‘Qatar better prepared to deal with COVID-19 crisis’
Some businesses will inevitably have to wind-down operations but the private sector that emerges will likely be more resilient, says PwC's Bassam Hajhamad
NO one could have predicted the way COVID-19 would change the world in 2020. Coupled with plummeting oil prices, the pandemic deals a twin blow to Qatar’s economy. But the country is better prepared to deal with the crisis than it was in 2008 when the global financial crisis wreaked havoc across the world, says PwC’s Country Senior Partner Bassam Hajhamad.
In an email interview with Qatar Tribune, Hajhamad said as Qatar adapts and moves forward, some businesses will inevitably have to wind down operations but the private sector that emerges will likely be more resilient.
Q: What are the immediate and long-term effects of the coronavirus pandemic on Qatar’s economic activity?
A: Qatar’s economy is being impacted by a dual shock the decline of economic activity due to COVID-19 and the shock of lower energy prices. The dual shock, on both supply and demand sides, is affecting all parts of the economy and the whole economic cycle. However, the severity of the impact of COVID-19 is dependent on how long the lockdown remains in effect.
We have already seen immediate disruptions to trade and travel, among other sectors, followed by clear actions taken by the government to ease the impact on economy and people. When it comes to the lower energy prices, Qatar is better situated than most hydrocarbon exporters thanks to its natural gas reserves. Qatar should be positioned to weather these shocks. The past several years have allowed the country to strengthen its supply chains and build resilience into its logistics operations. In addition, the government has a strong balance sheet that it can use to protect the economy.
The Qatar government should continue to act on three fronts to contain the crisis and prepare for a strong recovery 1. Contain and treat COVID-19, 2. Stabilize through economic lifelines, and 3. Strategize for bounce back.
In terms of economic and financial toll, where does the pandemic stand if it is compared with the 2008 meltdown and 2014 oil price crash?
It is important to remember that today’s situation is first and foremost a public health crisis. Our leaders and health professionals are working diligently to protect Qatari citizens and residents, and part of this includes a need for restrictions that impact economic activities.
Unlike 2008, however, the fundamentals of the banking system are much stronger financial institutions are well capitalised, reporting requirements are better than ever, and larger capital buffers are in place to allow additional lending.
Similarly, the Qatar economy is also more prepared today for these disruptions. In 2014, upstream hydrocarbon activities made up over 50 percent of Qatar’s nominal GDP in the last 1-2 years that number has been closer to 35 percent. Diversification efforts have helped strengthen the economy.
On the fiscal policy front, new revenue streams and cost rationalisation have helped improve the stability of government finances as such, we should also be able to avoid sharp and immediate reductions in government funding, contrary to what occurred after 2015.
Does the current oil rout contribute to the chaos; and if so, how?
The slowdown in the global economy from the government COVID-19 lockdown policies restricting business and the mobility of people, has triggered a sharp drop in the demand for oil and gas-based energy sources (power, gasoline, gasoil and kerosene) and their derivative products (such as petrochemicals). This, coupled with over-supply of oil going into the crisis resulting from the collapse of the OPEC agreement created a significant imbalance in supply and demand which has in turn caused the dramatic fall and continued downward pressure on oil and gas prices. Whilst the new OPEC agreement to cut 9.7mbpd of production will help to re-balance the markets, demand needs to rapidly recover over the next few quarters to limit further production curtailment or downward price pressure.
Lower oil and gas prices and general economic activity means investment in new resources and major capital investment projects are under intense scrutiny. Governments need to repair their financial health and continue to fund stimulus packages over a period when their oil and gas royalty and tax revenues are considerably lower. Companies also need to continue, restart and right size their operations, and carefully consider how to fund deficits as a result of the current crisis, alongside investing in future growth and expansion plans. Both governments and companies need the right enablers to deliver targeted and sustainable growth measures, from institutionalizing the recovery process, to designing and enacting proactive response accelerators, and to finally building capabilities that best map to the new post-COVID world.
How will Qatar’s QR75 billion stimulus help the private sector?
Governments around the world have declared temporary measures to extend a lifeline to businesses. Qatar’s strong foreign reserves and prudent financial management have allowed the government to deploy a sizable fiscal stimulus package to help navigate the economy through the current situation.
While some of the individual delivery mechanisms have yet to be defined, we expect the fiscal stimulus to provide relief to the private sector so businesses can continue to make it through Q2 and Q3 of this year. Some businesses will inevitably have to wind-down operations towards the end of the year, but the private sector that emerges will likely be more resilient and focused on finding new and innovative ways to increase productivity to support a return to normal.
Financial institutions will play a critical role in delivering the stimulus. The ultimate result should be a contraction in the non-oil sector that is not as deep as it otherwise would be. The spending is hopefully large enough to also avoid any long-term deflationary pressures - although energy prices may impact this. The private sector also has a responsibility, and a vested interest, in alleviating the social impacts of the COVID-19 crisis.
How will the pandemic affect the jobs market? Will it lead to greater unemployment and salary cuts? Which sectors are going to be hit the hardest?
There have been visible impacts on the job market with reduced working hours, temporary furloughs, and targeted headcount reductions.
The sectors most immediately impacted are clear air transport and aviation, hospitality and entertainment, real estate, discretionary retail, manufacturing, and tourism. It is difficult to forecast at the current time if these short-term impacts will translate into longer-term structural changes in the labor market.
That said, PwC Middle East’s most recent CFO Pulse survey suggests that 87 of executives in the region are looking into cost containment strategies and 51 will attempt to capture workforce savings as part of those cost containment efforts. What we can say with some degree of certainty is the current situation will accelerate trends we had already seen in the market, including moves towards remote work, increasing competition on brick-and-mortar shops from ecommerce, and a new push on digitization and automation. At PwC, we developed a new set of tools as part of our “New World, New Skills” proposition that will help our partners and clients overcome workforce challenges. For example, PwC Quest tool helps organizations manage workforce productivity, engagement and wellbeing, and provide personalised learning journeys for all employees to empower business continuity decisions. Our COVID-19 Navigator helps clients understand the potential impact to their business and gauge readiness to respond. Lastly, Our Digital Fitness Application (DFA) provides employees with a bespoke fitness plan to enhance their digital knowledge, and track their progress anywhere. DFA will be free for everyone, worldwide until the end of July 2020. ( ith inputs from ichard Boxshall ran Bracco and eil ’ eefe)