business who know key operations and can provide important perspectives when planning for and responding to disasters?
• • Assigned someone to lead business disaster planning efforts for your business? Do you have trained employees to assist (e.g., respond to injuries, evacuate the building) when an emergency occurs?
• • Maintained emergency supplies for your businesses to address immediate needs, such as if employees are unable to go home?
• • Encouraged employees to be prepared at home? Do you have the basic medical records of all your employees? Do you have an emergency medical coverage for all your employees?

Risk Management

Have you:

• • Identified and prioritized which business operations are critical so you know what to recover first, second, etc.?
• • Identified the possible hazards (natural and man-made) that could interrupt your business?
• • Developed continuity or emergency procedures so you can continue to provide products or services after a disaster? Put a current continuity/ emergency/disaster plan in place?
• • Maintained procedures to communicate after a disaster with employees, suppliers, vendors, customers, and the public?
• • Taken steps to safeguard against potential damage to your equipment, buildings, or facilities?
• • Protected produce/farmlands/inventory/ storage from theft, loss, or damage?

Ecosystem Engagement

Have you:

• • Established partnerships with other businesses, industry associations, government, and/or community organizations that can serve as resources when the next crisis arrives?
• • Do you have the phone numbers of the leadership of these entities?
• • Are you aware of what support structures, policies, and programs to help companies in need?
• • Can you help shape how these interventions are being designed to help companies such as yours?

Environmental

Have you:

• • Identified the environmental risks and opportunities associated with your business in relation to your host community?
• • Established the appropriate management system, procedure, and policies to mitigate the risks and enhance the opportunities?
• • Identified the appropriate management practices to mitigate and/or absorb the climatic, social, and market shocks of your business/farm operations?
• • Put in place a health and safety policy and procedure for your suppliers, vendors, customers, and the public? Is it strictly adhered to?
• • Identified gaps to ensure effective adherence?

Social

• • Do you have a grievance mechanism in place to receive and address complaints from your employees and other external stakeholders?
• • Does the system effectively address all complaints fairly?
• • How often do you communicate with your value chain stakeholders?

Building financial resilience

A key reason many businesses die following a crisis is because they cannot meet their financial obligations to their suppliers and employees. While many entrepreneurs recognize that “cash is king,” they struggle with managing their financial resources during periods of uncertainty. Following the six steps outlined below will enable you to build your company’s financial resilience.

Build and protect your savings buffer: Ensure that you have at least 4-6 months of cash to sustain business operations, assuming that there are no new inflows. This requires that you provide incentives for customers to prepay for products or services and ensure faster cash collection cycles. You must also identify customers with large outstanding balances and aggressively follow-up while instituting clear policies around late payment penalties. In addition, leverage technology to foster online orders and payments to enhance the effectiveness and efficiency of future sales.

When funds are generated, they should be invested in low-risk savings tools such as fixed deposits or money market accounts so that they are easy to access with minimal costs for early withdrawals. Some African banks provide double-digit returns for sizable fixed deposits. Entrepreneurs should actively identify such opportunities to generate some investment income from the cash held in their bank accounts.

If you have significant cash available, consider investing in fixed assets, such as land and buildings, for your business or purchasing stocks and bonds for short-term investments, which could ultimately appreciate and generate funds for future use.

In addition, invest in currency hedging strategies, especially if your business operates in an environment with significant risks of devaluation. This often requires saving in foreign currency and ensuring that some customers also pay for your services in more stable currencies.

Invest in insurance: This includes life, health, and property insurance, with coverage for your factory, office premises, raw materials, machinery, and vehicles. Always identify credible insurance providers, compare insurance policies, and negotiate for reduced premiums. Also, form the habit of updating your asset register and maintaining open communication lines with your insurance representative to ensure that you have a good understanding of the requirements for claims, including timing and documentation.

Actively manage your costs: Ultimately, businesses that survive and thrive are those that have efficient and effective operations and can deliver products and services at a low cost without sacrificing value. As a result, every month, review the fixed and variable costs in your business and work with your team to explore opportunities to reduce or eliminate them. Set clear targets for specific expenses as a percentage of income, including administrative overhead, staff salaries, marketing, etc.

Manage your debt and all cash outflow obligations: This includes renegotiating existing loans and future credit facilities with your bankers. During COVID-19, some entrepreneurs were able to renegotiate the terms of their loans with their financial services providers and engage with their landlords to reduce their rent or extend their lease agreement at no additional costs.

You must also manage your supplier relationships, including requesting for supplier credit, extending accounts payable, and ensuring cancellation or service suspension clauses into all future contracts.

Invest in regular scenario planning: Most entrepreneurs create positive scenarios when planning their year. However, you must invest in regular scenario planning, assessing the best-, base-, and worst-case possibilities from a cost and revenue perspective. Based on the outcomes of this planning, prepare your business to strive for the best. Institute systems and structures to ensure that your company can survive the worst-case scenario from a liquidity and operational perspective.

