Many New Zealanders are reacting to our latest level 3 lockdown like they have not noticed any major impact of Covid 19 and our rapid lockdowns are an overaction. I, for one, disagree. I'm sure some employed in customer-facing roles agree with me. The business impact of Covid-19 is slowly creeping upon us.
There is no doubt that the New Zealand economy needs a correction. The pressure is building, and while most market corrections evolve quickly, lasting between 36 and 48 months before growth starts to surface again, Covid 19 appears to be a different beast altogether. Perhaps it is the artificial influence from the likes of Government stimulus, or its the wealth of returning kiwis, that is slowing down the impact and timing of the dreaded "R" word, but one thing is clear, the impact of this pandemic appears to be developing, albeit at glacial speed.
Us Kiwis are an agile bunch and will try not to let the disruption caused by a worldwide pandemic stand in our way. There's plenty of examples out there showing how New Zealand businesses are trying to adapt to minimise the impacts of lockdowns. Accelerated trends in remote working, e-commerce and automation are being flaunted by many businesses as if it is their standard operating model now. It just might be.
But in fact, it's no different to what is being seen in other countries worldwide. One overseas report from McKinsey and Co assessed the lasting impact of the pandemic on labour demand, the mix of occupations and the workforce skills required in eight countries with diverse economic and labour market models: China, France, Germany, India, Japan, Spain, The United Kingdom, and the United States. Together, these countries account for almost half the global population and 62 percent of GDP.
Among other things, it comes as no surprise that the report found jobs in work arenas with higher levels of physical proximity (roles with frequent interaction with strangers and require on-site presence) are likely to feel the greatest impact pandemic and first. That will trigger knock-on effects in other sectors as business models shift in response. Think of roles in the leisure and travel arena that experience high customer-facing workers who face new crowds daily. Examples include hotels, restaurants, airports and entertainment venues.
However, outdoor production and maintenance sectors, such as construction sites, farms, and other outdoor workspaces, are unlikely to have a major impact because of worker's low proximity to others.
Likewise, computer-based office work and administrative roles, which happen to be the largest arena in advanced economies, account for one-third of employment, offer the best potential for remote work and are likely to face a lower impact initially. That has led to some companies permanently planning for a reduced office footprint, a trend already seen in New Zealand.
We highlight the word initially because history tells us that it is the low-income roles that suffer the most in most recessions. On the rebound, there is a concentration of job-growth in high-wage occupations and a decline in low-wage occupations.
The report also stated
While leisure travel and tourism are likely to rebound after the crisis, McKinsey’s travel practice estimates that about 20 percent of business travel, the most lucrative segment for airlines, may not return. This would have significant knock-on effects on employment in commercial aerospace, airports, hospitality, and food service”
In fact, many industries are not expected to operate like they did pre-Covid. Some predict the level of retraining required will be 12% higher than pre-Covid levels and up to 25% of the workforce in advanced economies.
Retrain for what you ask? Other sectors are experiencing unprecedented job growth because of the pandemic. E-commerce and other virtual transactions are booming. Delivery, transportation, and warehouse jobs are also showing incredible growth. It is all being propelled by the consumer shift to digital transactions. In 2020, the share of e-commerce grew at 2 – 5 times the rate pre- Covid as consumers discovered the convenience of shopping online.
How are you preparing?
We are not currently noticing any major reputational risks presenting, albeit lockdown fatigue is definitely a theme surfacing. But all the indicators suggest – it will. So that leads me to one key question :
What are you doing differently to manage your ledgers?
Have you started to analyse your ledgers and plan for the impact? If you haven't, perhaps you should be working with your CFO's or Revenue Assurance Manager to consider the future impact it may have. Look not only at the makeup of your ledger by occupation but also if you capture the data, customer income levels to identify the portion of your ledger that faces the highest risk. Then start to think about how you can mitigate.
Start to think about how hard market share is to get. Ask yourself what you can be doing differently to treat those who find themselves unemployed because of COVID-19? Understanding whether those customers are retraining or likely to upskill allows you to treat them with some grace, knowing they will return to being loyal paying customer once their employment status improves.
Socially responsible collection methods will now be more critical than ever. The emotional toll and social costs of this pandemic will intensify in your customer’s behaviour. How will you tackle this?
Is there light at the end of the tunnel?
Of course there is. Once a vaccine rollout is successful, New Zealand remains one of the few economies that has the opportunity for a rapid and strong growth rebound and recovery. But I think the economic damage in some sectors will mean, New Zealand faces a slower return to growth than many assume.
The vaccine roll out and job retraining will mitigate the impacts of Covid-19 felt in New Zealand. It might even slow them down. But eventually, the cost of all the government debt caused by the stimulus packages is going to bite. It can’t not. Someone, somehow, needs to pay for the support that has been provided.
There is still a risk that our leaders may follow other countries' footsteps and print more money to cope. I hope they don’t - it will be counter-intuitive to our needs. If they do, inflation will result. That will impact our currency, which will detract overseas investment, which will slow our growth rate.
Growing the economy is clearly the way to increase our output, but that can only be achieved if, in the main, we can convince others outside our economy to pay for it. That means we will need strong exports at a time when every other country will be attempting to do the same. The competition will be fierce.
All the re-training will also pay dividends, provided the demand stays consistent. But there will be an impact on your ledger while some customers face a disruptive period of workplace change and re-training. The nature of the workforce transitions required in the years ahead will be challenging, and you should be planning for those impacts on your ledger.
Our advice, plan for the impact now. Slice and dice your data like you never have before. With the help of other business units, take action to plug your data gaps and start to think about some key credit management strategies you can deploy when you need to. It might be coming at glacial speed, but it is coming. History reminds us what happens to a captain that doesn’t consider the risks of a major iceberg sneaking up on you.
If you would like us to help you understand what your future collection strategy needs to look like moving forward, reach out.
