THE IMPACT OF CORONAVIRUS PANDEMIC ON FINANCIAL MANAGEMENT: EFFECT ON THE FIRMS’

SALES/MARKETING PERFORMANCE

Done by Eng Wilfred Mukora

Contents

Execute summary..................................................................................................................................1
Introduction...........................................................................................................................................1
Characteristics of the pandemic and how it is expected to affect the economy....................................1
Effects on general financial management of companies.......................................................................4
Effects on financial risk-taking of companies........................................................................................5
How the pandemic is expected to affect the firms’ sales/marketing performance...............................8
Conclusion...........................................................................................................................................10
References.............................................................................................................................................1
Execute summary

The rapid geographical expansion of the coronavirus and therefore the high contamination rates of

over 4million infections in approximately over 110 countries by May, spread fear round the planet

and disrupted global economic activity. Most businesses came to an abrupt stop as travellers

cancelled flights, businesses asked workers to remain home, and stocks fell. A worldwide health

crisis became a worldwide economic crisis! In any health crisis, the primary concern is with the

health of those affected but if the effects translate into an economic crisis countries become stuck

between saving the economy and saving the health of the citizens. Over 278,000 people have died

worldwide and the economic impacts have also shown dramatic effects on the wellbeing of families

and communities. For vulnerable families, lost income because of a deadly disease can translate to

spikes in poverty and reduced access to healthcare far beyond COVID-19. While the spread within

the USA, China, Italy and Spain absorbs much of the media coverage, confirmed cases in Bangladesh,

Algeria, South Africa, Cameroon and in many other low- and middle-income countries mean that a

lot of the economic impacts is also going to hit hard on the world’s most vulnerable populations.

Keywords: Pandemic; COVID-19; Financial management; Economy; GDP; Stock market; Risk;

Channels of influence; Performance.

Fig 1 Rate of Covid-19 infections for influential countries (Malone,Levine & Choi, 2020)
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Introduction

This report sheds light on the effects which the Corona virus COVID-19 has caused on business

globally. Since this pandemic brought the world to a stand-still it’s reason enough to want to explore

and know the different faces of this epidemic. The paper does a critical analysis of the characteristics

of the pandemic, its effects and the channels of influence from the top of the food chain to the

bottom. It outlines how business is expected to react and adjust to the shake-up in trading so as to

remain relevant, afloat and operational. It sheds a clear picture on the feelings of investors, and tries

to sound calmness amid the crisis to avert spontaneous decision that lack reasoning and need. It

explores the decisions business is expected to take in order to survive the claws of COVID-19 and

scenario modelling to map out survival strategies and remain liquid in volatile times.

Characteristics of the pandemic and how it is expected to affect the economy

According to W.H.O, “Coronavirus disease is an infectious disease caused by a newly discovered

coronavirus strain (COVID-19).” Most of the people infected with the COVID-19 virus will experience

mild to moderate respiratory disorder and should recover without requiring special treatment.

People of old age, and those with underlying medical problems like diabetes and chronic respiratory

illness are more likely to develop serious illness, (W.H.O, 2019). The foremost common symptoms of

the virus include fever, dry cough and tiredness with a lesser version of common symptoms which

include aches and pains, diarrhoea and headaches among others. There are however much Serious

symptoms and these include difficulty breathing/shortness of breath, chest pain and loss of speech

or movement. The virus (COVID-19) spreads mostly through droplets of saliva/discharge from the

nose when an infected person sneezes/coughs, (W.H.O, 2020). For now, there's no cure for this

disease so it's been established that we can at least fight it by trying to cut down the spread by

keeping social distance while the scientists work flat out to seek out the cure or vaccine.
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Fig 2, Channels of influence( Source: Authors’ construction, adapted from World Bank 2014.)

The outbreak of COVID-19 highlights cracks in global trust, the pitfalls of a world-wide

interdependency and therefore the challenge for global governance. Most of the economic

impact of the virus are going to be from the “aversion behaviour,” the actions people do to avoid

catching the virus. From the diagram above we are able to see that the main channels of

influence are the Govt, firms and institutions and individuals. Governments impose bans on

certain kinds of activities, as when the Govt of China ordered factories to close. Italy, Russia,

