April 2nd 2020
This SkyMinder Newsletter issue is fully dedicated to Covid-19. We are happy to share with you some articles we consider interesting for your business to maybe better understand impacts on worldwide economy and day by day activities. You can also find a link to each article so you can have more details about each topic.
DIFFICULTIES IN PREDICTING ECONOMIC SCENARIO
Understand what will be the economic scenaio at worldwide level is really difficult. Every forecast performed in the last days can be changed by COVID-19 diffusion in different countries.
One of the most recent studies done by World Bank and released on March 30th (https://thediplomat.com/2020/03/world-bank-sees-coronavirus-outbreak-hitting-asia-hard/), is forecasting in China and other East Asian-Pacific countries that growth would slow to 2.1% in 2020 versus 5.8% in 2019 with a recovery during summer. Considering a worse case with an additional 0.5% decrease caused by virus persistency, Asian scenario would represent the weakest performance since 1997-98 when 40% of the countries in this area experienced a recession.
A part from Asia, a declaration released by International Monetary Fund said that the global economy has already entered a recession that could be comparable to 2008 financial crisis.
Considering World Bank Study, China could achieve 2.3% growth in 2020 versus 6.1% in 2019, considering best case. In the worse, China could report a very little growth around 0.1%. If worse scenario is considered if virus will continue to disrupting activities for many months, additional 0.5% decrease would include declines in Indonesia (2.3%), Malaysia (4.6%) and Thailand (5%).
A Forbes study (https://www.forbes.com/sites/billconerly/2020/03/20/economic-forecast-update-march-20-2020-for-covid-19-coronavirus-impacts/#593edc6c2f07) is underlining that current crisis isn’t a financial like in 2008 but coming from real economy. Now stock market isn’t causing trouble, it’s reflecting trouble.
Considering it, real Economy is impacted by COVID-19 in fifth aspect:
- Supply chain impact in a worldwide trade environment
- Indirect effect of quarantine, such as travel restriction, restaurant and stores closures and so on.
- Economy is based on demand but, due to the fact that incomes from citizens and revenues from business are decreasing, is now declining.
- Lack of liquidity involving great part of the companies
- Direct effect of illness by those are sick
More on Forbes, to have an idea to assess the overall risk from quarantines and closures, risk can divided in 3 different areas:
- Mild Risk
- Moderate Risk
- Severe Risk
Mild Risk includes activities that can probably be carried on safely or like health care or government.
Then Moderate could include transports considering that not goods will be required to move to stores in current period.
Severe Risk is including restaurants, air transportations or other industries not considered as essentials.
Of course, how to estimate manufacturing area is very difficult as factories are very different one to another both in term of goods and work organization. Some of them are considered as essentials so they continue to produce normally, some other are locked.
MAIN IMPACTS FROM BUSINESS PERSPECTIVES
Let’s discuss here two important aspect from the above list: supply chain impact and lack of liquidity.
Many companies in the world are not full prepared to face efficiently a crisis like to one generated by COVID-19. Even if it’s a matter to mitigate negative impact, there are some point to adopt. A Harvard Business Review article (https://hbr.org/2020/02/prepare-your-supply-chain-for-coronavirus) is discussing some suggestion in how to re-visit and re-design supply chain approach. Here some critical points:
- Know all your suppliers
Have a clear picture on how your suppliers are performing, linked risks and perspectives. At the same time, understand immediately if changes are affecting them and define appropriate actions.
- Assess level of dependency to each supplier
In a crisis scenario, understand the level of dependencies is important to put in place adequate steps diversify and have on board additional reliable suppliers.
- Diversify geographic regions where suppliers are based
To minimize risk of a disruption in supply, it’s necessary to avoid concentrate supplier in unique geographic areas. Be able to assess and establish new suppliers geographically located in different areas could help. Covid-19 is showing the vulnerability of having all sources located in one spot.
- Have on board second sources
In addition to primary source, a secondary one helps to minimize risks. Of course, in this case it’s necessary to keep monitored all of them, in addition to put in place in advance an evaluation process to avoid poor reliable partners.
Currently it’s impossible to full understand impact of global crises, but it’s necessary starting from now to be prepared and avoid any disruption.
Lack of liquidity
As well described into an article published on Finance Magazin – Deutschland (https://www.finance-magazin.de/finanzabteilung/treasury/coronakrise-jetzt-in-4-schritten-die-liquiditaet-sichern-2054351/), liquidity is now a problem across industries as no one can estimate how long COVID-19 crisis will continue. One point is clear: companies and factories are closed, borders are locked and operating business suffers but many expenses like rental costs, salaries and other fixed costs remain. So, securing liquidity must now a top priority, as reported by Head of Global Treasury Services.
- Have a picture of overall business partners’ risk
It's important to understand, to determine how much liquid founds are available, also level of liquidity of the business partners. It means analyze how own overall business risk is composed. How many companies are showing a high risk, how many lower with the double effect in concentrating in stronger areas and take right decisions for the others showing weaknesses.
- Manage payment terms
In current situation, only very few companies will extend their customer’s payment terms or will pay their supplier in advance. Avoiding unexpected risk is necessary to create for the future solid basis to rebuild business growth. A deep knowledge of the customer or supplier is a good starting point to put in place right actions and mitigate negative impacts if required.
- Monitor the overall situation
As current economic situation is unclear and changing day by day, a very good practice in to close monitor business partners. Change in management structure, or risk level, or any other data could now hide unexpected risks or opportunities.
SkyMinder is the worldwide CRIF platform helping you to take decisions based on high quality information. If you are required to evaluate a business partner all around the world a customer or a supplier, during a risk evaluation process or for compliance requirements, SkyMinder is the right solutions.