COVID-19 according to the World Health Organization (WHO) is an infectious disease caused by a newly discovered coronavirus. The World Health Organization (WHO) on 11 March 2020 declared COVID-19 a pandemic, pointing to the over 118,000 cases identified in over 110 countries and territories around the world and the sustained risk of further global spread.
The impact of COVID-19 on the global economy and businesses cannot be doubted or understated. The global community is faced with its biggest threats for decades; countries have diverted all available resources to the fight and eradication of this highly contagious and deadly virus. The virus has led to extraordinary acts by world leaders and Global organizations, which include; the first time postponement of the prestigious Olympics games by the International Olympic Committee (IOC) from 2020 to 2021, lockdown protocols invoked by an unprecedented number of countries and states globally, cancelation of all sporting events by sports governing bodies such as FIFA, NFL, and NBA.
The International Labour Organization (ILO) has predicted a global rise in unemployment between the range of 5.3 million and 24.7 million due to the coronavirus.
Impact on Micro-Businesses
Businesses are the most affected by the novel coronavirus pandemic, as many SMEs operating with little cushion continue to lay off employees. Dozens of large companies have also extended pay and benefits to workers whose livelihoods are affected by the pandemic.
Vulnerable businesses such as those in the tourism & hospitality, manufacturing, and travel industries are struggling to breakeven because of operational setbacks caused by the pandemic. As unpalatable this may sound, renowned global industry watchdogs particularly the big three rating agencies; S & P Global, Moody’s and Fitch in several analyses and reports have forecasted that all businesses, regardless of the size or industry will be affected by COVID-19.
The impact of the pandemic on businesses globally cannot be understated, however, Small and medium-sized enterprises (SMEs) are likely to be hit harder because of their vulnerability and inability to absorb external shocks, which are likely to cause the following:
Deferment or cancelation of planned activities
The effect of COVID-19 will generally lead to the deferment or cancelation of planned activities by most business organizations. The time budget operated by businesses is likely to be disrupted by the pandemic; this is likely to cause stakeholders (shareholders, management or creditors) thousands of dollars in terms of investment, credit, and stocks. The effect on cancelation of planned activity could also disrupt the long-term strategic plan of entities particularly SME’s to the extent of having adverse effects on their going concern.
Disruption in Project timeline
In a 21st Century where time and productivity are on the peak of every organizations’ agenda, businesses are continuously looking for ways to increase operational efficiency to meet projects’ timeline. Destruction in operational efficiency is not a welcoming option for SME’s who seek to maximize productivity and hasten expansion in the medium to long term.
Delay in construction works
In light of the spread of the COVID-19, Facebook in a recent briefing disclosed that it has suspended its Datacenter expansion construction work in Co. Meath (Ireland), the project which is in its final phase is set to be completed by the end of the year. Given the Facebook example, several businesses both SMEs and multinationals are currently suffering similar fate which will greatly impact business growth and expansion plans.
Brake in the business value chain
Industrial breakdowns are inevitable in a pandemic situation, this occurs as a result of business shutdowns or reduced level of operation by businesses. The overall impact leads to a simultaneous disruption in the business value chain leading to a shortage of operational materials for production for most business entities.
Business is a continuous process and thus a breakdown in the operational activity, especially of SMEs could raise a possible going concern crisis.
Some inevitable costs
During the brief period of an economic recession caused by a pandemic, businesses must forecast and plan for inevitable operational costs that may occur. These costs are likely to increase the total operational cost of businesses without necessarily increasing the turnover or operational efficiency.
- Staff Cost: Excessive staff cost is most likely to be incurred by organizations that have not yet reduced staff amid the implementation of Social distancing, this means employees are forced to stay home or run shift while being paid the same salary as before. Employees, particularly in the informal sector who are mostly not well-paid and self-employed, are likely to suffer most in the period of lockdown. It is for this reason the World Travel & Tourism Council in an open letter appealed to governments across the world to extend financial aid to the Travel and hospitality industry to save jobs and businesses.
- Technology & Communication Cost: Technology presents the best option for businesses affected by the pandemic who are looking for innovative ways of handling cash, interacting with clients, and monitoring employees. Remote working has become the order of the day for most organizations, and to continue smooth operations in the era of social distancing means businesses will have to spend excessively on Technology and other communication tools. Physical interaction with clients is no longer an acceptable means in light of the coronavirus pandemic, therefore most businesses have adopted a digitize means of interacting and transacting business with clients and other stakeholders.
