Long, hard coronavirus recovery ahead for Asian companies, especially those outside the digital economy

Many executives believe economies will not return to pre-pandemic levels in 2021, suggesting little faith in prospects for a V-shaped recovery
Workers and firms not in the digital space face an even harder road, complicated by Covid-19, Sino-US tensions and the growing impact of climate change

Mark Clifford

Published: 9:15am, 23 Sep 2020

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The worst is over, or at least that’s what many Asia Business Council members think about economic prospects for the next year. They believe it will be another year or perhaps more, though, until economies return to pre-crisis levels. More jobs will be cut on the path to recovery. It will be a long, hard road back to economic growth, one which is going to be especially tough for many workers who aren’t in the digital world.

These are among the findings of the council’s latest annual members survey. The council comprises 70 CEOs and chairmen, mostly from Asia, who together run companies valued at about US$3 trillion and directly employ 3 million people. The survey was conducted from mid-August until mid-September and had a response rate of 83 per cent.

Half of those surveyed felt business conditions would improve in the next 12 months. That’s the highest number since 2009, when 67 per cent of those polled in the midst of the global financial crisis predicted conditions would improve in the following year. For now, we’re so far down that, for many business leaders, it might feel like the only way is up.

Still, opinion about a recovery is more divided than it was in 2009, with one-third of this year’s respondents predicting that conditions will worsen in the next 12 months. While lower than the corresponding figure of 55 per cent in 2019 and 47 per cent in 2018, this compares with just 6 per cent in 2009 and is among the highest degrees of pessimism since the survey began in 2006.

When will economies get back to pre-pandemic levels? It is going to be quite some time, if members’ forecasts are accurate. Just 19 per cent think economic activity will return to pre-pandemic levels by mid-2021. Another one-third think it will be by the end of 2021.

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By far the largest number – 41 per cent – think it will be 2022 or later. In short, most of these executives are writing off the idea of a V-shaped recovery and many seem to be writing off 2021.

Job losses are set to continue at many companies in the next year. Sales and capital spending – on computers, machinery, new offices and factories – are both expected to be up at about half of member companies. About one-quarter expect decreases and the remainder look for no change.

Yet when it comes to employment, the largest group – 38 per cent – expect employment to decrease from current levels. In all, about three-quarters expect staffing levels to stay the same or decrease. Only about one-quarter expect an increase.

Economists and consultants have long predicted technology will take away jobs. The Covid-19 pandemic may have hastened that moment. Asia’s policymakers need to think about what a jobless recovery will mean for their societies. For ageing, labour-short countries such as Japan, this transition may be a way of forcing long-overdue changes such as increasing service-sector productivity.

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For economies with younger populations and many people looking for their first job, this transition will pose stiff challenges. Take one of the star performers in globalisation, the Philippines’ call centre industry. It has thrived in the past two decades on the back of a large pool of reasonably priced, well-educated, English-speaking workers.

If AI and chatbots take away those jobs, what will replace them? There seems to be an almost insatiable thirst for computer coders, but there may be less need for employees who interact with customers and those who do more humdrum office jobs.

The pandemic has accelerated the adoption of digital business models, respondents noted. There have been difficulties – such as in developing company-wide work-from-home policies – but Covid-19 has been an opportunity, in the words of one member, “as it provides further incentive towards digitalisation, finding new efficiencies and promoting new and innovative business opportunities.”

If the digital transition is accelerating, are the educational systems set up to produce them in the quality and quantity that companies need or are workers going to be on their own? In India, ed-tech company Byju’s had 20 million new students join its free platform after a nationwide lockdown. To support growth, it has raised more than US$1 billion in 2020.

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Many council members have been hit hard by the pandemic. They have changed investment plans, restructured businesses, raised cash, laid off workers and shifted production plans. They expect to do more of this in the future. Most have seen sales decline, often significantly.

About one-quarter have seen revenues fall up to 10 per cent, another quarter by 10 to 25 per cent. Another 17 per cent have seen sales fall more than 25 per cent, sometimes even more than 50 per cent. This is corporate carnage the region as a whole has not seen since World War II.

If Covid-19 was not enough of a challenge, Sino-US tensions could make matters worse. Three-quarters of respondents expect a Joe Biden victory in the contest for the US presidency. However, 43 per cent think that would mean improved Sino-US relations while 14 per cent think they would worsen under the Democratic challenger. Among those who predict victory for President Donald Trump, 50 per cent expect Sino-US tensions to worsen.

There were some bits of good news in the survey. China remains an attractive investment location. About a quarter of respondents have considered postponing investment plans in China because of concerns about Sino-US tensions, but China still remains the top investment destination in the next 12 months, followed by the United States.

The worst may be past. Still, for companies or workers not in the digital space, it looks like a tough year or more ahead. Covid-19, Sino-US tensions and the gathering impact of climate change are acting as accelerants, reshaping supply chains and building more tech-heavy, less labour-intensive economies.

Mark L. Clifford is the executive director of the Hong Kong-based Asia Business Council

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