COVID’19 – Tackling the challenges of Business today

With the advancement of COVID’19 the pandemic in the past few months, the commercial industry has seen a variety of challenges. A pandemic cannot be confined to merely a major health crisis, it has had a subsequent effect on businesses across the globe. Not only has it gotten businesses to rethink and restructure their ways of operations, it has made companies with high profits, in the pre-pandemic times, difficult to survive in the current market. It is safe to say almost all industries have taken a hit, but here let us look into some of the worst-hit industries:

  • Airlines industries – The airline industry is among the worst affected sectors during this pandemic. The inter-country mobility of people was significantly restricted as a measure to curb the virus globally. Financially with exceptionally low margins and low budget flights, the profit made was not enough. Now due to the Coronavirus impact the worldwide air trade association has estimated that revenue would be impacted by 252 Billion USD. In the Middle East alone airlines will have an impact of 19 Billion USD and is expected to have a 39% decrease in revenue as compared to last year. Thus, this industry needs urgent assistance from respective governments to survive this situation.

 

  • Tourism – The airline industry is affected which now has an obvious direct impact on the tourism industry. In countries like the UAE where a significant part of revenue comes from the tourism industry, this is a concern. According to the World Tourism Organization, the international tourism industry is expected to lose 30 to 50 million USD. In fact, the estimated figure is a bit early to calculate according to them.

 

  • Hospitality – Dubai is a global city where people from across the world come for business, travel, leisure, etc. The hospitality industry in the UAE is rich and varied. Hotels during the peak times in UAE have approximately 85% occupancy rates. Earlier in March, the occupancy dropped to between 10% and 20% with room rates down by 50% because of the government-imposed travel restrictions in many countries including UAE. All businesses under this industry like restaurants and hotels have taken a downhill in profits. However, restaurants and other dining facilities are trying to conduct business by adapting technology and providing increased delivery services. The importance of hygiene and the care to be taken by employees of a restaurant has subsequently increased during these times.

 

  • Retail– The retail industry in UAE like most other countries around the world were completely shut down, with an exception made to the vital sectors, taking their revenue down to nil. Dubai has recently eased the restrictions on the retail industry. However, shops and malls are subject to the limited capacity of customers and restrictions on timings, hygiene practices and testing etc. It is safe to now mention that online shopping has seen a significant increase in its customers as people prefer to have their items delivered at their doorstep.

 

  • Oil – Since most of the world is under lockdown, there is very less or zero mobility, almost no flights, no cars on the road and with industries closed, this led to a major drop in demand for oil. A few weeks ago, the price of crude oil in the US turned to negative. The reason for this is that storage for oil became more expensive than the oil itself since there is excess supply in the market and almost no demand for it. Tens and thousands of employees working in this sector, have been laid off across all oil-producing countries due to the plummet in oil production.

The impact of the current pandemic is not limited to these industries. Sectors across the globe have been affected. In a world of globalization, where countries are heavily dependent on each other, the COVID’19 has made survival difficult and growth next to impossible.
 
Major Business Challenges
As the pandemic seems to be evolving, and with an increased government intervention across the world, businesses are facing various obstacles including handling an intensified situation of ‘remote-working’ of employees, adherence to government-imposed sanitary rules (that’s applicable throughout all industries), restrictions on the movement of goods, limitations with respect to meetings etc., the list can go on. However, few major economical and logistical challenges that are being faced and are expected to continue even during post-pandemic are briefed below:
a. Liquidity – Liquidity is the ability of the business to overcome its immediate short-term obligations using assets like cash or others that can be quickly converted to cash. In the current situation, most businesses in the world have a shortage of cash, few reasons for this is are that, online transactions are now highly promoted, limitations to commute to withdraw liquid cash etc. However, their obligations have not disappeared. So, businesses are even having difficulties meeting these short-term needs.
 bSupply chain – A supply chain of a business means the network by which the final product reaches the consumer from the producer. This is a wide complex network depending on the size of the business. An increase in the adoption of technology is vital to keep afloat in these conditions. Companies are forced to restructure their supply chain models and make it more demand/supply shock absorbent.
c. Financial and operational risk – Financial risk includes aspects like managing the debt and ability to pay them on time which is a major challenge in the current scenario. In UAE, the government has announced economic stimulus packages, to enhance the liquidity and cushion the effect of the pandemic to an extent, in the market. Operational risk includes aspects such as procedural or system failures during the business which might disrupt the business activities, further increasing the obstacle of supply of products or services by the company.
d. Cost-cutting – Client and customer acquisition in many industries are at a standstill. Existing customers are holding on to their money and trying to cut costs. Only the vital sectors like pharmaceuticals, goods carriers etc. can see any significant movement in the business, however, the pressure on them in this situation is immense.
The span of this pandemic cannot be the only benchmark to mark the existence of these challenges. Businesses need to consider that some of the problems that they are facing here is to stay. This has to be accepted as the new upcoming challenge, at least for the foreseeable future even after the governments open up to international trade. It can take a considerable amount of time to commerce to revive, although the way business would be conducted may/may not be the same as before, however with the government’s support and regulations in trade laws, this Black Swan can be overcome.
 
