Surviving The Apocalypse

By Sandaruwan Madduma Bandara –MAY 1, 2020

Sandaruwan Madduma Bandara

The 2020 Coronavirus (COVID-19) pandemic, and social lockdowns by governments, has caused a massive economic shock to businesses around the world. Sri Lanka suffered a “double whammy”, as our economy was just recovering from the Easter Sunday Attacks of April 2019. For businesses everywhere, this pandemic is an extinction-level event.

Falling Like Flies

Airline companies are falling like flies; South African Airlines has shut down after 86 years in operation; private airline companies are failing, including major brand names like Virgin Australia. 

The airline collapse has impacted companies like Airbus and Boeing (the largest single exporter of the United States). These companies will only survive on massive government bailouts. Even Adidas has asked for a bailout. Struggling retailers in the USA like JC Penney and Neiman Marcus will now almost certainly file for bankruptcy. Some analysts estimate that as many as 70% of the restaurants in the USA may shut down. Even online travel companies like Booking.com and Tripadvisor.com are slashing employment.  All the major international banks have created provisions in the billions of dollars for loan defaults.

50% of the small businesses in the USA missed their last rent payment. There were already over 7 million Americans unemployed before the pandemic hit. 30 million Americans have filed for unemployment benefits in the last 6 weeks. This put the total number of unemployed in the United States at over 22%, with the expectation that things will get worse in the coming weeks.

Sri Lanka doesn’t have sophisticated real-time reporting systems like the United States, making it hard to measure the true economic impact of the Coronavirus on our economy, which is largely made up of small and medium businesses. Our heavy dependence on sectors like apparel and tourism will spell economic devastation. The garment industry employing nearly one million people has a dwindling market with a near global shut down of malls and outlets. Even after lockdowns end, consumer demand is unlikely to return in a hurry, that will lead to the shut down of smaller garment factories and loss of jobs.  With airports closed, tourism is at a total standstill.

A ‘Jobless’ Country? 

Some blue-chip companies have imposed a total hiring freeze for 2020 and have also decided to severely control costs, stalling many projects. Large hotel chains have decided to stay closed for three months and may not reopen all of their properties once they resume operations. Many small travel companies, and possibly some of the large ones, are unlikely to survive. Cinemas, theatres and other venue-driven businesses are likely to plummet.

Due to obsolete labour laws, Sri Lankan companies don’t have the flexibility to lay off employees based on economic demand, as in developed countries. This failure will force companies to retain employees even in an economic shutdown, leading to higher bankruptcies and higher longer term unemployment. No employer will gladly offer new jobs due to the restrictions imposed by labour laws. 

Due to obsolete data, the Department of Statics tends to misguide the Government potentially leading to poor policy formulation. When the question arose about how many daily wage earners were in the Western Province, the best official data we had appeared to be several years out of date. The impact of companies like PickMe that revolutionised ride hires and created jobs for hundreds of thousands of taxi drivers in recent years, may not have appeared on the official radar yet.

Money For The Breadline

Sri Lanka has an inadequate unemployment benefits system. The small amount the Government has managed to arrange for daily wagers is woefully inadequate to support their families. While cannot accurately measure our actual unemployment rate, it is likely going to be higher than in developed economies. 

The Sri Lankan Government has neither the resources nor the historical practice of bailing out private sector companies, except maybe for bailing out banks and finance companies, as deposits are guaranteed by the Government to some extent. Other companies, regardless of the number of employees, will be allowed to fail. When a sufficient number of companies fail, the knock-on effect will push healthier companies to the brink of collapse. While a two-month working capital relief loan at low interest rates has been mandated by the Government, it is unlikely to save many businesses. Sri Lankan banks are notorious for denying loans to small businesses, making it virtually impossible for a business to get the cash in time for it to be of practical value. In other countries banks drive economic growth; in Sri Lanka, they are one of the factors dragging down growth.

Shuttered Exchange

Sri Lanka also took the unprecedented step of shutting down the Colombo Stock Exchange, a drastic measure that almost no other country has taken. The loss of investor confidence from this can only truly be measured after the CSE reopens. Due to the global carnage in financial markets, foreign investors will probably be looking for safer investments elsewhere. As a result, the foreign investment funds available for Sri Lanka would be severely limited. Except for potential support from China, we will have to fend for ourselves for many months after the lockdown is over, with regard to any major influx of foreign exchange.

Demand Destruction

“Demand destruction”, refers to some consumer demand being permanently erased; Some consumer behaviours will permanently change. In spite of being a regular user of e-commerce for over 20 years, even I have been in the habit of engaging in conventional consumer behaviour, such as  shopping for  groceries or medicine or paying utility bills over the counter. During the past 6 weeks in lockdown, paying for everything online has become normal. Nearly all of our clients used to pay us by cheque.  Now even the most traditional companies have rapidly adopted and switched to paying by online bank transfer. While I can be considered a “power user”, for whom this is a perfectly natural evolution, what is fascinating is that many people who had not used the Internet much have now become heavy users.

Digital Laggard

Sri Lanka has been lagging behind the world in Internet use and had an estimated 7 million users in early 2020. The lockdowns caused a massive increase in the use of the Internet globally. Some estimates put the increase at over 30%, which is a huge jump in developed economies that were already close to saturation. It may be several months before we can properly measure the increase in Sri Lanka.   Our internet use may have increased by as much as 50%, taking the total number of users up to 10 million. Businesses should take note of this sudden “new” customer base of many millions.

Boardroom Dinosaurs 

Many large companies in Sri Lanka still have top-level executives who aren’t tech-savvy. Their common attitude has been one of smug arrogance; “Look at our success, why should we bother with digital?” when faced with spending on going digital. This is a fundamental flaw in the corporate psyche of many companies and possibly contributes to 10% or more in lost growth of revenue and profit annually. It is high time for companies to appoint leaders who understand and can leverage digital technologies. A thorough cleaning out of the old non-digital guard would be imperative to corporate survival following the lockdown. As for our members of Parliament, it suffices to say that they cannot competently legislate on something they are practically unaware of.  

With the expected massive drop in consumer demand, which will not recover at least until 2021, retailers need to make hard choices about whether to shut down or invest heavily in e-commerce. Even brand name restaurants and supermarkets which had fully operational websites equipped for online orders, were woefully unprepared.  Top supermarket websites went down and had to hastily patch together make-shift solutions. Many enterprising e-commerce websites that were previously offering other products like electronics and flowers quickly switched to delivering grocery packs. Even with some hiccups these companies fared far better than the “dinosaurs” – those large, smug retailers who still hadn’t bothered to develop an e-commerce website two decades into the 21st century. 

“You Want Us To Do What?”

When the Government gave the order to “work from home” how many Government institutions and private companies were truly geared? Less than 10%?  Reading your email and taking a few Zoom meetings doesn’t constitute working from home. Currently most private sector employees are paid to sit at home for doing little productive work – a practice that is sustainable for at most a couple of months. Workers in the apparel sector, hospitality sector and many other similar sectors cannot “work from home”, while their companies continue to haemorrhage cash.  Sweden, one of the most progressive nations on the planet in economic, social and political terms, took the bold step of not locking down at all; a policy move that borders on genius. Their sophisticated economy gave them the ability to take this step. After the dust settles, when most world economies will be in shambles, the Swedish economy may be doing better than most.

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