How Covid 19 has affected businesses in Pakistan and Globally

COVID  19 has spread all over the world in more than 180 countries so far. There is a clear indication that the world might face a global recession. Workers will continue to fall sick, companies will remain close. Hence covid-19 has affected businesses to a great extend.

The current situation has proved to be worse for Pakistan. The country with over 210 million population is already going through tough times. Based on current numbers 40% of Pakistanis live in cities and have already taken 66 lives so far.

At the moment it is hard to predict future economic environments in Pakistan. However, several factors might give an idea about how bad the situation can get.

• Healthcare System.

Some might feel Pakistan may have prepared as a reaction to what has happened in Italy. The country, unfortunately, lacks the health care system for both detection and treatment.  Unusual access to health care systems might give rise to a chaotic situation that would affect the economy on the whole.

• Resistance

The government bodies lack the types of equipment and technology to deal COVID 19 situation. The resistance will be created by local community dynamics, religious beliefs, political issues, and lack of trust in the government will Pakistan struggle more to cope with this situation.

To counter COVID 19 one of the measures government took was to close local mosques to avoid social gatherings. But most mosque caretakers did not adopt the measures seriously and the mosque was opened.

• Co-operation with the government.

The greatest challenge for Pakistan today is to convince all religious parties and other associated parties is the co-operation with the government Moreover, there is a lack of coordination with the federal and provincial government

• IMF loan

Due to the unpredictable nature of Pakistan’s economy, a lot depends on exports and IMF loan payments. There is a high possibility that the numbers of exports will fall exponentially and the country might face worse economic situations due to IMF loan payments.

Economic Impact of COVID 19 in Pakistan Trade

Although the situation of COVID 19 is not as bad as compared to other countries,  the country has enough integration with the global market to feel the impact of international lockdown. Pakistan’s five major trade partners ( with more than 50% share in trade) China, the USA, UK, Japan, and Germany are on the list of those countries who have suffered the most due to the COVID 19 situation.

The exports and imports between Dec 19 – Feb 2020 from these major trade partners have declined.

China and Japan had a reduction of more than 15% whereas the rest are around 5%. Based on Authors calculations based on International Trade Center Trade Statistics

These trade numbers of major partners are a worrying situation. The USA and China are key import partner of Pakistan and the country rely heavily on them for imports of intermediate goods. Therefore these goods are utilized in the production of the final goods for exports and local consumption. Therefore, any major decline in imports may hit export numbers as well, ultimately affecting the whole economy as a whole.

The Retail Sector

The Retail and Whole Sale sector in Pakistan is one of the largest sectors in Pakistan. The sector is the source of employment for many low middle-class citizens who earn daily wages.  As per reports by many creditable sources, the sector may suffer a loss of Rs 900 Billion ( $5 billion ) and millions of jobs are at stake.

The Financial Market

The financial market has also suffered from lockdown. As per some confirmed cases the stock market is in continual decline.  In March, the PSX fell to its lowest in more than five years. KSE 100 has suffered as well.

The Debt Issue

As per the State Bank of Pakistan, the current debt stands at 38,727 billion Rupees in the second quarter of the fiscal year 2020, which is 88.9% of GDP in the same period which is 88% of the GDP. Almost half of the debt is from external sources. Thus the IMF is also predicting a negative growth rate of the country as a result, Pakistan might lose some important investments. Due to a negative growth rate and other factors, there is a high possibility that the exchange rate of USD may rise and as a result, the country will have to suffer high inflation.

COVID 19 affected businesses globally

The impact of the virus is felt by many businesses globally. All leaders, business owners, and entrepreneurs are facing a broad range of interrelated issues that span from keeping their employees and customer safe, incurring losses, and getting closer to liquidity.

Entrepreneur and Startup Ecosystem

A lot has changed in the last several months and the situation getting worse day by day. The world is at an economic shutdown. As a result of preventive measures taken by the governments to control the pedantic situation, small businesses and startups have come out to be one of the most vulnerable groups that have been directly affected.

The newly formed businesses are adopting a lean organizational structure, which means there are more cross-functional roles. Which all facilities being shut down, even a slight decrease in employees productivity can add up serious problems for the business

Besides, these difficult times also demand additional time and attention on social needs, to keep up with the global reactions and monitor all possible development of COVID 19.

Several governments are practicing commercial and social lockdowns with exception of healthcare. These measures, it is putting restrictions on running operations for the start-ups. A huge number of startup businesses are either not adequately established or in the initial stages.

This slow down in the economy will cost the world around $1 Trillion just within a year.

COVID 19 affected businesses such as Energy Industry

As many companies are already facing lockdown. The pandemic has affected the energy industry heavily. The outbreak has contributed to a dampened demand for oil, resulting in lowering the prices and demand for oil and also declining production.

The global oil demand is expected to fall by a record of 9.32 MB/d year on year in 2020. Just in April 2020, the demand was estimated to be 29 MB/d lower than a year ago.

A similar trend is seen in the electricity sector. In Europe, there is a record collapse in electricity prices. In man countries, power prices have turned negative. As per the survey, there is a drop in consumption:

• 25% in Italy
• 20% in France
• 12% in the UK

Also in many countries, the customers have been advised by energy providers to delay the payment of bills. The default on payments will cause a cascade effect and impacting the whole sector.

Airline Sector

As per the International Air Transport Association ( IATA), the airline sector has faced a heavy loss of $113 billion due to COVID 19. Many countries have stopped international flights and requested everyone not to travel. As a result, the Airline sector is facing a heavy loss. IATA has requested all governments to help the industry in this extraordinary situation. Below is the loss of passengers location-wise:

• Australia, China, Malaysia losses 23% of passengers faced a loss of $49 billion
• The rest of Asia Pacific losses 9% loss incurred is $7.6 billion
• Austria, Italy, UK, Germany, Norway, Switzerland loses 24% faced a loss of $37 billion
• UAE losses 9% of passengers faced a loss of $21 billion

Covid 19 impact on businesses such as Automotive Sector

Therefore the impact of the virus on the automotive sector has been quick and significant. Chinese exports contribute to a large scale. Many large automotive industries imports parts from China. Most of the US and European auto manufacturers are under huge losses. Hence there is an element of uncertainty on when production will start again. Job losses, as a result, are about 16% for the automotive sector.

The sales drop in February is almost 80% in China and the Sales forecast in the US is estimated to be at a decline of 9% annually. Consumers are not buying any cars due to the current situation.

 

 

Sources 1:

[1] https://news.un.org/en/story/2020/03/1059011

[2] https://www.pv-magazine.com/magazine-archive/covid-19-and-oil-supply-shock/

[3] https://airlines.iata.org/news/potential-for-revenue-losses-of-113bn-due-to-covid-19-%E2%80%9Ccrisis%E2%80%9D

[4] https://www.iata.org/en/pressroom/pr/2020-03-05-01/

[5] https://www.accenture.com/us-en/insights/automotive/coronavirus-automotive-rapid-response

[6] https://www.accenture.com/us-en/insights/automotive/coronavirus-automotive-rapid-response

Sources 2:

[1] https://profit.pakistantoday.com.pk/2020/04/24/retail-sector-may-face-rs900bn-loss-during-45-day-lockdown/

[2] https://www.brecorder.com/2020/03/28/584351/impact-of-covid-19-on-economy-of-pakistan/

[3] https://www.brecorder.com/2020/03/28/584351/impact-of-covid-19-on-economy-of-pakistan/