Safety of people
The entire situation has taken over nations worldwide, by surprise. With all the commercial activities plummeting and other challenges being faced, the safety of citizens is very government and business foremost priority. No businesses will be worth it if it sacrifices the safety of their stakeholders and of society. The Pharmaceutical Industry is facing immense pressure to ensure the availability and access of medicines to society now more than ever before.
 
Tackling the challenges
“Given the nature of the crisis, all hands should be on deck, all available tools should be used,” said Lagarde the President of the European Central Bank and Member of the Forum’s Board of Trustees during a UN digital meeting. Plans and strategies of business need to revamp with respect to the crisis.

  1. Revision of Budget – A budget is the estimation of the revenue and expenses for a particular period of time. Plans and strategies that were formulated earlier for the year 2020 would require restructuring. Monthly and yearly budgets will have to be made and an effect on budgets would vary based on the industry. Since businesses have been greatly impacted in terms of the inflow of cash, businesses must understand that they should bring in measures and plans to make sure their outflows are under control as well. There would be substantial changes in the budgets. Many assumptions will change, for example, the expected revenue. The businesses must make short term budgets and long-term budgets, at the same time. Right now, most businesses are scrambling and trying to satisfy their short-term requirements and losing focus of the long-term picture, which is equally important. When looking into the long term it is also important to also consider the fact that your customers might not have the money to pay you on time or might no longer be in business.

 

  1. Identify Critical Activities – These are the activities that are the bare minimum that needs to be done for the business to stay afloat. They include activities that can protect the business assets, meet organizational and regulatory requirements. There should be measures in place for such activities to operate offline for the foreseeable future. For a few, it may be as essential as attempting to make beyond any doubt all calls gotten within the workplaces are being replied so a straightforward arrangement to exchange the calls to somebody within the team. For a few it may be to proceed with a few perspectives of its day by day operations. Or indeed for a few it can be to proceed to serve a few of its clients. It depends on the business you are in. In the short term, the business focus should be to make sure that these critical activities are operational. The possibility of some of these aspects being the new normal also needs to be considered. Determine if the critical activities can be done through a remote workforce. But do you have the IT infrastructure to operate these activities remotely? There is a plethora of technology in the current world for this to work. But there are many challenges with this, does the employee working from home have laptops, access to software or ERP to get work done? Does working from home bring up any issue of IT security that needs to be addressed? For larger organizations, the critical activities must be looked into at the corporate level, at the business unit level and at the functional level.

 

  1. Restructuring Plans – The management must consider that the business may have to restructure not only the operations but also the finances. The company must restructure its internal operational procedures and departments enabling the business to be more integrated. This is especially important with larger organizations with multiple levels and normally leads to a reduction in the number of steps to achieve an objective. Financial restructuring means that the company modifies its debt and other loan obligations to avoid the risk of default. This also involves taking advantage of the lower interest rates especially now. The market interest is right now extremely low. Reinventing the products and services must also be considered. We are now seeing many businesses already beginning to do this, adjusting their production line to make sanitizers and masks, move to provide consultancy services via zoom or even fitness coaches providing online classes.

 

  1. Communicate with Stakeholders – Stakeholders are all those people who have a direct or indirect on the operations of the business, like the suppliers/creditors. Employees, government, customers, investors etc. Now let us focus on some of the aspects that need to be discussed with our stakeholders. All of us are going through this together. It is crucial that the right communication goes to each of the stakeholders.

 

  • Communicate with Stakeholders – Employees

The employees of an organization should be the first to be communicated with since they are the ones who are dependent on their monthly incomes for their livelihood. They are the company’s largest asset. The employees are the most significant part of the organization and determine the quality of your business.
Unfortunately, without any doubt, there are possibilities of salary cuts and layoffs in these difficult times. The management needs to be clear and straight forward about this. This might be critical for the company to survive through the crisis. Businesses must analyze and plan how many employees are required for critical activities and ensure there is no overstaffing.
With social distancing becoming a norm, remote working is vital to contain the Virus. Does the company have IT infrastructure in place to operate these activities remotely? Adequate training and information about various methods to work remotely need to be provided to the employees.
Periodical communication is vital. A weekly or daily communication with the members of the team are required. Not just to make sure that the work is moving smoothly, but to also make sure that the morale of your team is not low.
 

