For emerging markets, "never let a crisis go to waste"
Updated: May 6, 2020
Views with Acuity: Insights to Build Resilience (April 23)
Hope you and your loved ones are well, whether you're preparing for an extended lockdown as I am, or gearing up for the phased return of "normalcy."
Irrespective of where you are, for nearly all of us right now, our focus is self-preservation. It’s natural, then, to take our eyes off what’s happening in broader spheres, especially in emerging and frontier markets. Their currencies are under severe stress and many are staring at steep recessions, which risks reversing the economic and social gains of the past decade.
Emerging and frontier markets are key sources of growth for organizations big and small. Our focus on self-preservation, though, risks forgetting and alienating networks and colleagues in these crucial economies. This is not the time to neglect those relationships, both from a doing good and making profit motive. Taking a longer term view and cultivating your relationships - or investing in new ones - will pay dividends during the recovery.
For emerging markets, now is the time to push dogma aside and push through some hard decisions on reforms. Never let a crisis go to waste. As we are learning, there are no free markets during a pandemic, but state-backed ones.
Stay safe, stay positive.
Country Acuity Advisors - Insights
Beware of overly simple takes on the "future of everything": COVID-19 doesn't herald the end of globalization. Much will change, certainly. Some trends - like supply chain relocation - will likely accelerate, including movements away from China. But companies will still produce, some onshore, some at new locations, and some in China. Think critically about takes that are overly simple. Lockdowns forever? People won't go out to eat? Really? The world is incredibly complex. Simple binary narratives make for easy headlines, but mask the truth. So look deeper. To where might companies relocate? Where are the bright spots? They are out there.
Mistakes happen: plan to bounce back: It can be liberating to admit that no one, including you, is perfect. Who, for instance, saw any of this coming four months ago? Mistakes present opportunities to build resilience, but only if you draw the correct lessons. Maybe COVID-19 highlights the fact that you were too exposed to one country. Perhaps your supply chains were too China-centric, or your sales were too heavily weighted in the US. Maybe you didn’t have a proper currency risk management plan or a clear strategic direction. Now is the perfect time to plan for - and invest in - bouncing back.
Money still talks; so does geopolitics. Countless businesses want the US-China trade and technological tensions to end, and some wishfully think that COVID-19 will act as a catalyst. Contrary to the popular narrative, the virus is laying bare all the strengths and weaknesses of China and the US in their full glory; these tensions are going nowhere. China remains a large and lucrative market, but growing public and political calls to reduce reliance on China will increasingly be at odds with what businesses want. This battle of money vs geopolitical imperatives will put the raison d'etre to the test for some.
Scenario Planning - the nuts and bolts: Scenario planning is crucial, and doesn’t have to be complicated. Gather the leadership team. Or if you’re a smaller outfit, find a trusted business partner, friend or even your spouse. Spend 1-2 hours scanning the news. What are experts in the topic saying? After narrowing it down to 2-3 stories about what the future might look like, start brainstorming. Find a view that upends accepted wisdom. Use your expertise, knowledge and your gut: what are 1-2 other scenarios that can materialize? Then step back and revise. Just like that, you have 3-5 basic scenarios to consider and plug into your revenue, cost, and funding variables.
Three Things To Read this Week to Build Resilience
Can China lead the economic recovery from COVID-19? Will China emerge from the COVID-19 disaster with its global standing enhanced through careful use of soft power and messaging? Many investors and commentators articulate the view that Asia will lead the economic recovery from the current virus-induced recession. The economic arithmetic is far from certain and the efficiency of Chinese investment has declined. (Hinrich Foundation, April 7, Free to read)
Ranking capacity to respond to COVID-19. GeoQuant, a data-driven political risk predictive analytics firm, created a custom model to better capture a country’s political/social capacity to respond to a health shock like the COVID-19 pandemic. The resulting model overweights governance factors like State Capacity and Institutional Support Risk – which measure the strength of state institutions to enact and carry out policies and the government’s control of said institutions, respectively – as well as social factors like Health Risk (for obvious reasons) and Social Polarization Risk (an inverse measure of social cohesion). (Forbes, March 16, Free to read)
How to reopen society more quickly. Use the coronavirus’s latency period against itself. Countries are facing stark and terrible choices now. End the lockdown to restart their economies but risk the ravages of the Covid-19 pandemic, or prolong the lockdown and inflict more heavy damage on people’s lives and on the economy. There is a perhaps a way out: we can exploit the way the coronavirus develops in human beings to begin to open our societies for four days out of every 14. (Financial Times, April 21, Free to read)
COVID-19 Grants, loans, & other forms of assistance for companies in Asia-Pac - Asia Pacific MSME Trade Coalition (AMTC)
Evaluating the initial impact of containment measures on economic activity - Analysis by the OECD
Country by country policy responses to COVID-19 - Compiled by the IMF
Coronavirus: the latest - Financial Times tracker (Free to read)