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Hindsights, Insights, Foresights

The Future in the Present Tense

PwC MAP 2021 CEO Survey

Outlook

Aerial View of a Makati District

A year and a half after the first enhanced community quarantine (ECQ) was declared in Luzon, the Philippines faces greater challenges because of the Delta variant. Since the first ECQ on 17 March 2020, the Philippines had 2.2m COVID-19 cases and over 35,000 deaths. The number of daily new COVID-19 cases also reached an all time high of 26,303 on 11 September. With just 12.4% of the total population fully vaccinated as of 25 August, the Filipinos’ lives are still far from normal.

During the first months of the pandemic in 2020, businesses had to temporarily close or reduce their operations while some were affected by supply chain disruptions. To adjust to the current environment, most businesses had to adopt a remote working environment, change their products and/or services, and invest in digital solutions. Having adjusted to the current reality, majority of the CEOs feel confident about their growth prospects in the next 12 months, and an even greater number of CEOs believe that their company will experience growth in the next three years. While the economic crisis is far from over, having a positive leadership outlook is critical to steering the business to recovery while boosting employee morale.

 

COVID-19 impact and insights

Luzon and other areas in the country have been under ECQ for four times since the pandemic started. Under the ECQ, the strictest lockdown, only essential industries are allowed to operate and most of the people are not allowed to go out. For a consumption-driven economy, the closure of establishments such as malls, restaurants and other businesses have an immediate direct negative impact on the economy.

Since the first ECQ, household final expenditure has been declining until the first quarter of 2021. Throughout the year, spending on restaurants and hotels, transport, recreation and culture, education, alcoholic beverages, tobacco, clothing and footwear, furnishings, household equipment, routine household maintenance and health has declined. While household final expenditure grew by 7.2% in the second quarter of 2021, total spending is expected to decline in the succeeding periods because of the extended MECQ that will be revisited on or before 15 September.

According to most CEOs surveyed, their revenues, profits, productivity, employee and customer count, and utilization decline each time the government imposes a lockdown. To support their businesses, majority of the CEOs tapped external debt, and infused capital from both their personal funds and existing investors in the past year. Going forward, majority of the CEOs still plan to tap external debt and/or equity to help their businesses.

Despite the successful listings of Monde Nissin, AREIT, DDMP Reit, etc., only a few of the CEOs say that they’ll raise capital through the capital markets. Accessing the capital markets may be challenging for certain companies unless they have shown resilience and growth during the pandemic.

COVID-19 and the rest of the world

The global economy contracted by 3.2% in 2020 largely because of the pandemic. In the early part of 2021, people from different parts of the world expressed optimism because of the vaccine rollout. Nevertheless, the emergence of COVID-19 variants forced countries to impose lockdowns again to manage the number of new infections. Countries such as Singapore, Australia, New Zealand, Canada, the Philippines, and more had to close their economies again because of the surge in the number of COVID-19 cases. Despite having several stimulus programs and fiscal incentives, one thing became clear – a faster and equitable vaccination rollout worldwide is critical for the global economy to recover and to prevent the further mutations of the COVID-19 virus.

 

Digital and long-term strategy

To adjust to the new world and meet the challenges caused by the pandemic, businesses had to move fast and react in agile ways. Digital solutions and tools that became more relevant during the pandemic include cloud-based solutions, platforms, marketplaces and payment solutions. As of the first quarter of 2021, the Bangko Sentral ng Pilipinas said that the volume of PESOnet transfers already reached 39m, which was four times the volume in the same period last year. Similarly, the value of fund transfers through the InstaPay system was PHP552bn in the first quarter of this year, and was thrice the value of the transfers made in the first quarter of 2020.

With the ongoing COVID-19 crisis, there is a continuing need for companies to do business digitally. Based on the results of the survey, 84% of the CEOs plan to increase their investments in technology or digital.

Seventy-four percent (74%) of the CEOs also say that they’re planning to invest more in cybersecurity and data privacy solutions. As organizations accelerate their digital transformation, they become more vulnerable to cyber attacks. Using new technologies and connecting with more external stakeholders digitally also mean new risks for businesses. Given the embedded and developing cybersecurity risks, organizations should have a cyber strategy in place to ensure having a resilient digital ecosystem.

 

“They have to think globally while acting locally. And they must demonstrate the ability to negotiate differing viewpoints toward a consensus while maintaining their integrity. As the world seeks systematically to repair and reconfigure from the collective trauma and damage being suffered due to COVID-19 — and to prepare itself to be resilient in future crises — there is an urgent need for leaders to understand, accept, and embrace these paradoxes.”

Blair Sheppard, Global Leader of Strategy and Leadership for the PwC network, and Susannah Anfield

Sustainability

The pandemic showed us that new business models and practices work, and can be more sustainable. As a result of COVID-19, businesses shifted to remote working and online socializing, and became more open to near-shoring, localizing the supply chain, using 3D printing, etc. Other practices that emerged during the pandemic such as automated manufacturing and the “make where you sell” approach can improve the way we produce and consume, and may help with the global sustainability goals. Currently, there is a need to have more sustainable business practices because if the pre-pandemic business trends and practices continue, the global losses from climate change could reach US$600 trillion by the end of the century.

The Philippines is part of the 193 member states of the United Nations that adopted the Sustainable Development Goals (SDGs) in 2015. There are 17 SDGs that are part of the 2030 Agenda, which has three major pillars – People, Prosperity and Planet, and Peace. As of November 2020, 48% or 12 indicators were ahead of the path to target while 52% or 13 indicators were behind the path to target. To ensure that we are on track to achieving the SDGs, the government has integrated such goals in the national long-term vision.

 

“This pandemic brought our feet to the ground. But it will never ground our dreams!”

Alexander B. Cabrera, Chairman Emeritus, Isla Lipana & Co./PwC Philippines

Contact us

Roderick M. Danao

Roderick M. Danao

Chairman and Senior Partner, PwC Philippines

Tel: +63 (2) 8459 3065

Alexander B. Cabrera

Alexander B. Cabrera

Chairman Emeritus, PwC Philippines

Tel: +63 (2) 8459 2002

Mary Jade T.  Roxas-Divinagracia, CFA®,CVA

Mary Jade T. Roxas-Divinagracia, CFA®,CVA

Deals and Corporate Finance Managing Partner, PwC Philippines

Tel: +63 (2) 8845 2728

Karen Patricia Rogacion

Karen Patricia Rogacion

Deals and Corporate Finance Director, PwC Philippines

Tel: +63 (2) 8459 3089

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