Impacts of Covid-19 on foreign investors

The Overseas Investors Chambers of Commerce and Industry (OICCI) conducted among its member companies a survey this month to evaluate the impact and challenges arising out of Covid-19 on the businesses of foreign investors in Pakistan.

The results, reflecting the overall sentiments of the foreign Investors, provide the policymakers of the government realistic statistics and pointers to plan a meaningful strategy for the post-pandemic revival of country's economy. These findings may hold good for other large businesses in Pakistan as well.

Overall, like other businesses, Covid-19 has significantly impacted the businesses of foreign investors in 2020 and posed a challenge to the viability of their businesses for 2021.

The following are some of the key challenges:

• Financial hardship of their customers, reduced demand for products, travel restrictions to visit customers/suppliers, global recession, stress on cash flows, low customer confidence/spending, potential changes in regulatory framework and low morale of employees.

• For year end 2020 around 76% respondents have estimated that their businesses will be negatively impacted by 5 to 50%. However, 24% estimate a positive impact by 5 to 85%. The impact relates primarily to turnover. (The pandemic has resulted in turnover growth for the Pharma sector, FMCGs and businesses involved in sanitization related products, oxygen).

• Around 57 % of respondents expect that 90% of the work force is expected to be back at workplace by year end 2020, whereas 43 percent expect return in 2021.

• Businesses with reduced turnovers, affected by uncertainty in the business environment, have indicated holding back normal capital expenditure. However, 13% respondents expects to go for new capex in 2020 - to exceed the level of capex in 2019. The remaining respondents expect that under the changed business environment the capital spending of 2019 will not be exceeded before 2021 (28%), 2022 (49%) and 2023 (10%).

• The top business risks listed by the respondents in current environment are employees' safety and productively, meeting business targets due to uncertain demands, impact on customers and continuity/vulnerability of their business, supply chain continuity, short-term liquidity and providing safety nets for employees through additional benefits.

• Some of cost rationalisation measures being undertaken include cancellation of international/domestic travels (78%/60%), reduction in new investments (59%), hiring freeze (59%), and adjusting operations to adapt to new conditions (54%), marketing, sales and distribution costs, administration costs etc.

• Financial Support measures offered by Public Institutions are well recognized by Investors. A good 2/3rd of the respondents stated that support offered by government authorities is adequate or somewhat adequate. (Examples of support by authorities include SBP concessional rate on bank borrowings for payroll support, Ehsaas Program, etc.).

• However to seek further support from public institutions, in these unprecedented adverse business environment, the Investors, individually and through various other forums including the OICCI, approached the government/public institutions and requested: 1) a special business revival tax relief package; 2) investing in country's IT infrastructure; 3) deferring payments (e.g. various government levies, bank term finance), 4) investing in public development projects to promote growth, 5) easy access to funding requirements of businesses, 6) a centralized portal where all support being given by the government can be viewed, 7) temporary support for employee related costs, 8) a more flexible labor market policy, 9) mentorship and 10) cash grants (the last point by 3% only).

Foreign investors in Pakistan contribute over Rs 1.2 trillion tax revenue and make substantial investments in upgrades and expansions on a regular basis. The six-month-long cycle of economic contraction may end soon and the Ministry of Finance has predicted positive economic growth in the second half of 2020. The role of foreign Investors in the country is an important part of this economic revival. Their challenges and concerns need to be duly recognised by the government.

(The writer is former President, Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2020