Businesses canceling planned investments

Majority of the respondents do not anticipate demand for their products to increase until after 2021

Kampala, Uganda | JULIUS BUSINGE | Several businesses are cancelling planned investments as a measure to survive the negative economic impact caused by COVID-19 pandemic, according to a new report published by the Institute of Certified Public Accountants of Uganda.

Dubbed ‘members survey on business re-opening and recovery survey’, the open survey was administered electronically to members from June 13 – 30, 2020 with a total of 120 respondents availing information for analysis.

The  sectors  represented  in the survey included; professional  services  (25%), financial  services  (15%), government  (11.7%),  educational  (5.8%), healthcare  and  social  assistance  (5%),  manufacturing  (4.2%),  energy  (3%),  logistics  and  transportation  (3%),  hospitality,  culture and entertainment (2.5%), construction (0.8%), retail (0.8%), IT and tech (0.8%), and   others   (21.7%). The others were; not   for   profit   organisations, aviation, oil and gas, insurance, telecoms, international development organizations, and the media.

The survey’s data collection was commenced in April 2020 during the first months of the COVID-19 pandemic in Uganda and the resultant lockdown that was aimed at curbing the spread of the virus.

Derick Nkajja (CPA), the chief executive officer at ICPAU said the survey revealed a shift in priorities of members and the general business community in the country.

He said whereas businesses were facing many challenges, they were not unique.

“…and therefore businesses would need to work and learn from each other in order to adapt to the new normal,” he said.

The report identified a number of challenges as a result of the pandemic including; operational issues, reduction in consumer demand, revenue losses and consequently cash flow concerns, client credit defaults/credit quality deterioration, supply chain disruptions and increasing costs of operation.

The pandemic generally led to businesses experience limited access to resources such as people, finances and technology.

“The lockdown and other containment measures created a lot of uncertainty for many businesses, and organisations had to quickly adapt or sink,” the report reads in part.

It says that majority of organizations also experienced and continues to experience a reduction in demand for their products/services, which reflects a decrease in aggregate demand due to the lockdown measures.

According to the report, many of the respondents, about 26% actually did not anticipate demand for their products and services to increase again until 2021 or beyond, while about 25% were not sure what post COVID-19 would look like.

Only about 19% of the organisations indicated that their products and services’ demand was unaffected by the COVID-19 disruptions.

The expectation of loss, according to the report, was uniform across businesses in all sectors.

Business revenues were expected to decrease too. About 20% of the responding organisations expected their 2020 revenues and or profits to drop by more than 50% while over 30% expect the drop to be more than 25%. Only about 1% of businesses anticipate an increase in their revenues.

Organizations’ revenue projections are expected to drop further. Majority of the respondents (over 40%) agreed that their organisations’ revenue outlook for 2021 is expected to decrease (more than 10% reduction) and only 3% indicated there would be no effect on their revenues.

The report says businesses need to adapt to recent innovations such as virtual meetings, online business transacting among others. But it says businesses need to further study their situations and apply the responses in line with their circumstances.

Tough financial decisions

Meanwhile, organisations were considering tough financial actions like implementing cost containment measures (82.5%); changing financial strategy (48.3%) and deferring or cancelling planned investments (46.6%) during this period.

The most common investment types that organisations were looking at deferring or completely cancelling were investments in general capital expenditures (63.3%; workforce (39%) and operations (29%).

Other responses included; providing timely guidance and advice to clients; engaging and dialoguing with stakeholders; innovating and adjusting communication strategies to keep connected (for instance using social media), implementing flexible work arrangements and safety protocols, revising operational structures and encouraging the use of digital communication and collaboration tools to stay connected and maintain productivity.

Almost 40% of the responding organisations do not expect their businesses to fully reopen until it is safe. Only about 12% expected to fully open at the end of the month of July.

Members indicated some of the measures their organizations had been taking to prepare for reopening, including developing policies and procedures to prevent the virus spread in the workplace, procuring masks and other protective equipment, and procuring necessary supplies/services to ensure effective workplace sanitation.

“Nearly all the responding organisations (over 90%) were confident about their organisation’s ability to meet customers’ safety expectations and provide a safe working environment for employees,” the report reads in part.

Meanwhile, employee attendance has dropped significantly on account of containment measures such as restrictions on travel.

Over 50% of the responding organisations indicated that their employees commute to office using public transport, and given the need to ensure social distancing in a reopened office setting, not all their staff could be safe in office on any given day.

Going forward, the report urges organisations to make changes in business operations and up-skill or reskill their workforce to support new business operating models, finding optimal solutions to deliver products/ services to clients (such as online delivery), accelerating adoption of digital solutions.

This, according to the report, will help them to try and recover lost revenue streams or diversify and develop new revenue sources while managing both strategic spending and operational costs.

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