Rob Walker, Managing Director UK&I at Cognizant explores what a positive pathway out of the troubled economic situation could look like
Understandably, Covid-19 and the ongoing impact of Brexit have created uncertainty that has affected business confidence. As a result, business investment slowed significantly during the latter half of 2020, largely because neither business leaders, nor anyone, knew what the rules or future would look like.
On top of this, governments around the world have had to make interventions that just a little over a year ago, we could have never imagined – for example, protecting employment with furlough schemes and other business loans. While vital to keeping the economy afloat, as restrictions continue to ease and normality becomes a more realistic goal for the near future, businesses are becoming increasingly aware that at some point these loans will have to be re-paid.
Industries such as hospitality and commerce have arguably been affected the most, especially due to national lockdowns. However, these industries are considered vital for the local economy and are now in dire need of an economic booster as they struggle to get back on their feet. The newly-announced increase in corporation tax is one way some money will be recovered, but many organisations are still worried about the consequences of having accepted the loans in the first place, which at the time were vital lifelines.
Putting money back into the economy
Shrewd business leaders in all industries and sectors should now be looking at initiatives that will enable them to transition out of the pandemic and set a clear plan in motion to help their businesses thrive again after the continued uncertainty and economic downturn. One way to do this is through learning from the difficulties that they faced in the beginning of the pandemic and looking to build on that resilience. For example, expanding on trends that have come to fruition through the pandemic, such as digitalisation, automation and sustainability, will help businesses thrive in future.
The amount of savings that have gone into consumer households thanks to not having to, or being able to, spend money on things like commuting, holidays and going out, is already beginning to quickly unwind in the short term as businesses begin to re-open, and will continue to do so once the working from home advice is eased and travel restrictions reduced. On top of this, with a clearer view of the future, organisations are now much more confident about beginning to invest back into their business.
Some businesses will actually prosper in the coming year as a result of the pandemic. The industrial rethink has caused tech start-ups to thrive, as more sectors discover the advantages of digitalisation, with start-ups frequently offering innovative solutions in these sectors. It is now a matter of ensuring that there is capacity to capitalise on these prospects.
Investments that remain attractive
We can expect to see a wave of deals in the next year as global businesses look for assets within the UK. Additionally, private equity has a significant amount of funding to deploy, meaning organisations are now in the process of reviewing the right assets to invest in.
As the Covid-19 vaccines continue to roll out, including the booster that older age groups can expect in the coming months, and restrictions progressively ease, economic recovery is expected to develop throughout the rest of 2021 and beyond. Businesses, and even consumers, have shown resilience during the pandemic, and have been innovative and flexible to adapt to the constantly changing landscape of barriers, rules, and lockdowns. While the restrictions undeniably caused disruption, the lessons learned will help minimise future economic impact.
The fall in business investment was a major factor in the economic worry that was forecast over the last year. However, with the recent enhanced capital allowances and an increase in public investment, there are predictions of growth in fixed investment, with the EY Future Consumer Index reporting a 10% growth in both 2020 and 2021.
In addition, many innovative solutions have been developed in several industries, including health, pharmaceutical, logistics, and of course, technology, which bodes well for a strong corporate recovery. For example, in the U.S., Zipline partnered with Novant Health to distribute medical supplies to hospitals via drones. In fact, Cognizant’s Center for the Future of Work has conducted research that shows, for example, that life sciences organisations will prioritise digital-first investments in order to meet their ambitious plans to get ahead of the competition.
Another key area for investment is sustainability, with the Center for the Future of Work predicting sustainable investment to total $3.4tn by 2030.
The rise of onshoring
Onshoring has been on the rise recently, not only for political reasons, but also due to the compelling economic arguments. For example, advances in workers’ rights and pay in developing countries have somewhat cancelled out some of the held cost benefits of manufacturing abroad. The pandemic has also highlighted the hassle and complications of the supply chain. By shortening and automating the supply chain, the benefit of cheap offshored labour is disproved.
Cognizant is one of the many businesses that we can expect to see trying to increase its onshoring capabilities, with the company planning to make at least 1000 more jobs available in the UK across all levels. The company also has plans to work with the likes of the Prince’s Trust to support this and attract the best and broadest range of talent, including people from underprivileged backgrounds.
A brighter prospect on the horizon
As the saying goes, we are not yet out of the woods, but it does seem an ecosystem that promotes investment in many industries and sectors has slowly appeared in light of the pandemic. As our global situation continues to gradually return to normal, it will be interesting to see what new investment landscape emerges for businesses.