  • Communicate with Stakeholders – Suppliers & Creditors

In the current situation when a lot of international business is closed there are definite disruptions in the supply chain. This must be discussed with suppliers to see if there are any other possible solutions.
Revisit the payment terms as per already established contracts, since the business will have serious liquidity issues it is important to speak to the suppliers and give them a realistic solution, these discussions are necessary. Discuss the possibility of discounts or reductions in payment. Government entities have already offered many discounts on their fees, the same way the creditors will be open to this, they would rather get some money than lose all of it completely.
One of the major concerns is with respect to pay rent. Landlords are already giving lower rents or better payment plans. This is the right time to negotiate with the landlords, the situation is such that they would rather agree for lower rent than look for a new tenant in this market situation.
 

  • Communicate with Stakeholders – Customers

Survival is the key focus of business right now. The existing customers are the only means of any business. The payment term would have to be revisited and discounts and payment relief would have to be provided to customers without forgetting the possibility of bad debts.
Some amount of bad debts must be considered, which needs to be incorporated in the budget planning we discussed earlier. The extent of losses by bad debts would vary based on the industry you are in. Communicating with customers regarding any of the new problem-solving products or solutions, if applicable, must also be done.
 

  • Communicate with Stakeholders – Investor

It is necessary to keep the investors in the loop. Although everybody is aware of the market conditions, they have the right to know the status of the business. Explain and communicate about the plan, budget, strategies to tackle the situation and cash requirements of the business. In the current situation, investors will expect businesses to perform poorly but will be willing to support if they believe in the long-term prospects of the business.
 

  1. Continuity and Recovery Plan – As mentioned earlier we need to have a plan for the short term and a plan for the long term. A continuity plan (which can be thought of as short term) to make sure the business survives and stays afloat. A recovery plan (which can be thought of as long term) for when the movement restrictions are completely relaxed. The companies need to begin to take actions and decisions with the recovery in mind. When the crisis is behind us the businesses that are fastest to act with plans prepared in advance are the ones that will strive.

 

  1. Flexibility – Every good plan needs to have great flexibility. Nothing ever goes 100% according to the plan. It is necessary to regularly review the plan and test for deficiencies. When deficiencies are discovered the business should be able to update its plan and adjust accordingly. It is necessary to make sure that this is built-in into the plan.

 
Government Stimulus
The IMF expects a 3% shrinkage in the world economy as a result of this Pandemic. Accumulative losses for 2020 -2021 expected to be $9 Trillion while facing a Global recession. Government intervention and support is vital for commerce to sustain and survive this condition. As a result, we can see many countries are announcing Government Stimulus to support the market. An economic stimulus package is an economic measure by the Governments to help support a sinking economy. The objective is to revive the market and prevent or reverse a recession by boosting employment, reduce interest rates, etc.
 
UAE Government Stimulus and other Governmental supports
UAE government has announced a Dhs126 Billion (over $34 Billion) stimulus package to help the economy out of the coronavirus impact. Businesses must make use of these government stimuli and stay aware of the new government relief announcements. Some of the stimulus packages will impact directly while others will indirectly. The Federal Tax Authority has decided to postpone the excise and VAT returns that were due in April to May.
Non-Financial supports like the ease in the formalities in case of VISA procedures etc. have also been introduced. Although no Visit VISAs are being issued for obvious reasons, the Visit VISA of visitors stranded in UAE have been automatically renewed, on the other hand, employment VISA expiring after 1st of March, has been automatically extended till the end of 2020.
Some efforts are taken by the UAE Government in the capital city of Abu Dhabi and in Dubai.

  • AED 5 Billion for electricity and water subsidies.
  • Up to 20% rebate in rental values for restaurants, tourism & entertainment sector.
  • Exemptions of Tawtheeq for commercial and industrial activities.
  • AED 3 Billion in credit guarantee scheme to stimulate lending by banks.
  • AED 1 Billion to enhance liquidity to sustain a balance between supply and demand for stocks.
  • Suspension of Bid Bonds.
  • Startups will be exempted from performance guarantees for projects up to AED 50 Million.
  • Industrial land leasing will be reduced by 25%.
  • Suspension of real estate registration fees by 25% on a new contract.
  • Suspension of tourism and municipality fees for the tourism and entertainment sector till the end of the year.
  • Waiving many penalties.
  • Exemptions of yearly vehicle registration fees and road toll tariffs until the end of the year.

