Looking ahead towards a transformed world post Covid-19
The Covid-19 pandemic has now reached a phase where lockdowns are giving place to a gradual reopening of world economies, allowing a more realistic glimpse at what the future may hold, the main “disruptive” changes that lie ahead of us and, above all, prepare us to be ahead of the pack taking maximum advantage of the ensuing new normality.
The short-term emphasis will naturally continue to be on containing and mitigating the disease itself. The economic impacts have, however, been enormous, and the whole world is looking at how to return to pre-Covid GDPs, or for companies, to their historic revenues & profits.
We have gone through some unimaginable situations these past months, starting of course with the impact that this pandemic has caused on human lives: today we have approximately 8 million Covid-19 cases at a cost of almost 450 thousand lives.
Another unheard of situation was the fact that the price of a barrel of West Texas Intermediate (WTI) turned negative for the first time in history. Brent crude price also fell below US$20, the lowest level in the past 18 years.
How can we find reasons for optimism in the near future? There are definitely some short-term good news; but beyond them lies a new challenging reality, which we must seek to transform into opportunities if we use the adequate toolbox of disruptive transformation!
The good news: there will be a vaccine soon. Probably in the next 6 months, which would mark the first time ever a Coronavirus vaccine is developed, not to mention a world record in terms of time to market for any vaccine in general. Just this past week a consortium of European countries has agreed to distribute almost 400 million doses of (a possible) vaccine from AstraZeneca to its population, hopefully in late 2020 or early 2021. A challenge still to be solved is that we don´t know how many samples will be available short-term, which could lead to an initial unfair distribution. Another concern is the cost of the vaccine… will it be affordable, only for the more developed countries, or even worse, only for the super-rich? Bearing in mind that effective global protection will only occur if the whole world receives the vaccine.
The not-so-good-news: Below is the IMF forecast of the impact of Covid-19 on the most developed economies this year, as published recently by the BBC:
Before the Covid-19 pandemic, the US had its lowest unemployment rate since the late 1960s, approximately 4%. This grew to almost 20% in April and went down to just over 13% in May, remaining, however, higher than in any previous postwar recession. Below the graph published this past week by the US Bureau of Labor Statistics.
Moving forward: We can safely predict strong paradigm shifts in many aspects of our pre-Covid normality. This will bring very relevant changes to our lives, which we must embrace as inevitable, but also as opportunities, if we are able to foresee and explore them.
Our Digitally Transformed Lives
University life seems to be set to not returning to what it was before. Online education was already affecting the traditional college alternative. However, Covid forced everyone to move overnight to E-learning, and, incredibly, it mostly worked. Particularly lower cost college education will suffer an impact, as it will become questionable as to why spend US$30K/year for this education when there are online alternatives at a fraction of the cost, when not altogether free. It seems safe to assume that some community or even state colleges might disappear altogether. Another area of impact will be campus life and associated dorms and canteens. This will also change substantially, at least until global vaccination is successfully available.
Traditional onsite workforce as opposed to teleworking is also something that will substantially affect work patterns in the future. This in turn will affect important sectors of our economy today, particularly the business real estate market. Why spend millions to lease a Fifth Avenue Office Space when your competition is working perfectly well using digital tools from their home offices? This extra cost, especially in these pandemic and post-pandemic times, will make a big difference in a company´s bottom line.
Business Air travel and Hospitality is another area seriously affected by the pandemic. We have testified in person how effectively we can carry out business meetings using digital media like Zoom, Webex or the likes. Why incur in the costs associated with long distance travel and hospitality, when we realize we can save not only the money but also the time and all associated travel risks by using these alternative and very effective digital alternatives? Business travel will not disappear, but will suffer a relevant contraction, affecting airlines, and rental car and hotel chains. As for leisure travel: this will probably resume to pre-crisis levels… but only after people have reacquired their pre-Covid incomes and only after successful global scale vaccination is in place, something that could take some years to happen.
As often emphasized by Peter Zeihan in his books and webinars, the world was already experiencing a shift from globalization generated by the change in the population demographics of developed countries, where post-growth mindsets started to become more mainstream. This was mainly characterized by societies starting to use social well-being and ecological discipline as their main drivers as opposed to GDP growth (for the better or the worse, not judging the shift, only emphasizing it´s occurrence).
However, one of the lessons drawn from the medical supply shortages experienced in the first months of the Covid-19 pandemic have confirmed the need to enforce redundancy in our economies. We are all too aware of the challenges imposed by supply-chain fluctuations of ventilators and masks (to name but a few), forcing governments and companies to look for solutions beyond their usual sources. Covid-19 seems to have placed under the spotlight the need to implement redundant manufacturing and service capabilities at least for critical items, in practice strengthening the movement away from globalization, even at the cost of lower GDP growths. The new normal calls for economies that are more resilient in times of global crisis or black swan events.
We must and we can prepare for the different world that will result from this pandemic, changing our businesses and society in important ways. It is likely to fuel areas like online shopping, home office platforms and online education, to name a few. It will also change supply chain configurations and reinforce the trend away from dependence on globalization.
The most effective way to prepare is to accelerate digital transformation initiatives, some that were possibly already in analysis or in development, as well as others that were not part of anyone´s playbook for the near future.
Welcome to Innovatech Advisors, we´ll help you with your disruptive strategies moving forwards!