The foremost concern facing Kuwait business leaders is the drop in oil prices, which, they believe, will have a longer-term impact on the economy than COVID-19.
KPMG has surveyed a number of business leaders from various sectors ranging from SMEs to big corporates. According to the survey, almost two-thirds of the businesses have been facing a steep downturn in revenues and disruption in supply chains since March. The majority believe that this lull in the economy is not going to end any time soon and may take 12–18 months.
According to Ankul Aggarwal, Partner, KPMG Kuwait,
“Re-strategizing for future, accelerating digital adoption and exploring new means of financing, together with showing agility in decision making are the key themes the businesses are focusing on.
The challenge for the business leaders today is to adopt a scenario-based planning approach, build dynamic capabilities and resilient operating models to tackle the rapidly evolving and uncertain business environment.”
According to the survey respondents, while COVID-19 will have a short-to-medium term impact on the economy, the decline in oil prices will continue to hit the Kuwait economy in the medium-to-long term. Kuwait’s oil revenues are expected to remain low in 2020 and 2021, and as oil is the major revenue grosser for the country, the economy is expected to see a decline of 5.4% in its real GDP in 2020. While the World Bank expects oil prices to stabilize in 2021, the economic growth is projected to stay low.
While multi-lateral economic organizations seem to be optimistic about 2021, the survey respondents expect the recovery to remain muted for a longer period. The low oil revenues combined with a widening fiscal deficit is expected to hamper the government’s ability to initiate large scale projects to drive economic growth.
Over two-thirds of the survey respondents shared that their revenues plummeted due to COVID-19. The decline in demand has been a major single factor leading to this decrease.Also, over half of the respondents echoed that they are unable to take any medium-to-long-term business decisions due to the uncertainty clouding the market, which further delays the scope of a quick recovery.
Legacy business and operating models have been challenged during the immediate aftermath of COVID-19. In light of this, more than 2/3rd of the respondents believe that revisiting business strategy is an important medium term measure. This could include reassessing the overall strategy, gaining visibility on growth avenues and undertaking performance improvement programs as necessary.
Since revenues have nosedived in most sectors, businesses have relied upon cash reserves and bank facilities to stay afloat. With receivables continuing to pose a challenge, businesses are likely to face increased liquidity crunch especially as bank repayments fall due.
Accordingly, 60% of the respondents, believe undertaking some form of financial restructuring and exploring new means of financing such as bonds, commercial paper, sale and lease back etc. may be necessary to address funding requirements.
Over 95% of respondents foresee technology to be the driving force in the post-COVID business world. Adoption of new technologies will pave the way for leaner organizations, which will help them reduce their fixed costs and push their bottom lines to some extent. Robotic Process Automation can contribute to operational cost savings by helping reduce employee costs with certain repeat activities being taken over by AI and mechanization. Workforce will then be available to add more value to businesses, focusing on core elements and driving revenue.
COVID-19 pandemic and the consequent disruption have taken the business world by surprise and caught most of them unprepared to tackle such a scenario. There is a strong consensus among the respondents that developing scenario based business plans would be necessary to prepare for such disruptions in the future and thereby minimize the disruption.
This survey included interviews with business leaders from various sectors such as education, agriculture, automotive, healthcare, real estate, telecommunication, finance, energy and several conglomerates. In addition, the survey respondents represented businesses across B2B, B2C, omni-channel, offline operations, public companies, and private organizations.
KPMG in Kuwait operates through its member firms KPMG Safi Al-Mutawa & Partners and KPMG Advisory W.L.L. providing a full range of audit, tax and advisory services to a portfolio of clients which include major corporations, government institutions, public sector agencies, and not-for profit organizations.
With over 200 employees and 9 partners based in Kuwait, we form part of a global organization of independent professional services firms operating in 147 countries and territories with more than 219,000 people working in member firms around the world drawing on global industry insights to complement our strong local knowledge. Learn more at kpmg.com/kw.