World After Covid-19: Decoding the New World Order -

-By Nikhita Ramakrishnan and Deepesh Dargar

Humankind is now facing an acute global health crisis. Perhaps it is turning out to be the biggest crisis of our generation. The decisions people, businesses and international organisations will take in the next few weeks will probably shape the world for years to come. They will shape not just our healthcare systems but also our economy, geopolitics, culture, and international relations.

In this article, we have tried to analyse the transformation of various facets of world order in the new post-Corona world.

Sectoral Impact:

The #covid19 outbreak has crippled several sectors abruptly, bringing the economy to a halt, and paving the way for an ocean of short term losses, and a grim outlook for most industries. The following is a brief synopsis of the extent to which certain sectors have been scathed, scalded, or burnt amidst this pandemic.

1.Tourism

Impact

Currently accounting for ~10% of global GDP, virtually the entire tourism value chain has been affected. According to reports, the industry has taken a huge hit with the suspension of visas, cancellations of visits by foreigners in the Oct to Apr belt. NRI visits that account for ~60% of Sep to Apr travel, stand cancelled.

Outlook

The World Travel and Tourism Industry (WTTI) estimates a loss of ~50mm jobs in this industry. For a price sensitive economy where unemployment is an existing concern, it is expected that this sector may take ~10-12 months to recover from the abrupt upheaval. Heavily affected tourist spots may see a much slower recovery trajectory. Social distancing may make people wary of large crowds and subsequently, religious tourism could suffer.

2. Airlines

Impact

Visibly one of the worst affected industries. According to reports, it is exposed to a loss of ~USD113bn globally. Q1 is largely regarded to be the strongest quarter for the Indian airlines' industry. As business travel stands stalled and the airlines face a volley of cancellations for vacation trips, the sector is reeling under the wrath of a major setback.

Outlook

The current demand drop could be perceived as temporary as airlines will continue to be essential to business operations. Demand is expected to revive fairly quickly. According to reports, metro routes are expected to see staggered growth post crisis. However, companies may consciously cut down on business travel to reduce costs, resorting to remote connection facilities, families may avoid travelling for a while, for safety as well as with a view to preserve disposable income.

3. Oil & Gas

Impact

Treasures are treasures only if demand exceeds supply. Oil prices have witnessed the worst plunge since the 2013 global shock. As the major industries like auto and transport come to a halt, demand has plummeted, to the extent that even the historic OPEC+ deal to reduce output by nearly a tenth from baseline of 11mb/d last week has fallen short of bringing the supply in line with demand. As Russia and Saudi continue to have their differences on oil supply terms, bringing in the threat of an oil supply flood in the market, Non-OPEC countries like China and Norway have also reduced output.

Outlook

According to Forbes, post-pandemic scenario may see a short rise in demand, however, a stable market establishment largely depends on the terms that the OPEC nations agree to, to further curb output. According to reports, crude and LNG prices are expected to rise, owing to increase in demand. The industry recovery rate will largely depend on the recovery rates of the sectors it supplies to.

4. Retail, ECommerce

Impact

Even today, majority of the Indian consumers habitually shop offline in particular categories, like groceries, even with the advent of e-grocers like BigBasket. However, now, consumers are forced to resort to online shopping in several categories. Several other industries enter the space to capitalize on the sudden surge in demand. Food delivery apps are teaming up with the big retail powerhouses to ensure last-mile delivery, the hyperlocal marketplace has become very attractive with strong reliance on the ‘Mom and Pop’ stores in one’s radius.

Outlook

It will be interesting to see whether there will be a habitual change in this space as in the case of digital payments processing industry with the rise of Paytm in the backdrop of demonetization. In such an event, several e-players may actually gain a stronghold. The hyperlocal marketplace model may grow sophisticated enough to gain roots in the long run. Greater integration between mass e-retailers and delivery businesses is expected. However, the resultant stronger ecosystem could mean higher barriers to entry.

5. Financial Services & Fintech

Impact

As credit risks are skyrocketing, businesses are struggling to transform their business models. With a greater risk aversion mindset, alternative investments and venture capital funding may suffer. It is expected that big, sound institutions may weather this storm but as funds dry up, smaller, more vulnerable institutions with higher exposure may have to exit the market. As transactions drop exponentially across the world, lower transaction fees could signal a drop in short term profitability, affecting the fintech value chain, including suppliers of transaction processing devices, according to reports.