Actively seek out opportunities for support: Through hubs like Nourishingafrica.com, explore what grants, subsidies, and loans are available and the eligibility requirements every month. During the COVID-19 pandemic, local and international funders provided a range of recovery funds and incentive programs for entrepreneurs in the food and agriculture sector that were ready to pivot their operations. While a considerable number of entrepreneurs were well positioned to maximize these opportunities, because they had invested in instituting the systems and structures required to demonstrate investment readiness, others were not.

WORKSHEET 8:2: ASSESSING YOUR FINANCIAL RESILIENCE

• • How many months of operations can your savings buffer cover?
• • What investment tools have you utilized to manage this savings buffer?
• • How are you managing currency risk?
• • How often do you prepare, review, and analyze financial statements, including the profit and loss statement, balance sheet, and cash flow statement?
• • Do you actively track key indicators, including payable and receivable days and ratios, such as working capital and stock/ inventory turnover?
• • Do you prepare and review 3-, 6-, and 12-month cash flow forecasts using best-, worst-, and expected-case scenarios? How does this scenario planning affect the decisions that you take daily?
• • How often do you update cash flow forecasts to reflect actual events and monitor ongoing cash positions?
• • What steps have you taken to increase cash inflows and minimize cash outflows?
• • If sales dropped by 20%, a major customer exits, or an important supplier is unable to deliver, how long can your business endure these losses?
• • What systems and structures do you have in place to ensure prepayments for products or services or to minimize bad debt?
• • Do you utilize credit checks on new customers, and have you instituted limits for new/existing customers?
• • How frequently do you assess your customers based on their timely payments?
• • How do you leverage technology to maximize the efficiency of engaging with your customers and ensure prompt payment?
• • What insurance coverage does your company currently have in place? Health, life, property, inventory, raw material, car, etc.?
• • What systems and structures do you leverage to manage costs?

Adapting to climate change

As discussed in the introductory chapter, of the ten countries considered most threatened by climate change globally, nine⁴ are in Africa. The recent floods, droughts, and locust infestations that have plagued most of the continent over the past few years reinforce the reality that climate change can completely reverse the advancements in the agriculture and food ecosystem unless urgent action is taken.

As entrepreneurs in the food and agriculture landscape, we must all become climate champions, driving behavior change in our companies, communities, and the broader ecosystem, as well as embracing innovations and technologies that support climate adaptation in Africa.

This will require that you address the inherent risks in your product offerings, supply chains, and distribution channels. For example, if your company uses plastic packaging for your products, you must consider more environmentally friendly options. The governments of Rwanda and Kenya recently banned plastic bags, and companies were compelled to adapt to this new reality. Similarly, you must invest in creating recyclable products and packaging and revamping your production process to conserve energy, recycle water, and minimize pollution and waste.

In terms of securing your crop yields and supply chain, partner with local research institutions and extension agencies to explore the potential to revive traditional farming practices that are sustainable, regenerate degraded soils, and are tailored to local environments. Farmers like Yacouba Sawadogo⁵ of Burkina Faso, who received the Right Livelihood Award in 2018 for his use of indigenous and local knowledge to regenerate degraded soils, demonstrate what is possible when entrepreneurs leverage homegrown solutions to solve problems. Yacouba used “zai” - traditional planting pits for soil, water, and biomass retention to transform deserts into almost 40-hectares of vibrant forests.

In addition, leverage the range of improved seeds, weather forecasting tools, and technology tools outlined in Chapter 4 to prepare for weather changes and minimize your risks. Finally, partner with other key stakeholders in your ecosystem to advocate for decisive action from the local, state, national, and regional governments to promote climate-smart agriculture. This should include appropriate policies and initiatives that protect the environment with clear incentives and disincentives for companies that do not comply.

Enhancing your resilience by becoming an inclusive business

Shocks like COVID-19 often compel entrepreneurs to reexamine their business models - given the changes in the ecosystem and the pressure to provide products and services to customers and clients who are dealing with their own crises. An in-depth assessment of companies that appear to have withstood these shocks reveals that there are inclusive businesses - they provide

access to goods, services, and livelihoods for low-income and vulnerable people at the base of the economic pyramid. By integrating the base of the pyramid into their value chains and focusing on them as customers, inclusive businesses deliver sustainable development impact⁶.

