COVID-19 impact on business
The impact of COVID-19 on business has exceeded everyone’s worst predictions. It seems unreal that only a few short months ago we were discussing a regional outbreak in China and we are now in a situation where the entire global economy has all but closed up shop, millions have lost their jobs, and where there is no certainty of when our respective economies will open up, and what the recovery will look like.
In business, as in life, the only certainty is change and amidst this global crisis we are seeing a massive shift in the way business is conducted. The virus has forced a number of changes upon businesses and nowhere is this more prevalent than in the growth of the technology allowing us to continue to meet, share information, manage our businesses, and otherwise continue as best we can in an uncertain business environment.
Businesses are now discovering the true value of technology which in many cases have been around for more than a decade. Beyond being only a stop-gap measure to maintain productivity during a crises, it is apparent that businesses around the world are shifting their business models to adapt and make best use of this technology.
We have shifted onto a new development path and along with the risks come opportunities. Opportunities, that I will elaborate on here, that may just play in the favour of smaller cities such as Nelson Mandela Bay.
For workers, being physically present is set to become less of a requirement than ever before. With conferencing technology and improved project management and file sharing tools businesses are likely to continue to encourage remote working in the future. What will this mean for cities like Nelson Mandela Bay?
Brain drain is a very real phenomenon in smaller economies. The usual pattern is for top students to graduate from university and very quickly find an internship or employment position at a large firm in Johannesburg or Cape Town. A second wave of brain drain occurs when those who have stayed behind have progressed in their careers up to a point where any further progress means moving to a larger branch or head office in a larger city. In the future this may not be the case. And of course there are those leaving South Africa completely for greener pastures abroad.
With remote working, we may see many more people choosing to stay in Nelson Mandela Bay, while working for a firm based elsewhere. The income earned by these workers would all come back to Nelson Mandela Bay will ultimately be spent in the local economy thereby driving economic growth and stimulating employment.
With physical proximity to clients and suppliers seemingly mattering less in future, it will no longer be natural for home grown businesses to shift their headquarters, or entire businesses, to Johannesburg or Cape Town. In many countries a shift is taking place where companies are redistributing their workforces across existing branches or enabling them to work from home.
With respect to COVID-19, decentralizing business operations has numerous benefits. First, it allows office spaces to be less cramped, providing more space for social distancing. Secondly, it increases the resilience of the business to shocks. Imagine the headquarters of a large firm being shutdown due to a localized COVID outbreak amongst the staff. The impact would be considerable and it could take the business weeks to reorganize. With a decentralized model, the shutdown of one branch will matter less as the system is already in place, as well as the staff, to pick up the slack.
As South Africa continues with the phased lockdown system, it is likely that some cities will move from level 4 to 3, and 3 to 2 rapidly, while others may remain in level 4 for an extended period, or move down to level 3 before moving back up to level 4 should a second wave of cases occur. This provides further motivation for decentralization.
This would naturally benefit Nelson Mandela Bay, shifting more jobs back to the city when it needs them the most.
The secret weapon that Nelson Mandela Bay, and other smaller cities, may have in ensuring these opportunities are realized is the lower cost of living found in many smaller centers but also (perhaps paradoxically) low wages.
For individuals with a new flexibility to work from anywhere in the country, the choice suddenly becomes “If I don’t HAVE to live here, where do I want to live?”. Port Elizabeth may fail to compete with Johannesburg and Cape Town in many areas, but many individuals and families would likely be enticed by the low property prices (relative to the big cities), affordable schools (again, relatively speaking), safe suburbs, amazing beaches, and mild traffic.
For companies, the lower market wages in these smaller centers could present a significant opportunity to lower expenses in a time when the majority of businesses are suffering. Even post COVID-19 it is expected that business levels will take time to return to pre-COVID levels. In a world where the same job can be done from anywhere, why would businesses choose to employ workers in areas with higher market wages instead of those with lower market wages? It sounds bizarre, but so much about this time is. It could actually be a kind act to shift positions out of large cities.
Imagine you lived in Johannesburg and have had a 25% pay cut due to lockdown. It is likely that your business will continue to struggle even when our economy is fully open. Now imagine your struggling employer has a choice between putting your pay back up, and retrenching one of your colleagues, or keeping you both at lower pay for another year while the business recuperates, all the while the cost of living in Johannesburg has stayed at the same level. Now imagine your reduced salary would provide you the same pre-lockdown quality of life if you moved to Port Elizabeth, or George, or Bloemfontein?
With so many people living in Johannesburg and Cape Town originating from other towns and cities across South Africa, this could be a feasible, and attractive solution for both workers and businesses.
Earlier I touched on the issue of emigration. It is likely that emigration may be more challenging in the post COVID-19 world. It is expected that many countries, especially those developed economies which most South Africans emigrate to, will tighten their entry criteria and this will likely extend to immigration. But even if entry criteria are left as they are, the economic impact of the virus across the globe will mean new hires may drop significantly for the next year or two at least. South Africa is not alone in seeing mass job losses. As the world’s economies emerge from the economic crisis it is expected that efforts will turn to addressing local unemployment first before looking at outside hires. The world’s loss may be our gain, at least for the time. Those with eyes on a life abroad are still likely to leave the country, but until then these people (usually young, skilled professionals) could contribute greatly to our domestic recovery.
So how do cities like Nelson Mandela Bay ensure that we seize these opportunities? Are their any practical steps that can be taken to increase the competitiveness of the local economy vs. bigger cities? And what can our city do to ensure we stand out from the other medium sized SA cities?
There are many lessons we can learn from cities around the world. It is clear already that change is coming. We might not know exactly what a post COVID-19 world will look like, but even if the opportunities identified above are not fully realized taking steps to improve the attractiveness and competitiveness of our city can only help be better prepared to enter this unchartered territory.