Spain and the rest of the world will most likely do the same. Some countries played down the

crisis and stayed open for business (USA and Tanzania) but this backfired as up to date USA has

suffered severe COVID-19 deaths because ignorance. Firms and institutions are expected take

proactive measures to avoid infection. Business closures result in lost wages for workers in many

cases, especially within the informal economy where there's no paid e.g Zimbabwe and Georgia

where the informal sector is very big. With millions of workers now in quarantine and parts in

short supply, many countries are struggling to get economic activity back on course. People cut

on trips to the market, travel, and other social activities. Travel restrictions and quarantining of

people have left the economy in need of labour and parts, disrupting just-in-time supply chains

and triggering sales warnings across technology, consumer goods, pharmaceutical and other

industries. The price of commodities declined in response to a fall in China’s consumption of raw
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materials, and producers are considering cutting output, (Christie, 2020). The mobility and

disruptions of works have led to declines in market consumption, squeezing multinational

companies in several sectors including education abroad, infrastructure development, consumer

and luxury goods. Approximate estimations of effects to the economy include $0.6 billion in

tourism exports (sub-Saharan African $16 million). With trade prices falling (oil prices are down

by 20%, copper by 7%), the effects on the value of exports could be significant, as this will affect

not just exports to China.

Fig3, Economic vulnerability channels of influence to the global health pandemic emerging in China (Author’s

construction, adapted from; Willem, 2020)

We expect the virus to lower Chinese economic activities, thereby lowering demand for imports

from countries that are directly exporting to China and may also lower the price paid (and hence

the value of exports); furthermore, there may be indirect, 3rd country effects. It may be that not

all impacts are negative: weaker commodity prices globally may have positive impacts on the

welfare of net commodity importers. Overall, China’s GDP growth may slow by 0.5 % points this

year, taking a minimum of 0.1 % point off global GDP growth, (Raga & Velde Feb 2020). This may

ripple through developed and emerging markets with high dependencies on China as we go down

the channels of influence be that in the form of trade or investment and infrastructure

development. A number of these countries exhibit pre-existing economic fragilities, others have
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weak health systems and thus lower resilience to pandemics. There will be effects in the poorest

countries in Asia and Africa. We estimate that sub Saharan Africa stands to lose $4 billion in

export revenue, even without contracting a single case of Coronavirus, (Raga & Velde, Feb 2020).

Many Asian and African countries lack surveillance, diagnostic, and hospital capacities to identify,

isolate, and treat patients during an epidemic. Weak systems anywhere are a risk to health

security everywhere, increasing the likelihood of contagion and therefore the resulting social and

economic collapse. According to, (Bloomberg, 2020) Economic estimates of the likely global

impact vary dramatically, $2.7 trillion in lost output, the Asian Development Bank releasing

scenarios from $77 billion to $347 billion, and an OECD report talking about, “a halving of global

economic growth.” Many economists are forecasting a deep coronavirus-induced recession

(Schwartz, 2020).

Effects on general financial management of companies

Citing the devastating effects this pandemic is causing, companies will need to start factoring COVID-

19-Related Risks into Financial Statements. Under GAAP, U.S. companies could also be required to

factor COVID-19-related risks into their financial statements, (Financial times, April 2020).

Companies must consider the potential for impairment, as well as the need to adjust income

projections and other assumptions used to measure non-quoted financial instruments. Financial

assets reported at fair value on the balance sheet may lead to realized and unrealized losses,

(Baldwin & Mauro, 2020). Customers adversely plagued by the outbreak could also be unable to pay

outstanding invoices. This senario could end in additional credit and liquidity risks, higher than usual

bad debt, and even impairments and write-offs. The flow of cash from operations is also likely to be

affected. The outbreak has disrupted supply chains and productivity. Companies with reduced/idle

production capacity could also be unable to allocate overhead costs to inventory as usual.

Additionally, inventory that can’t be turned over due to travel restrictions may need to be evaluated

for impairment and changes in prices and reduction within the level of demand will also need to be

taken into consideration. Financial market volatility has also affected the measurement of Pension
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plans accounts. Companies may need to revisit both the expected return on plan assets and also the

funded status of the plans. For deferred Tax Assets, if estimates of earnings of foreign subsidiaries

change, companies may need to reconsider a number of their tax strategies, or they'll not be able to

realize all deferred tax assets. Firms in areas heavily stricken by COVID-19 may see their revenues

laid low with the outbreak. This might trigger impairment testing for goodwill among other

intangibles. The revision of key accounting estimates and projections may lead to an instantaneous

impairment. Additionally, impairment testing may need to be done more than once this year if

management considers that evolving circumstances lead to more than one triggering event,

(Baldwin and Mauro, 2020). Significant uncertainty will remain around the impacts of the virus and

how long those impacts will last as Gvt, business and economic policies are changing rapidly.

