Effective Business Engagement Can Help Build Resilience in the Economy

The immediate emergency economic responses made after the Covid-19 lockdown were necessary if, for no other reason, than to calm the nerves of business owners and the markets.

The enormity of the situation facing not only the UK but the global economy was clear – now there has been some time for reflection the immediate emergency response needs refinement, and inevitably the needs of different companies will vary enormously. It is also obvious that some businesses will not survive – and in further response there is a need for prioritisation.

Effective business engagement can play a hugely valuable role in helping to build resilience in the economy. The planning for this work needs to start now and, and to be truly effective it needs to be integrated with an economic development strategy – in too many cases, however, it offers little more than ‘tea and sympathy’.

Running around, hair on fire, with a cheque book trying to help everyone is not an option, and a business engagement response that only involves frantically repeating the interventions laid out in government business support schemes is not really adding value. Any organisation successfully operating in 2020 can access and understand online information, especially
when their business survival depends on it.

There are two depressing realities that have quickly become apparent. The first is that any business that did not have three weeks free cashflow to survive the initial lockdown had limited resilience in the first place – accepting that no business would expect to lose 100% of weekly turnover overnight. The second is that micro-businesses or sole traders operating with very low levels of capital probably now face tremendous personal hardship but they, or somebody else, can resume their activity when the economy re-starts with very low levels of investment.

The four stages of business impact

It is possible to consider this crisis in stages and to begin to work through which sectors will be affected and during which stage – remembering that even in this environment there will be both winners and losers. The four stages are:

1. Immediate impact – it has been clear to everyone that hospitality, leisure and tourism has stopped overnight but there will be other immediate losers too, personal services and many retailers.

2. Supply chain impact – as the economy re-opens there is likely to be a stuttering start. The experience of Austria, Italy, Spain and others suggests that different sectors will re-start at different times. In the re-opening phase manufacturers and construction firms are likely to struggle to gain the supply of some business critical materials and this will cause further dislocation to markets.

3. Pipeline impact – the services industry, critical to the UK economy, is likely to have a difficult summer and autumn. Those who see out the crisis by working through their existing client order book then face a tough summer/autumn having had little opportunity to refill their pipeline during lockdown.

4. Recessionary impacts – it is likely, at least for the short-term, that cashflow and confidence concerns in both consumer and business sectors will reduce expenditure and continue to cause economic damage. If this is matched by fiscal tightening by a government seeking to reduce borrowing too quickly the position will be worsened.

The conclusion that can be drawn is that recessionary pressures will be in place for some time – and sadly some of the immediate business support measures, established with the best of intent, will simply have provided funding to firms unlikely to survive further, thus worsening the financial position of the government. Targeting support may be more time-consuming, but any further measures will need to back specific priorities rather than provide blanket support.

Clarifying economic priorities in response

The priorities for any given geographical area will differ – but at this point there is a need for economic development professionals to have absolute clarity on the sectors that provide the greatest value to their local economies. There is then a need for an understanding of which of these sectors are likely to need support and when.

There is a strong argument that any interventions also target those businesses which were hitherto profitable and have significant capital investment. It is that replacement of capital that will be the most difficult to achieve post-crisis, and just a truism that businesses requiring less start-up capital can bounce back (or be replaced) more rapidly. Capital-intensive businesses lost now may be lost forever.

In any analysis, however, some consideration also needs to be given to future trends. Covid-19 may yet cause a chain of events where the economy is never the same again – but more likely, when the economy has settled down, the crisis will have accelerated trends in the economy that were already apparent.

Online shopping, digital access of public services including healthcare, working from home, medical testing and diagnostics, and reduced expenditure in pubs are not new phenomena – but they are likely to be the ‘new normal’.

However, as is always the case in economic development, analysing events and drawing conclusions is the easiest aspect of the conundrum – the challenge is what to do next.