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Society

Uncertainty calls for new business plan

modern office
Workers at a modern office. FILE PGOTO | NMG 

Uncertainty plagues the world as fears over the global Covid-19 pandemic accelerate. Safety stands as the primary human concern throughout history. From our ancient days, our brains developed quick subconscious reflexes to fight or flight at the sight of a lion, an attacker, or a flood.

We obsess over our options when our safety is threatened. If we may lose our jobs, sleep eludes us for countless nights as we ponder over new employment possibilities. If we fall seriously ill, we devote stress and energy to discovering the right cure. If we fear thieves, then we build bigger walls, come home earlier, and learn self-defence techniques.

Our same safety reflexes generate the fear that causes many in this global pandemic to panic buy and stockpile everything from toilet paper to food to hand sanitiser.

Research by Biying Shou, Huachun Xiong, and Zuojun Shen highlights that consumers panic buy during real or feared supply disruptions. Since customers stand worried that the Covid-19 virus will cause suppliers to stop distribution, billions stack up on essential supplies. Governments and retailers can calm fears by consistency and instituting certain types of beneficial quotas.

Much focus across the media spectrum has fixated on the possibility of a recession or depression as a result of mass quarantines and industries shutting down. Certainly, there are legitimate forecasts based on the shutdown alone. World equities have lost the most proportional value in 30 years in expectation of an impending depression. The Bank of Japan, European Central Bank, US Federal Reserve Bank, and the Bank of England, among others, all implemented various economic stimulus initiatives from quantitative easing to reduced interest rates.

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The US Congress just passed the equivalent of a Sh200 trillion rescue package. Denmark and the Netherlands are guaranteeing to pay portions of private companies’ salaries as long as they do not lay off workers. The Central Bank of Kenya reduced the base lending rate by 100 basis points down to 7.25percent, lowered the cash reserve ratio from 5.25percent to 4.25percent, and released Sh7 billion to support the Government of Kenya’s fight against the pandemic. The lower interest rate would under normal circumstances usually lead to a depreciation of the Kenyan shilling. But, since interest rates are dropping all over the world and in crises people demand more US dollars and the shilling would depreciate anyway against the dollar, the direct negative currency effect is muted. Despite all these global efforts, stock prices still fluctuate wildly.

But, what few focus on is a separate recessionary-inducing force. The panic buying and hoarding of supplies alone can lead to recessions. As citizens and companies purchase months and months’ worth of products, their stockpiles will stand ready once a real or perceived crisis abates. Then, in the months after the world normalises, consumer and corporate spending drop because they survive based off of their acquired reserves instead of buying afresh.

We saw such panic purchases in the lead up to the year 2000. In the late 1990s, the world’s largest consulting firms made a fortune convincing the global population to fear what was termed Y2K. Consultants made banks, airlines, stock markets, utilities, and governments believe that their software would crash and cripple the world’s essential services as dual date software switched from 99 to 00. Businesses spent billions on new software upgrades while the world hoarded goods in case supply chains got disrupted.

Citizens around the globe panic bought everything from generators to medicines to food to water. Then, as the world ushered in the new year 2000 in fear, nothing bad actually happened. So, people and businesses lived off of their supplies for months and did not initiate new purchases. The knock-on effect of low purchases led to a recession that lasted for eight months wiping billions off of the world’s economy.

As we fight the Covid-19 pandemic, we also must expect a severe economic downturn post-crisis. The hoarding and purchasing alone could cause a recession. But, combined with the movement restrictions and industries that cannot go online actually shutting down, a depression seems more and more likely.

While our loans will be cheaper, there will be less revenue to make payments. We must now ponder changes to our existing business models emphasising multiple new potential revenue streams and save as much cash reserves as possible all while keeping ourselves and those we love healthy during this difficult time.

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