Rebuilding Australian business post COVID-19
We live in unprecedented times. Adding stress to the already changing reality of living in a time of a pandemic is a question we all have in common: what will happen post COVID-19? Will we witness a typical rebuilding effort that most economies see post-war?
The spread of the novel coronavirus has impacted the Australian economy and the business sector in ways not seen since the last recession. Both the tourism and hospitality industries have been particularly affected, with travel restrictions, lockdowns and social distancing measures drying up business almost overnight. More broadly, nearly every profession has seen an impact from the economic downturn, sending businesses scrambling to adapt to remote working systems.
With the federal government’s attempt to effectively pause the economy by telling businesses to “hibernate”, it is difficult to determine how Australia’s business sector and economy will look post-corona. The Institute of Public Accountants (IPA) group executive for advocacy and technical, Vicki Stylianou, opines it is possible businesses will look towards frugal innovation and inclusivity.
“Doing more with less, but maintaining good enough quality and being more inclusive in the process,” Ms Stylianou says. “If the current pandemic teaches us that we are all in this together, then maybe we will cling to this in the future and genuinely be more inclusive and not leave anyone behind in the race for economic prosperity or equality.
“I hope rebuilding Australia doesn’t mean that we close our borders to other countries and other ideas. We need to restore faith in the benefits of globalisation whilst being more alert to its disadvantages and planning for them.”
Other key issues
Jirsch Sutherland partner Sule Arnautovic believes, while concepts like frugal innovation will be on the minds of business owners, other key issues will resurface once they emerge from hibernation.
“The big-ticket items will be balance sheets will be significantly weakened, and I think … there’s going to be a credit squeeze,” Mr Arnautovic says.
“It’s going to be very difficult to obtain finance. There’s going to be a lot of trade suppliers and creditors out there who are going to be very touchy about extending trade terms to companies.” Mr Arnautovic predicts a spike in insolvencies coming out the other end of the shutdown, if the government bodies like the Tax Office and the State Revenue Office suddenly resume normal operations.
He explains that if, at the end of the stimulus measures, those bodies do not give businesses time to strengthen their cash reserves, then collecting liabilities will surely result in an insolvency spike.
“I think you’re going to have a situation where there’s a multiplier effect on last year’s 11,000 [insolvency] cases,” Mr Arnautovic notes.
“If those statutory bodies don’t collect their debts, you might end up with a situation where the numbers look static, but that’s on the basis that many, many thousands haven’t been forced into liquidation because of governments not collecting their dues.
“Essentially, when the Kool-Aid is drunk, the debts have been deferred, and the debts become due and payable, that’s when I think there’ll be a significant increase in insolvencies.” Many businesses will, however, have positives to focus on coming out of hibernation, and Mr Arnautovic believes it will forever change how business is conducted.
“There will be many businesses who realise the flexible working environment is actually not a bad thing,” he says.
“I think there will be bigger investment in technology, connectivity and remote access and things like that.
“There will be a plethora of businesses that realise they don’t really need premium, A-grade premises in the Sydney CBD; they could take a more low-key premises, more strategically located for their workforce or clientele.
“Traditional business models, whether people are resistant to change or not, are going to be put under the microscope.”
Depression not on the cards
AMP Capital senior economist Diana Mousina says businesses are going to have to adapt their operating models because it seems likely that social distancing measures will remain in place well beyond the conclusion of hibernation.
However, even with the bleak economic outlook, Ms Mousina does not believe the economy will go into a full depression. She says AMP Capital expects the Australian economy to fall by about 6 per cent this year in terms of GDP, but slowing infection rates are predicted to help the economy regain some ground.
“The rate of change in our infections is dropping at a very fast rate, and with the experience from China as well as other economies around the world, when they see such low numbers of infections, they try to get people back to work to some extent,” Ms Mousina says.
“Social distancing measures are going to last until the end of the year probably, which means that you will get this ongoing drag to the food and travel sectors.
“But I do think that the government will continue to provide stimulus to support the economy. They’re doing as much as they can to keep the unemployment rate under control.
“We don’t think the economy will go into a full depression; we see a recession occurring in the first half of the year, but towards the second half of 2021 the economy will completely recover its weakness from the coronavirus.”
While there are some commentators that have suggested Australia protect its economy postcorona by shoring up local manufacturing, Ms Mousina says she is not optimistic that will be viable in the long run.
“Australian manufacturing has been declining as a share of the economy since the 1950s. It doesn’t contribute much to our economy,” she notes.
“We probably need to shift our commodities reliance from China … we just don’t want to be reliant on production around the world because clearly a lot of countries around the world won’t be able to produce what we’re demanding because they’ve got their own shut production facilities.
“It will be a shift towards more domestic manufacturing in the short term, but I’m not convinced that it’s going to change the longer-term outlook for Australian manufacturing.
“The main reason for why our manufacturing has been declining as a share of the economy is that our manufacturing production here is just not as cost-effective as if we could do it overseas, so it just doesn’t make sense for businesses in the long term.”
Ms Mousina says there will not be a quick fix, and that the economy would still need to take time to recover.
Contrary to the comparisons between the economic effects of the pandemic and wars, Ms Mousina believes we will not witness a typical “rebuilding effort” that most economies would see post-war.
“I think that the current situation is a bit different because while the economy is in a much better shape compared to what it was around the first or second World War, I think that the recovery to a more normal level of activity will take longer,” Ms Mousina states.
“You won’t have that same level of rebuilding because some social distancing measures will still be in place and the government will want to be cautious in reopening the economy.
”You won’t just be able to just get that big hit to activity or production because of those measures unless there is a vaccine that’s invented within the next year.”
A shift towards public interest
In an article published by The Guardian, economist Mariana Mazucato suggests the crisis could push governments into adopting a different approach to capitalism. She says that would essentially entail a rethink of what governments are for, a shift that could see them move towards actively shaping and creating markets to deliver sustainable and inclusive growth, and away from fixing market failures as they arise.
Governments would need to invest in and create crisisprevention institutions and better co-ordinate research and development activities, Ms Mazucato says.
Ms Mazucato also adds she would personally like to see a shift away from prioritising the interests of businesses, towards focusing on what is best for the public.
On that note, Mr Arnautovic believes that there will be a greater public focus on national healthcare and bioscience investment to minimise the impact of future health crises.
He believes that in an ideal situation, we could see the government put added weight on public interest.
“I think governments certainly need to keep a balance between engaging the private sector and looking after us generally,” Mr Arnautovic says.
“When things like this happen, it doesn’t really matter if you’re well off or not, we’re all in it together and the response to these sorts of matters need to be done at a human level rather than with a capital view of the world.
“I don’t think people of this generation are going to struggle with appreciating those sorts of concepts.”