Roll on 2021: After the crisis comes opportunity

In short, coronavirus created an uncertain and depressing investment climate.

The good news is 2021 will be much brighter. A combination of promising vaccines, reinvigorated globalisation, accelerated digitisation, and political developments augur well for revitalised global business.

Assuming reasonable levels of efficacy in mass vaccinations, gradually, consumers will be free to go about their daily lives. Even if it is a gradual process, confidence will slowly return, which will in turn end the largest hoarding of corporate and consumer cash ever seen.

A recent S&P Dow Jones Indices report showed S&P 500 companies outside the financial, transportation or utility sectors sat on $1.9 trillion – the most cash ever held by this group since data began to be collected in 1980. Bank of America noted expectations of “no meaningful corporate bond issuance (in 2021) because companies are sitting on huge cash buffers.”

This also means more mergers and acquisitions, which we have already seen, for example in the S&P Global acquisition of ISH Markit for $44 billion and AstraZeneca’s $39 billion purchase of Alexion.

More corporate activity means more investment, more economic activity, and more jobs.

The vaccine is also a shot in the arm for globalisation. The rise of populism and the shuddering brakes of Covid-19 heightened fears that globalisation was dead, but this isn’t the case.

Globalisation has mutated but is very much alive. Some future production is likely to be closer to home economies, but global supply chains will now become more diverse – ending companies’ reliance on just one chain – rather than ending entirely. This is good for business. Global partnerships will not end, they will just change, and be more plentiful.

Global supply chains will now become more diverse – ending companies’ reliance on just one chain

This is complemented by the end of an isolationist America. The new US President Joe Biden is a consensus-building moderate, a veteran of diplomacy, an instinctive multilateralist and institution-builder. Already, America has re-entered the Paris climate agreement and recommitted to the World Health Organisation – all positive tailwinds for globalisation.

Coronavirus has accelerated the switch to digital, and from online retail to remote working, the pandemic has squeezed years’ worth of transformation into months, causing dramatic changes in how people live, where they work and what they buy. Digitisation is exciting and reacts to needs. It means efficiency, which means growth.

In regions close to my heart – the GCC and South Africa – things are also looking up. The GCC region is sometimes typecast as late adopters of emerging technologies, but the way Gulf citizens spend, has changed for good, and it is a very dynamic time.

Saudi Arabia’s Monetary Authority announced its 2020 year-end cashless transactions target of 28 percent had already been exceeded at 37 percent. In the UAE, a survey by Dubai Police, Dubai Economy and Visa showed 68 percent of respondents had reduced shopping in-store, with 49 percent shopping more online. This data shows the GCC is closing the gap with other regions.

In the GCC, digitisation has had two different, but symbiotic drivers: governments and consumers. Government was the first driver via smart, e-government solutions. Digitisation is central to transformation programs underway as GCC governments seek to wean their economies from dependence on oil and gas.

Digitisation is central to transformation programs underway as GCC governments seek to wean their economies from dependence on oil and gas

This has been mirrored by increased adoption rates by consumers. In e-commerce platforms, we’ve seen the rise of noon.com, which was supported by Saudi Arabia’s sovereign wealth fund, PIF and Souq.com, which was acquired by Amazon. New research by Mastercard reported that 30 percent of the recent surge in e-commerce business seen in the Gulf region during the pandemic will be permanent. Management consultantcy, Kearney, forecasts e-commerce in the GCC will reach $50 billion by 2025.

There is a positive cocktail of economic dynamism, but also necessity. For regions that want to be global hubs and attract global talent, digital services are no longer nice-to-haves – they are must haves.

Politically, the region has seen rapprochement – with Israel signing agreements establishing diplomatic relations with four Arab League countries – Bahrain, the UAE, Sudan, and Morocco. The UAE, Bahrain, and Israel are also setting the fastest vaccination pace.

Travel will return. Post-pandemic, expect top hotels to have honed hospitality skills even further, achieving higher levels of hygiene and maintenance allowing guests to enjoy worry-free stays.

South Africa will benefit from the return of tourism, which contributes so materially to its economy. Hyatt’s new market entry to Cape Town is a sign of this confidence returning.

In financial services, there has been a return to trusted counsellors and a reliance on relationships long-established

In financial services – as travel has temporarily stopped – there has been a return to trusted counsellors and a reliance on relationships long-established. As head of a family office, I know this to be true. Tough times means relying on trusted advisors.

Covid-19 has pummelled the world economy, but the world will bounce back. Capital will be rapidly deployed to opportunities and problems needing smart solutions.

The first few months of 2021 may still be bumpy, but the combination of innovative pharmaceuticals, renewed globalisation, large cash reserves and a rapidly accelerating digital world – means the recovery will be exciting – and a huge opportunity.

Hamza Farooqui, Founder and CEO of Millat Investments.