Pursuant to the continuing spread of the COVID-19 outbreak, the Kuwait government took immediate steps to contain the spread of the virus including implementing a lockdown and selective curfew. Considering the situation it recently extended the lockdown period until the end of May 2020. The lockdown has caused widespread disruption to normal life and business activities in Kuwait. The International Monetary Fund (IMF) is referred to this crisis as "The Great Lockdown" and the worst economic downturn since the great depression. It predicts global growth in 2020 to fall to -3%.
The GCC countries are heavily reliant on oil revenues and have been hit harder as oil prices reached record lows due to a combination of falling demand and increased supply as OPEC+ alliance partners failed to reach a consensus in March 2020 on production cuts. While the OPEC+ eventually on 12 April 2020 agreed to a daily production cut ~10 million barrels, the price outlook for oil price continues to remain bleak. Unlike the global financial crisis of 2007-08 that was precipitated by financial market liquidity, the current economic crisis is a result of combination of a supply, demand and financial market factors. The consequences have been swift with job losses already dwarfing what was seen during the Global Financial Crisis.
In 2008, Kuwait was facing a similar issue when the prices of crude oil fell by ~60% causing a domino effect on the country’s GDP and government revenue, which slipped by ~23% and ~35% from their previous year levels respectively. However, the government of Kuwait intervened to revive the economy with various monetary and fiscal measures to boost markets and stabilize the financial sector. Similarly, the government is taking a number of strong measures to manage the situation caused by the COVID-19 pandemic such as increasing the budget of government departments by KD 500 million, stimulating liquidity in the economy though the Central Bank and facilitating financing support to the negatively affected. Even with these measures, anticipation is, it may take several quarters for normalcy to return fully.
The above makes it critical for businesses to conduct an operational and financial health check to understand the issues/problems and the risks they are or could be exposed to in the coming months; the steps they could take to mitigate or defuse the situation. One of the immediate steps should be to concentrate on liquidity and cash management. This includes forecasting monthly cash flows, assessing liquidity position, monitor working capital and revisiting your financing options.
While the immediate impact of the economic slowdown is being felt in the consumer-facing industries, other industries are also grappling with cash flow issues that may impact their ability to sustain business activities. This makes it critical for businesses to understand both near and long term implications and be prepared to navigate the challenges
While an immediate plan is directed towards preserving the business, a medium or long term-plan is critical to ensure that your business reemerges stronger from this crisis. Such long-term plans may include revisiting your business strategy and operational models in the context of the changes in the market landscape, reimagining your supply chain and greater integration of technology to increase efficiencies.
To achieve the said plans, organizations can take considering the following four steps.