There are two critical components of their business models that set them apart and ensure that they survive and thrive during shocks. First, they have invested in local sourcing from smallholder farmers and have built strong local ecosystems composed of small- and medium-size enterprises (SMEs) to support logistics and other aspects of their operations. As a result, despite the increasing levels of protectionism and restrictions in global trade, their businesses have faced minimal production disruptions. For example, Nigerian Breweries Pic. (Heineken) has benefited from its decades of investment in local sourcing of sorghum and cassava starch, instead of dependency on imported malted barley and its relationships with local SMEs. The company works directly with smallholder farmers and provides logistical support, ensuring raw material availability to keep its factories operational.

Second, these businesses invested in developing products and services to meet the needs of customers at the bottom of the pyramid (BOP). They had also built out extensive distribution channels to ensure widespread availability. These prior investments ensured that they could retain their customers and benefit from strong sales growth during the pandemic when many other competing products were considered unaffordable. Given the rampant job losses and declines in remittances that affected the purchasing power of many households, these companies even gained new customers during the crisis. This proved to be the case for AACE Foods, which has experienced increased demand for its single-serve spice products, such as its jellof rice, fried rice, curry, and all-purpose spices sachets, which cater to BOP consumers.

As outlined on the InclusiveBusiness.Net⁷, there are eight critical questions that entrepreneurs must answer to assess whether their business models are inclusive:

• 1. Does your company reach people at the base of the pyramid?
• 2. What role do people at the base of the pyramid play in your company’s value chain?
• 3. To what extent are people at the base of the pyramid a focus of the business?
• 4. Does the business model deliver impact to the base of the pyramid?
• 5. How profitable and bankable is your business model now or in the future?
• 6. How does the company perform along environmental, social and governance (ESG) criteria?
• 7. Is the business model replicable to reach scale and systemic impact?
• 8. Is the business model innovative in reaching the BOP, providing competitive advantage?

Agriculture and food entrepreneurs in Africa have to work collaboratively with other key actors in the public, private, and nonprofit sectors to promote local sourcing. This will not only ensure healthier diets but also improve the lives of farmers. These interventions can be patterned after Brazil’s successful Food Acquisition Programme (PAA) and the National School Feeding Programme (PNAE). These programs link the supply of produce from smallholder farmers to the demand of institutional procurement for food-based safety net and school feeding programs.

Summary

You can only expect more human-made and natural disasters linked to climate change, future pandemics, economic shocks, and social crises. However, your businesses’ ability to withstand these shocks is hinged on the choices that you make as a leader today. Indeed, your decision to invest in the systems and structures to strengthen your operational and financial resilience and in building inclusive business models hinged on local sourcing, innovative BOP products and services, and distribution strategies that engage and serve low-income populations will enable your company to survive generations.

Notes

• 1 US Chamber of Commerce Foundation. (2017) Resilience in a box: Strengthening communities globally [Online]. Available at: https://www .uschamberfoundation.org/sites/default/files/media-uploads/Resilience %2oin%2oa%2oBox%2oChecklist%2ofor%2oBusiness%2oPre pared ness.pdf (Accessed: 25 July 2020).
• 2 Renjen, P. 2020. “The heart of resilient leadership: Responding to COVID- 19,” Deloitte Insights, 16 March [Online]. Available at: https://www2.deloitt e.com/us/en/insights/economy/covid-19/heart-of-resilient-leadership-re sponding-to-covid-ig.html (Accessed: 25 July 2020).
• 3 Adapted from the US Chamber of Commerce Foundation. (2017) Resilience in a box: Strengthening communities globally [Online]. Available at: https:/ /www.uschamberfoundation.org/sites/default/files/media-uploads/Resil ience%2oin%2oa%2oBox%2oChecklist%2ofor%2oBusiness%2oPre paredness.pdf (24 July 2020).
• 4 Nugent, C. (2019) “The 10 countries most vulnerable to climate change will experience population booms in the coming decades,” Time, 11 July [Online]. Available at: https://time.com/5621885/climate-change-popula tion-growth (Accessed 24 August 2020).
• 5 The Right Livelihood Foundation. (2018) Yacouba Sawadogo [Online]. Available at: https://www.rightlivelihoodaward.org/laureates/yacouba- sawadogo/ (Accessed: 24 August 2020).
• 6 Geaneotes, A., & Mignano, K. (2020) “Leveraging inclusive business models to support the base of the pyramid during COVID-19,” EM Compass, 84, International Finance Corporation [Online]. Available at: https://ww W.ifc.org/wps/wcm/connect/co3a2420-d82e-448o-8dd4-e5c9oe5a2ioe /EMC0mpass_N0te-1-84-LeveraginglnclusiveBizM0dels-COVID_FIN.pdf ?MOD=AJPERES&CVID=n8PTSeg. (Accessed: 24 August 2020).
• 7 Sobhani, S. (2019) “What is inclusive business anyway?,” Inclusive Business, 4 September [Online]. Available at: https://www.inclusivebusiness.net/ib -voices/what-inclusive-business-anyway. (Accessed: 24 August 2020).