Therefore, finance will have to be compelled to help businesses digest new information and make

decisions quickly as circumstances change. Companies would need to consult more with chartered

accountants for firm-decision making as they're going to play a critical role in minimising the

financial distress to businesses and also the wider public. Chartered accountants have dedicated

hubs on coronavirus with the newest advice and guidance been updated in real time on their

websites on topics like how to access government grants, useful insight on financial management

and supply chain problems. Everything is happening so fast and corporations got to keep on top of

latest information every time, this is how badly the pandemic has affected the general financial

management of companies worldwide. There is also going to be practical implications for the audit

of financial statements. Some companies and auditors will face practical difficulties in preparing

accounts and conducting audits. Given increasingly restricted travel, meetings and access to

company sites prohibited citing W.H.O regulations.

Effects on financial risk-taking of companies

Financial risk generally relates to the chances of losing money and this comes in many forms like

Credit risk, liquidity risk, asset-backed risk, foreign investment risk, equity risk, Operational risk,
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market risk, legal risk and currency risk. Investors can use a variety of monetary risk ratios to assess a

company's prospects amid an epidemic and Covid-19 has its fair share of effects on financial risk

taking of companies forcing fast decision making by organisations to remain afloat midst the corona

virus stampede. The risks are often particularly acute for organizations in such areas as retail,

hospitality, entertainment, oil-gas exploration/production, airlines and transportation as listed by

Moody’s analytics(2020). Airline stocks will fall as investors anticipate a sharp decrease in travel,

operational risk become high with impacts across executive travel and employee safety. The stock

market price of China Southern Airlines fell by 7% (Raga and Velde Feb 2020). The 2019 Novel

Coronavirus affects forecasts of GDPs, the risk of sovereign bonds, and also the companies that

depend on suppliers in impacted countries. Supply chain disruptions and Pandemic risks can make

financial systems think twice about operational risk and risk management. As organizations scramble

to understand the current threat and economic impact of the virus, we are all reminded how threats

from infectious disease outbreaks are far different than other operational impacts. Not since the

Sept. 11, 2001 terrorist attacks have Wall Street banks faced a logistical challenge just like the one

potentially posed by a coronavirus outbreak within the US, (Wall street journal, 2020) Credit and

foreign investment risk will significantly increase for those companies which are located in countries

that are hard hit by the pandemic.

Fig 4, The J-curve of default risk (Malone,Levine & Choi, 2020)

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From the graph we are able to see that Italy’s credit risk rose faster and earlier in relative terms than

any country shown during the course of its experience with COVID-19. And so did it’s foreign

investment risk. The ripple effect is channelled right down to companies operating within the

country and their major trading partners abroad. The effect of COVID-19 remains uncertain and

continued volatility will be expected as market risk shifts violently up or down. Most companies are

reporting falls in revenue apart from a handful of firms like Amazon and manufacturers of personal

protective equipment who have recorded massive gains. Because of increased market risk investors

are likely to panic sell/buy based on FOMO (Fear Of Missing Out) or FOLE (Fear Of Losing

Everything). It's important to stay patient and make sound decisions not based on emotion.

Fig 5, Global markets ( Bloomberg 2020).

Market risk increased as we've noticed that global stocks lost nearly 14% and $3.5 trillion was

erased for U.S. listed stocks (Zero Hedge 2020). This trading loss can be followed down the

channels of influence from the Asian markets to European markets and further down to African

markets. Indeed, the coronavirus crash drained no less than 5 trillion US dollars in share markets

value in a week’s time, and with the virus quickly spreading to other countries, investors’ fears

for their stocks is logically increasing. Dai, Hu, and Zhang (February2020) report from the

Enterprise Survey for Innovation and Entrepreneurship in China states that “20 percent of

surveyed firms will be unable to last beyond a month on a cash flow basis, and 64 percent beyond

three months, presenting a dire picture for small and medium-sized enterprises. According to a

report ‘Pandemic Readiness: Risk Finance and Mitigation Strategies’ by Marsh (October 2018) The
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World Bank estimates that the cost of a severe flu pandemic could total as much as 5% of global

GDP.

How the pandemic is expected to affect the firms’ sales/marketing performance

Globally, marketing teams are trading new grounds and facing unprecedented challenges

triggered by the pandemic. Amid these volatile times, companies are compelled to plan their next

sales/marketing moves wisely to mitigate downside risk or capture all the upside that’s

manageable. Some advertisers should hold dry powder while others should double-down on

marketing investments to seize opportunities, (Ramellie & Wagner, 2020). Some sellers spent 6%

less on Amazon advertising within the last fortnight versus that same period in 2019, according to

a Quartile Digital analysis cited in Bloomberg. There are mixed feelings on what should be really

done in terms of sales and marketing performance. “If your merchandise can’t get to the market,

what can you do? You pull the plug on marketing," Bruce Biegel, Winterberry Group's senior

managing partner, told Marketing Dive. "marketing dollars in the short term are often wasted, so

you watch people start to pull back a little bit." On the other hand, James McDonald, WARC