Further support provided:

  • Establish a new committee to review lending options to support local companies.
  • Settlement of all approved government payables and invoices within 15 working days.
  • Suspension of tourism and municipality fees for the tourism and entertainment sectors until the end of this year.
  • Reduction in electricity connection fees for startups until the end of this year.

 
Dubai

  • 10% reduction of water and electricity bills.
  • 10% reduction of deposits paid for water and electricity connections.
  • 20% refund of customs fee paid for goods sold in the UAE.
  • Refunds of bank guarantees required by existing customs clearance companies.
  • 90% reduction in customs fees.
  • Reduction of municipality fees in hotels from 7% to 3.5%.
  • Permission to renew licenses without the mandatory lease renewal contracts.

Further support provided:

  • Refund of 20 percent of the customs fee imposed on imported products sold in Dubai.
  • Refund of bank guarantees, or cash required to be paid by existing custom clearance companies.
  • Cancellation of the AED 50,000 bank guarantee or cash requirement in order to undertake customs clearance activities.
  • Cancellation of bank guarantees required to be submitted before the resolution of customs-related grievances.
  • A 90 percent reduction of fees imposed on the submission of customs documents.
  • Freeze on the 2.5 percent market fees levied on all facilities operating in Dubai.
  • Exemption to traditional wooden commercial vessels registered in the country from mooring service fees for arrival and departure, and direct and indirect loading fees at Dubai and Hamriyah Ports.
  • Cancellation of 25 percent down payment required for requesting installment-based payment of government fees for obtaining and renewing licenses.
  • Permission to renew commercial licenses without mandatory renewal of lease contracts.
  • Reduction of municipality fees imposed on sales at hotels from 7 percent to 3.5 percent.
  • Exemption from fees charged to companies for postponement and cancellation of tourism and sports events scheduled for 2020.
  • Freeze on the fees for classification/rating of hotels.
  • Freeze on the fees charged for the sale of tickets, issuance of permits and other government fees related to entertainment and business events.
  • Reduction in water and electricity bills by 10 percent.
  • Reduction in deposits paid for water and electricity connections by 10 percent.

 
Regulations made in Dubai Free Zones:

  • The government has announced a 6 months postponement of rent payments.
  • Easy installment payment options for rent, loans etc.
  • Discounts on registering new companies and on the renewal of trade licenses.
  • Temporary contracts to enable free movement of labor between different free zones.
  • Refunding insurance amounts, security deposits and guarantees.
  • Cancelation of fines for companies and individuals.

Further support provided:

  • Free zones 6 months’ rent exempted.
  • Facilitating payments through easy installments.
  • Refunding insurance amounts, security deposits and guarantees.
  • Canceling fines on companies and individuals.
  • Temporary contracts to enable free movement of labor between different firms in the free zones.
  • For property sales that happen within the three-month period, there will be a reduction in the ownership of transfer fees.
  • DMCC – 50% disc on new companies & 30% on renewal.

 
New Foreign Direct Investment law
The Government has regulated the FDI law as well:

  • There has been a Cabinet Resolution regarding the details of the 100% ownership which has been rolled out for 122 activities, some of them include manufacturing, healthcare, education, hospitality and so on.
  • Minimum investment requirements have been set depending on the activities.
  • Earlier in UAE, there was a standard requirement of a citizen of UAE to sponsor VISA and own 51% of the company. Now with the new FDI laws that have come into force, it is expected to attract a lot of foreign investments in UAE.
  • This will hugely help us come out of this crisis. UAE will be a much more attractive investment for international companies, their investment will directly positively impact the current business in the UAE.

 
Conclusion
Globally, commerce today is facing similar obstacles because of the Novel Corona Virus. It is a situation where most of the past operations of business no longer cease to be as productive and now innovative solutions such as technological enhancements are being worked on with minimal human contact. Innovative solutions with a substantial reduction in costs with equal efficiency are key today to survive and keep our heads above water. Businesses are entailed in budget revision, identifying the critical activities to sustain the business and are operational offsite, communication with stakeholders, while restructuring plans that are demand/supply shock absorbent, with recovery strategies along with long term continuity plans while keeping the morale high of the work environment. The Government is providing various measures and supports as the stimulus packages announced, that needs to be taken to the advantage of the business.
Owners, CEO’s and CFO’s have to be agile now more than ever by adjusting and accepting the change. This is a situation of survival of the most adaptive. The way of business may/may not be the same ever again, but what needs to be ensured is that every plan or strategy has to be adaptative to change, while keeping in mind this pandemic could take a while before it is eliminated, however, it is not here to stay.
 

Share this post

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on pinterest
Share on print
Share on email