Outlook

We expect a long-term upsurge. The reduction in transaction volumes can be perceived as temporary. The reliance on UPI has risen, and several businesses skip a cash mode of payment. With risk management becoming a major priority, stronger backend development, and exploration in areas like blockchain could imply a huge focus on this sector.

6. Insurance

Impact

Insurance sector in India has seen a significant rise in the number of claims being made in light of COVID19. According to reports, there is an enormous demand for new products and schemes for protection against COVID19. By regulatory instructions, policyholders for certain categories (travel) have been permitted their policy dates extensions without extra charges.

Outlook

Risk accounting is one of the major activities in Insurance. Post-pandemic times may see this sector adopt a much more cautious approach in its risk pool selection. More stringent standards could be set before selling insurance products and in fact, this approach could be adopted by various entities like mutual funds, pension funds, RMBS and several ABS. This could perhaps make it more difficult for people to avail an insurance.

7.Telecommunications 

Impact

According to reports, there has been a 10% increase in data demand to cater to WFH requirements as well as the fact that a lot of Indian consumers are availing several streaming OTT services. Demand for data dongles have doubled. However, news suggests that telcos expect to see a drop in subscriber additions in light of the lockdown.

Outlook

The sector had already been plagued with price wars and low ARPUs due to disruption activities and consolidation of the major players. We expect the situation to improve. Data is a major growth driver and post-corona, it is expected that data demand may see a healthy growth as people get accustomed to higher data usage. Moreover, with the sector focusing on the 5G rollout, coupled with an overall increase in online education and digital healthcare, data consumption could help improve the sector situation.

8. Healthcare

Impact

There has been a major impact on the healthcare supply chain. Right from testing devices to PPE kits to sanitization products to masks, companies are working relentlessly to meet demand.

There is a huge demand for medical staff to contribute almost non-stop hours to cater to the patients and testing in labs, quarantine facilities. Several pharma companies are partnering to develop a vaccine candidate. The pressure as well as risk on this sector is palpable.

Outlook

Reports suggest that this pandemic could transform the way the healthcare sector works. Greater trust may be established in digital healthcare. Till now, world economies had been largely dependent on China for certain medical components. Countries may now focus on in-house production, reducing external reliance and risk, and also increasing employment and domestic skill development.

Data Source: https://www.statista.com/statistics/268826/health-expenditure-as-gdp-percentage-in-oecd-countries/

Transformation in Business Models: 

With the epidemic getting worse the rivalries have submerged into cooperation. Recently we have seen Apple and Google working together to track APIs for Covid 19. Similar transformation can be seen in near future regarding integration of supply lines of corporates with delivery partners to ensure last mile delivery. Currently, groceries and daily essentials follow a brick and mortar model wherein manufacturers sell their goods to wholesalers and then to retailers from where customers purchase goods.

In the wake of Covid-19 lockdown we see a lot of FMCG companies (ITC,Dabur,Marico etc.) deliver goods directly to customers by partnering with ride hailing companies like Ola & Uber or food delivery companies like Swiggy and Zomato.

It is possible that we might see a transformation of business models of these companies wherein direct delivery models can be adopted. However, there solutions might still be coupled with a lot of challenges 

Geopolitics/International Relations:

With COVID-19 creating health havoc, international relations are going to get tense in the near future. With the ongoing trade war between US and China coupled with this pandemic Trump led United States will put immense pressure on international organisations to boycott chinese goods and shift economic production units from China. An important choice we confront is between nationalist isolation and global solidarity.

International negotiations will also surround giving protectionism and developing healthcares. We might also witness enhanced cooperation between countries to develop a framework on global environment protection and mitigating future environment and health risks.

Though it is quite evident that China’s failure to disclose the issue and delayed actions for containment led to this disaster but It is quite unlikely that China will be forced to pay reparation damage to the rest of the world for “engineering” this epidemic like Germany never paid for World War 2, Great Britain never paid for colonialism another chapter will be added in that series “China never paid for Covid-19”.

Role of International Institutions:

All the international institutions were prepared for a nuclear war and assumed only war can destroy the world order. The institutions became complacent and neglected any possibility of a health disaster. As a result, the world was not prepared for such a pandemic and thus it led to loss of trillions of dollars and millions of lives - an impact much larger than what potentially trade war could have done.

