Emerging from COVID-19: A Kuwait perspective
24 November 2020: COVID-19 has accentuated the need for Kuwait to diversify from its reliance on oil. So how can private sector organisations adapt to meet the challenges?
ICAEW conducted a webinar: Emerging from COVID-19: A Kuwait perspective on 5 November alongside Harsha Prakash, Associate Director at KPMG in Kuwait.
Currently, about 90% of the Kuwait government’s revenues are derived from oil, a sector that has been in turmoil over the past two years due to price pressures driven by oversupply and the gradual move towards renewable and clean energy sources. This has placed stress on Kuwait’s national treasury, even before COVID-19.
The pandemic came as a double whammy to Kuwait’s economy – with global lockdowns to tackle COVID-19 creating an almost overnight drop in demand and oil prices and local lockdowns impacting economic activity. As a result, Kuwait’s economy is now having to tackle a growing budget deficit, limiting its ability to drive economic recovery.
Kuwait, under its Vision 2035, aims to transform itself into a world-class financial and commercial centre with a focus on governance, ease of business, infrastructure, education and healthcare.
Businesses in Kuwait believe that the current oil revenues situation will have a long-standing impact on the economy, a KPMG Kuwait Business Leader Survey conducted during April – May 2020 showed. The survey also highlighted the impact of COVID-19 on businesses in Kuwait, with 66% of respondents reporting demand and revenue decline and 44% of the respondents reporting uncertain liquidity situation.
How have Kuwait-based businesses stepped up to the challenge of COVID-19?
Legacy businesses that relied on foot traffic in the past, started adopting e-commerce channels and accepting online payments to keep the business operations running during COVID-19. This was reflected in the volume of online payments in Kuwait almost doubling between March and June 2020, from USD 1.18bn to USD 2.03 bn dollars, as shown by a recent KPMG Kuwait insight.
During the webinar, Harsha Prakash highlighted that “most businesses had a long-term digital transformation plan, but the pandemic has brought forward the plan by at least four to five years”.
Some Kuwait businesses managed to pivot their operating models to tackle the COVID-19 impact, with some switching their customer base from B2B to B2C (or vice versa) to serve the needs of the market, diversifying their product ranges and embracing new operating models – such as ‘dark stores’, ‘virtual/cloud kitchens’ etc.
Agile businesses were prepared to redeploy their resources into different streams (eg, some companies redeployed store workers into delivery roles) to weather the storm. Unsurprisingly then, KPMG in Kuwait’s Business Leader Survey showed that 80% of Kuwait’s business leaders said COVID had changed the way they serviced customers.
How can businesses survive and thrive in the ‘new normal’?
It is firstly important to understand what this new normal could look like for Kuwait’s businesses. Prakash gives his view:
Increasingly savvy customers
Customer behaviour is changing. Consumers have more choice, more information and are looking for greater value. Businesses should be prepared to recognise these shifts, listen more to their customers and leverage consumer data to make informed business decisions.
COVID made businesses realise they need to be more agile to improve their resilience and efficiency. Businesses need internal capabilities and business intelligence to act swiftly on decision making and managing the changes.
A larger role for digital
Digital is here to stay now as the traditional ways of doing business have been challenged. Companies need to consider where technology can play a role in enhancing their services and improving their efficiencies.
There is greater uncertainty (political, economic etc.) around the world and the possibility of future pandemics. Business continuity plans and scenarios have been talked about but not many businesses have adopted them. It is key for businesses to be prepared for alternative business scenarios.
Data at the centre of decision making
There is more data available now as people have begun living a more digital life. Businesses need to use this data to help them make the right business decisions.
What’s the best route to recovery?
Prakash believes it very much depends on the extent of disruption sectors and its businesses have suffered as a result of COVID-19 and how long that disruption will last – for example, have customer behaviours changed in the industry and are there any new long-term barriers to operating in a given industry?
The other consideration is where they stand as a business, in terms of their own position in the market and strength as a business (financial or otherwise).
This diagram outlines what KPMG’s Harsha Prakash believes to be the best course of action for businesses, depending on how they’ve been affected by these two factors.
Find out more about ACA training in Kuwait here.