BY TAPIWANASHE MANGWIRO
THE Covid-19 pandemic took the world by storm as a global health crisis, but it has since moved to an economic crisis which has had vast economic and social repercussions.
With economies cautiously reopening, the combined effect of the pandemic and the necessary mitigation measures, such as prolonged lockdowns and physical distancing, has led to a global recession largely driven by the rare twin supply-demand shock.
The twin shock caused by the outbreak has important implications for business. First, it reduces the economy’s ability to produce goods and services at a given price due to the closure of non-essential industries and physical distancing measures.
An industry’s reduced capacity to produce goods, for example 60% of its pre-crisis output, contributes to the supply shock.
The demand shock also reduces the consumer’s ability to purchase goods and services at a given price because of increased demand for healthcare-related products and a decrease in high-risk activities such as going to restaurants or travelling.
Loss of income could also contribute to the demand shock as it decreases purchases for necessities such as homes, cars and other appliances.
In the post-Covid-19 period, it will come down to companies quickly adapting to having the ability and muscle to pull innovative ideas to their side.
We have already seen companies, mainly banks coming up with various innovative products in order to serve the new normal of offsite banking. Companies often react to economic dislocations by pursuing the most immediate and largest revenue opportunities.
While ensuring short-term viability comes first, short-changing innovation during this time could expose long-term survival and value creation.
The last economic crisis, the Great Recession of 2007–2009, saw transformational companies emerge in segments such as the sharing/gig economies and alternative currencies.
This crisis will likely spur innovation that is transformative. The discontinuities of crises like the Covid-19 pandemic create urgent new needs and new large customer problems to solve bringing up a huge innovation opportunity.
As some big players retrench and focus on their most valuable customers, nimble innovators will find space to offer cheaper, “good enough” solutions that gain market traction and look for disruption from below.
Downturns also create opportunities for entrepreneurs as well as corporate “entrepreneurs” to build great business ideas in capital efficient ways.
Top talent becomes more accessible and support services become cheaper as a variety of assets, from real estate to equipment, becomes available for repurposing. With the pandemic, companies began to re-examine their role in society.
This has mainly been driven by the fact that trust in businesses has declined over the years even as consumers and investors call on companies to proactively address societal challenges, from income inequality to climate change.
The Covid-19 pandemic has increased scrutiny of this issue, in at least a couple of ways. Companies across multiple sectors are playing an active role in addressing challenges created by the crisis.
Companies in Zimbabwe organised ambulances, re-equipped beds with some going as far as giving allowances and free transport to frontline workers.
Such visible moves could help burnish companies’ reputations and restore dwindling trust.
The active part that companies are playing in addressing societal issues might also raise consumer expectations.
It may well turn out that the most visible lasting impacts of the pandemic will be the emptied tower blocks and offices of business districts, as more and more companies wake up to the new economic and operational norm of working from home, which has a big impact for the real estate industry.
In the post Covid-19 era, we are likely to see real estate executives rethinking their use of office space and buildings around town.
The post-Covid-19 era will see online business being pushed to the limit as the scars of the pandemic reel.
We have already begun to see some companies promoting their online shops for various products from beverages, groceries as well as clothing.
Companies will begin to take costs in order to push for innovation and some will go as far as partnering internet providers for free internet access to their operations.
In the new era of business, first move advantage will take precedence as people continue to fear for their health.
Mangwiro is an economist and a contributor for Economic Times. — firstname.lastname@example.org