Why Covid-19 pandemic is no longer a big threat to firms

Businesses appear to have acclimatised to the disruptions of Covid-19, despite the ravaging impact of the pandemic on economies across the globe.

The level of the pandemic’s threat on businesses is significantly less compared to the previous year, according to a report by global financial services company Allianz.

While Kenya and the rest of the world are still navigating through the pandemic with notable small wins dotting the journey back to normalcy, it would have been anticipated that the pandemic would be high in the list of risks for businesses.

This is considering that some businesses, such as those in the tourism sector, are yet to fully recover from the effects of the pandemic.

However, the Allianz Risk Barometer 2022 says the threat of pandemic outbreaks that result to workforce issues and restrictions on movement is ranked fourth, significantly lower than last year when it was second.

Cyber, business interruption and natural disasters are the other top three business risks globally in 2022, according to the survey by Allianz Global Corporate and Specialty.

Most mentioned

The report lists 10 risks with cyber threats leading with 44 per cent while pandemic outbreaks such as Covid-19 was viewed as a risk by 22 per cent of the respondents.

In the previous 2021 report, pandemic outbreak was the second most mentioned risk while cyber security was third most mentioned. The leading threat then was business interruption.

The drop in pandemic risk level this year is largely because businesses are confident in their ongoing contingency plans and future preparation, the report says.

It, however, warns that future ‘black swan’ events such as the Covid-19 pandemic are likely to come from other sources.

“As the emergence of the Omicron variant at the end of 2021 demonstrates only too well, pandemic-related problems are far from being a thing of the past and are likely to overshadow business’ ability to perform in at least the first few months of 2022 due to ongoing restrictions and potential staff shortages and absences,” the Allianz report says.

Still, many businesses feel they have adapted well to the pandemic. The report reveals that when the respondents were asked how ready their company is for a future event, 80 per cent said they are “adequately” or “well” prepared.

Nine per cent could confidently say they are “very well prepared”.

“However, just 11 per cent feel inadequately prepared,” the report says.

Initiating or improving business continuity management is the main action companies are taking to make them more resilient.

Kenyan risk managers were among the 2,650 respondents interviewed across 89 countries. They included risk consultants, underwriters, senior managers and claim experts in the corporate insurance segment at Allianz and other affiliates.

The poll was done in October and November 2021 and covered small, mid and large-size firms in 22 industries.

As anticipated, with businesses now relying a lot on technology to circumvent restrictions that have affected their normal operations, the risk of cyber insecurity in this year’s barometer went up four points to 44 per cent, the most mentioned threat compared to 2021 when it was in position three with 40 per cent.

The risk barometer raises concerns on the speedy digitisation as a result of the pandemic, noting that this could be setting the stage for the next ‘black swan’ event due to the rising fears of cyber threats.

“Technology-related issues rank as the biggest and most impactful changes to result from the pandemic. The adoption of new working practices and greater digitalisation are the two biggest impacts cited by respondents, while increasing cyber risk is fourth,” the report says.

Supply chain disruption ranks highly in third as a cause of business interruption.

“Shipping and transportation disruption is also a consequence of the pandemic, as Covid-19 port closures, labour shortages and a sudden surge in demand for container shipping has caused major delays and increased costs for businesses,” Allianz says in the report.

The rising business confidence was also noted by Central Bank of Kenya in the Monetary Policy Committee CEOs Survey of January 2022.

The survey sought the executives’ outlook on their companies, sectors and the Kenyan and global economies over the next 12 months.

Two hundred and thirty CEOs from domestic and multinational firms were polled.

The respondents from over 10 sectors were most optimistic about the growth prospects for their companies.

Their grounds for this optimism was mainly due to improved consumer demand, lower inflation and lifting of Covid-19 restrictions.

“In the services sector, business prospects are especially higher for firms in professional services, where activity continues to recover following the easing of Covid-19 restrictions and pick up in consumer demand,” says the CBK report.

It says business recovery continues to be supported by government investment in infrastructure, with the upturn expected to continue after the elections.

“Nonetheless, some sectors continue to face Covid-related restrictions in source market countries, thereby dimming their company growth prospects.

“Risks posed by the Covid-19 pandemic have moderated as the pace of vaccination picks up,” the survey noted, adding that the recent cut in energy prices will also play a role.

Some firms are already posting good returns, showing that business is recovering.

East African Breweries, for instance, recorded a profit of Sh8.7 billion for the first six months to December 2021, more than double the Sh3.79 billion that the company reported in a similar period in 2020 during the height of Covid-19 when bars and restaurants were closed.

The tourism sector has also seen improvement as latest data from the government shows earnings in 2021 increased to Sh146.5 billion compared to Sh88.6 billion in 2020.

Though still not back to 2019 level when the sector earned Sh162 billion, the jump is significant considering the industry was one of the hardest hit by the pandemic.

When asked what changes the CEOs are seeing as a result of the pandemic that are most impacting to their company, the risk managers surveyed by Allianz picked out new working practices - such as remote working - as the most significant with 59 per cent of the respondents mentioning it.

Acceleration towards greater digitisation came second (50 per cent), followed by supply chain disruption (41 per cent) and increased cyber risk at 37 per cent.

Philip Beblo, global property industry lead for technology, media and telecoms at Allianz Global Corporate and Specialty, said the big changes in working practices and business models are already being seen; and many of them are here to stay and will end up shaping business interruption and exposures.

“There will be challenges for cyber security and IT capacity as moves to digitisation and remote working are scaled up,” he said.

“But there will also be opportunities, such as more flexible ways of working and access to more data with which to manage risk.”