- Inventory Cost: Manufacturing business especially those in the production of perishable goods will be most affected by the pandemic as demand hits low. This applies even to those still in continuous operation as they are forced to produce at low-level efficiency because of social distancing, that is, organizations can only use part of their human resources at a time.
- Rent Cost: In light of the economic uncertainty where businesses are directed to adopt social distancing methods, most organizations are left with little choice than to run shift systems or cut down staff in their respective offices, in effect leading to vacant office spaces which could have been occupied had it not been for the pandemic. The affected organization will, however, bear the full cost of rent as prescribed in the original rent agreement where there is no room for renegotiation.
- Administrative Cost: Business organizations in light of the pandemic will assume several inevitable expenses, however, those that continue operation are likely to incur unbudgeted costs such as; Hand sanitizers, Hand wash equipment, excess cost on water, detergents and tissues which are the basic prescribed tools for preventing COVID-19.
Governments across the world have instituted various economic relief programs and stimulus packages to support business organizations and protect public health, these programs vary among countries and territories in terms of its rollout and implementation. Generally, the reliefs include Non-collateral loans to businesses, reduction in policy rates, extension of tax holidays, grant to start-up, income tax rebates, deferral and extension of loan repayment period, and other additional financial incentives that will go to organizations that retain employees.
Smart business organizations must develop innovative means of benefiting from these incentives, and re-structure their business organogram to best fit the current crisis the world is facing.
Strategic planning by smart businesses
Several businesses will employ the tactics of “Try and Error” as an economic tool to mitigate their operational loss given the uncertainty and lack of clarity about the measures to implement to manage the loss of income in the short-term of the pandemic.
In light of the pandemic, smart businesses are most likely to think humane than profit maximization or exploitation for competitive gain. Smart businesses will enforce prudent strategic measures to lessen the burden of COVID-19 effects on its stakeholders in the short-term to rip sustainable benefits in the form of public trust, employee loyalty and government support in the long-term. Such prudent measures will include:
- Support to employees: Employees are the most important resource for any organization, it is within periods such as this that employees require the utmost support and loyalty from their employers. In this regard, smart businesses will extend appreciation bonuses and benefits to staff who are laid off, necessary assistance to remote working staff in the form of Internet and software support to enhance the efficiency of their work. For those employees whose physical presence is required in the office despite the social distancing restrictions, smart employers will ensure that steps are taken to ensure their health and safety.
- Corporate Social Responsibility: Smart Businesses in light of the current crisis will assist and partner government and government agencies to mitigate the spread of the virus. Assistance by smart business organizations could be in the form of a donation to health facilities, information dissemination in respect of the pandemic, public sensitization and providing expertise in critical areas of the economy. It is important to note that smart business organizations that support government’s effort are likely to rip numerous benefits such as tax reliefs and partnership agreements when the dust settles.
- Resources Diversion: Smart business with the operational capacity to divert operations to the supply of essential services such as medical PPEs, Sanitizers, Laboratory and clinical equipment will do so as a form of public service to facilitate the smooth running of the emergency service in the fight against COVID-19. Businesses thrive on demand, therefore if the
- Distribution of excess inventory: The strategy likely to be adopted by businesses that deal in product wholesaling will most likely be the storage of excess inventory pending the resumption of full operation. However, smart businesses in light of the current crisis will move beyond ordinary prudent strategy to the free distribution of excess inventory that may go waste due to the uncertainty surrounding the COVID-19 outbreak. Smart businesses will prioritize sustainable practices that support human cause than short-term gains, by distributing the excess inventory to vulnerable communities and individuals that live on daily wages and are likely to struggle for earns meals given the current circumstances.
We are in unchartered waters and nobody is excluded from the cold hands of this pandemic, the popular business phrase “business as usual” no longer holds, and business organizations must adapt and do their part to defeat the silent enemy. A united front where there is an understanding among employers and employees, governments and civil societies, industry regulators and businesses, creditors and lenders, and all stakeholders alike.
The World Health Organizations (WHO) directives on COVID-19 prevention should be observed at all times, that is; Avoid large groups and practice social distancing, Wash your hands frequently for at least 20 seconds, Avoid close contact with people who are sick, cover your cough or sneeze with a tissue, then throw the tissue away, Avoid touching your eyes, nose, and mouth, Clean and disinfect frequently touched objects and surfaces, Stay home when you are sick, except to get medical care.
Our respect, prayers, and silent gratitude must also go to the heroic frontline health workers (Doctors, Nurses, Pharmacists, Medical assistants, Laboratory scientists and technicians, public health officers, etc.) out there fighting to save the over 7 billion population of the world.
Stay safe and spread calm, not fear.
The writer is an Assurance Senior at Baker Tilly