Reality unusually seem more relatable to business owners than prospects for the future. Businesses are founded on the pillars of the future with the bricklaying of ideas, innovation, risks, test runs and skill upgrade, as an edifice of dominance, is constructed based on the successful prediction of these ideas and visions. They are what one may humorously call “economic fortunetellers” who ply their commodities on charts, graphs, pitches, researches and simulated test runs on their products and services which invariably become the future. In all their sixth sense and foresightedness, not a single business was prepared for the economic and financial shock lurking in the corner, and all it took was a sling of a carrier and a stone from a virus.
For what resembled a common cold which will blow over with some home remedy of ‘contain and treat’, it seems a boardroom of the best minds, suited up in well-meaning ideas couldn’t draft a convincing proposal to convince the COVID-19 investor to sign off the shares it has in the economy. The virus broke ranks and went for the juicer part of what controls and makes the world’s economy move on its stability axis- business. Invariably, businesses are the heart and lifeblood of any economy and if there are frictions within the space of transaction where there’s supposed to be exchange of goods and services, it will likely result in wears and tears in the long term.
It is an accepted fact that we have a pandemic situation on our hand, and likewise have we heard and seen the overwhelming decimation of human lives and heart wrenching occurrences in hospitals globally. With millions of people around the world in a virtual lockdown, there is an inevitable ripple effect of its impact in global economies and has brought a stark visibility of how operations, interactions, trade, commerce, transactions and international relations amongst countries globally, overlap in value and purpose. Revenues, profits, capital and liquidities all bear resemblance to a country’s viability, growth and supremacy by their interplay and interdependence on each other’s resources. Economic interdependence oils the machinery of nations and currently, countries are reviewing their trade policies whiles in the case of the United States, they are on the verge of decoupling with China on international trade. Manufacturing companies have had to either close down permanently or reduce workforce, businesses which are heavily reliant on daily transactions with consumers such as restaurants have been left high and dry, shops have had to cut back on losses and other companies are either encouraging staff to work from home or risk shutdown.
According to Investopedia,
“specific industries bear the brunt of the damage, shops and restaurants start to empty out, if not close their doors altogether. Non-essential travel slows down, curtailing revenue for not just airlines and business cruise-ship operators, but smaller businesses that rely on tourism revenue. However, those employed in seemingly unrelated industries can also feel the secondary effects of social distancing. For example, … banks may have to absorb more loan defaults as a portion of its customer base loses work. And oil companies see prices plummet as investors sense weaker demand”.
Measuring the effects of the pandemic
World Trade Organization (WTO) reports that Trade was already slowing in 2019 before the virus struck, weighed down by trade tensions and slowing economic growth. World merchandise trade registered a slight decline for the year by ‑0.1% in volume terms after rising by 2.9% in the previous year. Meanwhile, the dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion. In contrast, world commercial services trade increased in 2019, with exports in dollar terms rising by 2% to US$ 6.03 trillion. The pace of expansion was slower than in 2018, when services trade increased by 9%.
Currently, no one can comprehensively give precise definitions and statistics on the impact of the virus on businesses because the pandemic is an ongoing process, a “snowballing voyager” which doesn’t have a clearly defined destination or timeline, for now. Investopedia reports that, In the U.S for example, retail sales dropped by 8.7% in April, the greatest monthly drop since the government begun collecting data and the Federal Reserve confirms it by indicating it’s the worst dip in manufacturing output since the 1940’s.
The Organization for Economic and Cooperation Development last year, projected GDP growth in 2020 and beyond, but today, the picture is starkly different. It intimated that, “the path to economic recovery is highly uncertain and is vulnerable to another wave of infections. Two scenarios are likely: first, a second wave of Covid-19 hits, with renewed lock-downs, and world GDP plummets 7.6 % in 2020; the other, a second wave is avoided and global GDP falls 6% this year. In both scenarios, the recovery will be slow and the crisis will leave long-lasting scars.”
This is certainly not the first pandemic we have had to confront, but it is certainly the one which has had the most severe toll on global economies. “While the mortality rate of the corona virus is almost certainly less than that of the Spanish flu, its economic toll is already severe. Those economic shortwaves are being felt from Beijing to Madrid, creating a drag on the world economy that hasn’t been seen for decades. The IMF recently announced its forecast for a 3% drop in global output in 2020 which would be the worse slide in recent memory. The organization envisions a muted recovery next year, with GDP growth of 5.8% worldwide”.
The origin and epicenter of the virus, China, from early evidence of the impact of the COVID-19 conducted by emarketer found the severity of the short-term effects on SMEs. “In February 2020, 30 per cent reported that, due to a cash shortage, they would be able to sustain their business for no more than three months; 30 percent reported that they would be able to sustain their business for six to twelve months. Furthermore, 30 per cent of firms have seen their income fall by more than 50 per cent, with almost a third reporting a 20 to 50 per cent reduction. Three months after the COVID-19 outbreak in China, many small businesses are not working at full capacity. Many employees continue to work from home, and business owners attempt to fix broken supply chains and look for new domestic and overseas contracts. Estimates suggest that each ten-day period of lost work in the Chinese economy reduces quarterly GDP growth by 0.39 to 0.46 percent”.
WTO is of the view that, value chain disruption was already an issue when COVID‑19 was mostly confined to China. It remains a salient factor now that the disease has become more widespread. The waves of the pandemic travelled to the shores of Africa and did equal damage and the effects transcends subliminal impact to tangible manifestation on businesses. A survey conducted by the African Trade Policy Centre along with other agencies on the coronavirus disease (COVID-19) pandemic and its impact on Africa with strong inclinations on the impact of COVID-19 on businesses and trade, identified the challenges faced and responses made by these businesses.
Interestingly, a universal attribution from global accounts which has had damning repercussions and has resulted in the current economic challenges particularly for most businesses has been the imposition of restrictions. Despite its innocent motive of mitigating the spread of the virus, it has equally grounded most businesses, rendered their activities almost inoperable and African businesses are functioning with considerably less employees than under normal circumstances. ATPC said, “The rate of capacity utilization ranges from 30-40% (for small-sized enterprises) to 50-60% (for large-sized enterprises). It also tends to vary depending on the sector in which the business operates, with the average of respondents indicating rates of capacity utilization of around 30-40% for goods, and 40-50% for services. Within these broad sectors, there are quite large differences. In general, manufacturing operations, travel/hospitality and transportation services appear to be operating at their lowest capacities”.
Implications from the shutdown of economies on a global scale directly translated to the freezing of capital as human movements were restrained, as a result, closure of businesses, dearth of operational cash flows, drop in demand and reduction of opportunities to meet new customers are the main challenges faced by African businesses.
The World Trade Organization’s Director-General Roberto Azevêdo addressed the impact of the pandemic by saying, “the unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself. The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic”. Trade is likely to fall more steeply in sectors characterized by complex value chain linkages, particularly in electronics and automotive products and according to the OECD Trade in Value Added (TiVa) database, the share of foreign value added in electronics exports was around 10% for the United States, 25% for China, more than 30% for Korea, greater than 40% for Singapore and more than 50% for Mexico, Malaysia and Vietnam.
Morale may be low, spirits may be crushed but between the cracks of ailing economies, socio-economic despondencies and businesses being irreparably split into halves is that ray of defiant conviction that things will look up. But the implications of the burgeoning rate of COVID-related cases and its mutating tendencies cannot override a system ready to build a firewall of resistance and fortitude. Businesses must also realize that they can’t make plans only to survive the bad times imposed by the pandemic.