The coronavirus pandemic has reduced CFO business optimism to an extremely low point, according to a SAICA and Duke University business outlook survey. The quarterly survey was conducted over six weeks beginning February 25 and the results document the impact of COVID-19 on businesses around the world. Results below are for South Africa and Africa, unless stated otherwise.
The results of the survey indicate that 60% of CFOs are less optimistic about the financial prospects for their own companies compared to only 45% last quarter. Also, CFOs were most concerned about government policies and now their main concern is economic uncertainty, the pandemic has everyone adjusting to the new normal, with regulations being amended.
Employment
South Africa’s National Treasury estimates that almost 15% of jobs could be lost due to the coronavirus pandemic and the lockdown. The impact of the pandemic is coupled with the recent downgrade of South Africa’s credit rating below investment grade. National Treasury also indicates that the South African Reserve Bank (SARB) expects the economy to contract by 6,1% in 2020. Regulators such as the SARB have urged companies to prioritise cash preservation over the payment of dividends and short-term benefits.
The surveyed executives indicated they expect fulltime employment to increase by 2% in the following year, which indicates that companies are still hiring and gearing themselves for the unpredictable near future.
Small businesses
Small, medium and micro enterprises (SMMEs) are affected the most by a downturn in the economy. Businesses in certain sectors − largely the construction, manufacturing, tourism and hospitality sectors − bear the brunt of the pandemic, lockdown and recession. It is worth noting that 57% of executives surveyed in the fourth quarter of 2020 expected a recession in 2020. SMMEs are finding out the hard way that certain technologies, including reliable teleconferencing application, are a necessity. This coincides with the findings of the survey according to which finance executives expect a 6,8% increase in capital expenditure in the next 12 months compared with only 2,8% expected growth in the last quarter of 2019.
SMMEs would not generally have contingency plans that take pandemics into account. The way they respond to the changes, including the downturn, will determine if they thrive or not during the lockdown and beyond.
Beyond the pandemic
It is indubitable that many sectors will change drastically during and beyond the lockdown and that many businesses will be compelled to change their business models. Twitter announced that their employees can work from home even beyond the lockdown, ‘forever’. The pandemic will quite possibly change the way we work forever. There have been many working groups and special engagements in various industries to better understand the impact and to weather the pandemic in terms of accounting, financial estimates and compliance with laws and regulations.
Various industries are apprehending how success may be defined amidst the current coronavirus pandemic and the lockdown. The following considerations can be made:
Having functional systems in place that allow employees to continue to service customers/clients during lockdown.
E-commerce is no-longer optional. It has become the only way to respond to lockdown regulations that do not allow offices and stores to open their doors. The government announced on 14 May 2020 the increased scope of goods that may be transacted through e-commerce platforms and later shared permitted retail and service operations. Companies that offer a better online experience to customers/clients will reap the benefits. This poses a challenge to SMMEs that may not be prepared for a completely online business model.
Creatively reinventing the business to make it accessible online. How does a game reserve or museum seize opportunities during the almost worldwide lockdown? We have seen how a virtual safari can thrive during lockdown and retain jobs that normally rely on holiday-makers such as tourists from abroad.
Notes
1 http://www.treasury.gov.za/comm_media/press/2020/JT%20SCoF%20and%20SCoA%20briefing%20COV19.pdf.
2 https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/9845/GN4%20of%202020%20-%20Dividends%20and%20bonus%20payments%20in%20response%20to%20Covid19.pdf.
3 https://www.saica.co.za/Portals/0/document/CFOs%20preparing%20for%20a%20bumpy%20road%20in%202020.pdf.
4 https://blog.twitter.com/en_us/topics/company/2020/keeping-our-employees-and-partners-safe-during-coronavirus.html.
5 https://www.coronavirusmonitor.co.za/wp-content/uploads/2020/05/43321_14-5_TradeIndustryCompetition.pdf and https://sacoronavirus.co.za/covid-19-risk-adjusted-strategy/#tab-59f98f52847c859a7bd.pdf
