Just up to last year in 2019,governments world-wide were planning significant capital expenditure on infrastructure projects. Even up to January 2020 no one expected that things would change drastically, however, in the current climate government focus has now shifted entirely. COVID-19 or the Corona virus outbreak was first identified in the Wuhan province of China in December 2019 whereas the World Health Organization declared the outbreak to be a public health emergency of international concern on 30th January 2020. The outbreak was recognized to be a pandemic on 11th March 2020. As of 22nd April 2020, more than 2.56 million cases of COVID-19 have been reported in 185 countries across the globe resulting in more than 177,000 deaths. The virus causes severe acute respiratory syndrome and, as of now, the source has been identified as bats via pangolins.

The virus is primarily spread between people during close contact through droplets (released when sneezing, coughing or even talking). To contain the spread of COVID-19, governments across the globe have had to take some very critical measures such as lockdowns and social distancing. Obviously, the governments of all major countries have had to make significant interventions so that businesses can rapidly adjust to the changing needs of their people, their customers and suppliers, while navigating financial and operational challenges. Needless to say, these closedowns are going to affect world economies significantly in the short and perhaps also the long run. With every industry, function and geography affected, the amount of potential change to think through can be daunting.

Impact on ways businesses are conducted

Under these trying circumstances the resilience of businesses are being tested. COVID-19 is compelling businesses to rapidly operate in innovative ways and to create new working systems. Businesses will have to strike an even balance by adopting new systems and defining priorities. Business owners will have to act swiftly to address their immediate resilience issues and lay a foundation for the future.

Consumer Sector

In the consumer sector, though the businesses have been impacted, they are in a position to reach out to customers via the e-commerce route. They will have to make an extra effort to be visible on online shopping portals. Certain governments have also announced their own online shopping portals e.g. Bahrain has announced a website mall.bh where more than 100 companies have already registered. This website allows small and medium enterprises to promote their services free of charge. Many malls in Bahrain are considering not charging rent to the shops and the government of Bahrain is considering not charging for utilities and municipal tax. Directives have been issued to waive interest on short term and long terms loans for 3 months.

With respect to other commercial sectors (Direct-to-Consumer and B2B organizations), the coronavirus pandemic has forced these companies to undergo a new phase of innovation. Despite the crisis, buying behaviours & patterns are likely to change even after the crisis ends. Businesses who viewed digital commerce as a secondary way of reaching out to their customers may now make digital commerce their focus. For example, retailers are now ensuring that customers can reach them over a portal and the retailers can provide them “contactless” delivery and curb-side pick-up services for consumers.

Construction and Real Estate Sector

In the construction sector whilst the industry has not been impacted significantly in the short term, it is expected that the industry will be impacted in the long run due to low oil prices in the Middle East. According to latest assessment by the IMF, growth in GCC countries is projected to contract by 2.7% this year. This is because oil exports are expected to decline by $250 billion across the region. However, in the construction sector there is very little room to follow e-commerce route and later finance is likely to pose challenges in this sector. The same could be said about the rental and real estate market. As many businesses begin to focus online and demand for commercial real estate reduces, it is likely that rents will also decrease. However, many will welcome these developments as deflationary pressure may be overdue in an inflated real estate sector. Airline, Travel and Tourism Sector Airlines Airlines, travel and tourism sectors have witnessed the most significant fall when compared to other sectors. British Airways had to suspend 36,000 employees in the wake of this pandemic. IATA estimates that global air transport could fall by as much as $252 billion (44% below 2019 numbers).

The governments across the globe will have to bail out the airlines, so that they can retain their employees and market share. The short term solution would be the suspension of administrative employees and crew while retaining pilots and engineering staff. Other options worth considering would be to reduce staff salaries by a significant percentage of up to 30%. Also, the airlines may have to shelf their fleet expansion plans for at least 2-3 years. Airlines will have to monitor cash flows very closely and perhaps may have to seek debt restructuring from its lenders including lessors. Airlines will have to suspend the purchase of new aircraft and negotiate with airport authorities for reduction in parking facilities. However, with every challenge comes opportunity, and while general air transportation demand has dropped, the cargo transport sector may see a dramatic rise in demand. Laying off cabin crew and other staff members may simply be laying the groundwork for future profits made in the cargo sector, as digital commerce, shipping and air transportation of goods becomes far more important. Travel & Tourism Sector Travel companies engaged in selling of tickets face an uphill task and will have to make staff redundant as the ticket selling activity has been virtually nonexistent. For reasons mentioned under the heading, Airlines, Travel & Tourism has seen a massive decline as tourists cannot travel in the current scenario with suspension of most flights. As a result, the hospitality industry has also taken a big hit as even they have had to shut restaurants located within the hotel. The Travel and Tourism sector faces the most significant challenges when it comes to staying afloat. The only area where they could possibly look for some lifelines relate to re-patriation opportunities, or in situations where hotels offer capacity to overcrowded hospitals or other dwelling spaces.

Energy Sector

Given the fact that airlines, the bigger consumer of fuel & oil, have stopped flying the demand for aviation fuel has declined to unprecedented levels. This is evident from the fact that oil prices that hovered around $37 per barrel in January 2020 have dropped significantly to $17 per barrel. In fact the Oil futures are trading below $0. Due to the fact that the COVID-19 crisis has become a focus of world politicians for the right reasons, the energy sector is likely to continue to struggle. Like the airline industry, the energy sector too will have to take some drastic measures, such as the following:

• Assess how profitability and cash flow generation can support on-going operations in low-oil price       climateincluding current (and forecasted) cash operating expenses, taxes and other cash expense items
• Oil & gas companies may have to consider reducing capital expenditure such as exploration of new fields and instead consider extraction of more oil & gas from their existing fields.
• Maybe the time has now come to make serious efforts on developing renewable energy sources and breaking the status quo. The companies who get ahead in this regard are sure to be future world leaders.

Finance Services Sector

The banking world and fintech has not remained immune to the effects of the COVID-19 crisis. Banking staff have been asked to work from home and this is bound to affect productivity. It may be very pertinent to mention that investments products offered by the banks have seen a massive decline and, as a result, investors are shying away from any new investments via the banks. With a massive decline in sectors such as energy, airlines, construction, etc. banks will have very few lenders. Banks and fintech companies are responding with ideas and innovations about how they can help their customers to better deal with the impact of Covid-19.

Financial Market participants should develop a communication strategy in case there is a material disruption to their activities. Hence some banks have been communicating with their clients digitally, and over the phone. Some of the digital technology enablers are as follows:

• Analytics and insight solutions to identify and prepare for new risks
• Business process reengineering and automation to ensure availability of digital banking services
• Artificial Intelligence backed tools and conversational platforms to deal with surge in call volumes
• Video Banking Facilities.

Conclusion

This has been a summary of some of the effects of Covid-19 on various business sectors. One certainty is that some of these changes will have permanent effects on the way business is done in the future.There are also other sectors not mentioned, such as the personal service sector, which includes hairdressers, salons and other such services. These sectors are probably hit the hardest, with no tangible way to survive the crisis. As many people start handling such tasks themselves, workers in this sector will have to adapt, innovate and change their service offerings entirely, if they are to come back to business in the short term.

Authored by
Zakir Mir
compliance consultant and Infinigence
Consulting Bahrain
Nikhil Thadani

for more information

https://www.borderlesscounsel.com/
https://www.infinigence.me/.

*Please also add the disclaimer “republished from
https://www.borderlesscounsel.com/covid-19-andthe-impact-on-various-business-sectors-a-review with
permission from the owner.”