Data's managing editor, wrote in a statement, "The relationship of advertising with GDP is strong,

but a slowdown in economic performance due to the pandemic won't necessarily translate into

reduced advertising investment." So it's crucial for organizations to pay attention to how this

situation is altering the landscape and plan scenarios accordingly, instead of waiting and hoping

that no changes are necessary. The pandemic is anticipated to affect marketing performance in

exceedingly a number of ways. Firms are expected to direct investments toward marketing tactics

that drive online sales since the order of doing business suddenly shifted to the net. We could see

an acceleration of a shift out of store and into e-commerce, (Adams, 2020). On the other hand,

they're expected to scale back marketing investments on campaigns to drive short-term sales,

while keeping brand-building campaigns live essentially saving dry powder. Shifting budgets to

promoting at-home and delivery-based options (i.e., at-home fitness solutions like apps, grocery

delivery, restaurant delivery, etc.) would greatly help improve performance. Firms must Shift
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focus from promoting premium products to entry-point/everyday items. (Kiernan, P., Maurer, M.,

Michaels,2020) argue that changes in media supply and demand will impact costs, so we

anticipate marketers will need to closely manage certain spending areas, like digital, with

refreshed ROIs on new cost levels. A focus on marketing reallocation was echoed in a report by

WARC (World advertising research centre). Spending on global advertising will rise 7.1% to $660

billion in the year, backed by massive growth of 13.2% in internet investments, (Carello,2020).

Several high-profile marketing events, including Mobile World Congress (MWC) Barcelona and

Facebook's Global Marketing Summit and F8 conferences, have been called off because of covid-

19 concerns, and others could follow. If major events are cancelled, you do not get that cash

back. The foremost significant advertising stage that would be affected is the Tokyo 2020

Olympics. Broadcaster NBC said in December 2019 it had secured $1 billion in advertising

commitments ahead of the summer games, a steep pool that would be shaken in the case of

delay or cancelation. If events like the Tokyo Olympics and UEFA Euro 2020 tournament are

postponed or cancelled we'd expect a notable impact. Albeit an Olympics closure remains an

unlikely scenario, it is the sort of situation marketers should brace oneself for to avoid seeing

their media strategy and campaigns completely upended by the pandemic. If you are a smart

marketer or a supplier right now, you'll start thinking about: 'What's our contingency plan?

(Biegel 2020). You do not change what you're doing, but you start to make sure that you're doing

the proper scenario modelling. As mentioned before, (Panetta, 2020) there is need to examine

the most important aspects of your business model: value propositions, customers, value

demonstrations, and capabilities. Secondly, you need to critically examine the relationships

between these aspects and define realistics objectives for your company during and after the

crisis. You may want to consider different objectives for various crisis scenarios, like fast crisis

recovery vs. long lockdown period. First, you have to assess what the crisis means for customer

demand. Will overall demand go up or down? How will spending patterns change? You also have

to think through how the crisis affects your value proposition. The phrase, ‘value demonstration’
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can be used to describe an organization’s sales and marketing channels. Finally, any company’s

capabilities provide the momentum needed to keep going, allowing your firm to create value for

customers. Once you’ve assessed where you stand on the four dimensions of your business

model, you'll be able to think through how potential changes in one dimension may be aligned

with the others. Before you opt on any significant changes within the business model, you’ll want

to think through how the crisis will affect your existing performance metrics, (Ritter & Pedersen,

2020). You’d have to ask yourself questions like what kind of earnings, or losses, will you

encounter? How will the stock market judge your organization within the current crisis? How

might it affect your reputation? Then you need a strategy for taking the opportunities and

minimising the damage!!

Conclusion

As you have seen, most of the data and observed impacts within the developing world thus far stem

from production and import/export stoppages from China, and pre-date the worsening economic

conditions in Europe and the US. But as the economies of other countries slow down with the spread

of the disease, we’ll see these impacts show up more clearly in global economic data and likely grow

with time. The businesses world hopes to diminish the economic effects of pandemics through risk

management, business continuity, and sound contingency planning. Modelling and analysis of

pandemic risk, supporting pricing and placement of pandemic specific insurance coverage can give

organizations another important tool in preparing for the unpleasant but inevitable reality of a

deadly disease outbreak. The coronavirus pandemic has started a revolution on how multinational

entities will strategically approach their business model going forward as they manage day-to-day

operations and their global supply chains. This crisis has forced businesses to adapt on how they

operate like for example to penetrate into the e-commerce platforms, manage their manpower,

adhere to governmental mandates, and fast reactions to customer and employee needs. We expect

the world to look different post COVID-19 and while the short-term outlook may be gloomy, history

shows markets and society can't only recover after a crisis, they come back stronger!!
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