US has blamed WHO for mismanaging the crises and thus stopped it’s funding amidst this crisis. UN Security Council to a very great extent failed to perceive this threat and make subsequent arrangements. Similar is the case with the EU where all the member countries defied the code and became more inward looking.

In the new world order there will be questions on the functioning and independence of these international institutions. Will we witness the emergence of a more representative international organisation? Will China, US and Europe be willing to give up exorbitant power to the likes of India, Africa and other developing countries?

Source: https://news.cgtn.com/news/2019-11-10/UN-work-and-reforms-at-risk-as-member-states-default-Lv2jArKWvm/index.html 

De-Globalisation of Manufacturing:

Most of the countries depend heavily on China for raw materials owing to the huge manufacturing capabilities of this country.However, from the beginning of the year all the major countries are suffering badly due to lack of raw materials. Companies have put in too many eggs in one basket and failed to diversify. As a result when China sneezed the entire world catched cold.Now, in the new world order companies will and have already started mapping countries wherein they can diversify their supply lines to reduce over dependence on China. Japan, Italy,Britain, US and other european countries are already discussing this shift in the new world order.Japan has already announced a bailout package of $ 2.2 billion to help companies shift their production bases from China.

The likely beneficiaries of this De-Globalisation can be Mexico,Vietnam,Bangladesh and India. The former 2 being the most likely due to better infrastructure capabilities. However, it is unlikely that China will lose out as a manufacturing superpower in the next 30-40 years owing to the huge dependence of corporations and presence of advanced manufacturing capabilities with them which all other countries lack.

Freefall of GDP:

With the prolonged lockdowns all over the world and major economics on a halt there is an expectation of recession hitting the global economy soon. As per IMF this recession would be much worse than what we saw during the Global Financial Crises.Global economy is likely to be contracted by 3% with India and China likely to be only 2 major economies registering positive growth.

Most of the economies are overly leveraged and bailing out sectors and companies would be a difficult task. Recovery though is expected a bit faster in the post Corona world with an estimation of 12-18 month cycle depending on the severity of crises. 

Data Source: https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/

Post Covid-19 world will not be the same as before. There will be humongous changes in healthcare, infrastructure, geopolitics and global peace. Redefined conversations are to be established to ensure social and economical order. 

Amidst these crises humanity has to make a call - to choose the route of disunity or to adopt a path of global solidarity. The actions we take today will shape the new global order we have to live in.

In previous crises of 2008 financial crises and 2013 Ebola crisis the United States emerged as a global leader to save humanity. However, the current US government has made it clear that they put national interest well above humanitarian interest. Now the next question is who will rise above to emerge as a global leader to save humanity and redefine the new global order?

References:

https://www.business-standard.com/podcast/current-affairs/how-telecom-sector-is-coping-with-a-10-data-demand-spike-amid-covid-19-120032301553_1.html https://www.forbes.com/sites/michaellynch/2020/03/25/when-and-how-will-oil-prices-recover/#7946d9374fb0 https://www.offshore-technology.com/features/coronavirus-impact-offshore/ https://www.spglobal.com/en/research-insights/articles/you-don-t-always-get-what-you-need-covid-19-s-impact-on-healthcare-supply-chains https://www.bloombergquint.com/business/covid-19-an-inflection-point-for-indias-insurance-sector-says-hdfc-life-ceo https://economictimes.indiatimes.com/wealth/personal-finance-news/covid-19-impact-irdai-asks-insurers-to-allow-travel-insurance-policies-extension-sans-charges/articleshow/74909336.cms?from=mdr https://thefinancialbrand.com/93679/digital-banking-fintech-finance-investment-coronavirus-impact-trends/ https://www.google.com/url?sa=t&source=web&rct=j&url=https://m.economictimes.com/news/international/business/coronavirus-could-cost-airlines-usd-113-bn-revenue-in-2020-iata/amp_articleshow/74492482.cms&ved=2ahUKEwierbPjlu3oAhVf7XMBHfAzAosQFjACegQICBAC&usg=AOvVaw2CREzDfdxVlQZRjblWYBRq&ampcf=1https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.weforum.org/agenda/2020/03/world-travel-coronavirus-covid19-jobs-pandemic-tourism-aviation/&ved=2ahUKEwjY3q__lu3oAhUq7HMBHTRWDa0QFjABegQIAxAB&usg=AOvVaw2EQl7pfxvKxVC3jlHbWBtV&cshid=1587048139321

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