Businesses face 12 months of economic disruption due to devastating impact of Covid-19

Businesses face 12 months of economic disruption due to devastating impact of Covid-19

THE devastating economic impact of the Covid-19 pandemic on businesses in Britain and Ireland is set to last at least another 12 months – with some sectors never likely to be the same again.

The warning comes as companies on both sides of the Irish Sea take tentative steps to get back to business after 10 weeks or more of lockdown.

“The Covid-19 pandemic which has taken an unspeakable toll on human life, has also caused a global economic recession, that will reverberate throughout Ireland and the United Kingdom until at least the end of 2022,” says Chris Davies, Managing Director of DRS Bond Management, the largest independent surety bond brokerage in the UK and Ireland.

“Life will not be the same again for many sectors of the economy, not least retail, leisure, pubs, casual dining and the arts, which have all been decimated by Covid-19 on both sides of the Irish Sea,” he added in an exclusive interview with The Irish Post this week.

“In the short term, some businesses that shut their doors when the lockdown restrictions were imposed have already fallen into administration and others will suffer the same fate in the coming months as they have insufficient working capital headroom to meet their payment obligations.”

Assessing the longer-term damage inflicted upon those businesses expected to survive the economic crisis brought on by the pandemic, Mr Davies - whose firm is a leading surety advisor to many large companies operating in the construction and engineering sectors, as well as other industries – believes it will take 12 months before things start to get back on track.

In particular, the construction industry has some significant challenges to overcome.

“For the UK construction industry already reeling from chronic Brexit uncertainty for over three years, the 2019 General Election looked fleetingly as though, with the direction of travel finally resolved, they would have the one thing business craves above all others in the short to medium term – certainty,” he explains.

“The upturn in starts on site in January and February was encouraging and whilst the persistent level of insolvencies from Q4 2019 continued throughout Q1 2020 in businesses up to £150M turnover, the outlook at last looked bright with London office Construction reaching a high-water mark.

“However, Covid-19 was a handbrake applied even more quickly than the financial crash of 2008,” he adds.

“In the space of a few weeks, on both sides of the Irish Sea, productivity plummeted towards zero as lockdown restrictions came into force.”

Whilst over 86 per cent of construction sites in the UK are now back working and only last week construction re-started in Ireland, the impact of Covid-19 is “marked”, Mr Davies claims.

“It will take months for many sites to return to their full output potential and the supply of materials to reach site at the levels required for that to happen,” he explained.

“Social distancing dictates new methods of working and the industry has shown incredible flexibility and innovation in changing methods of working that both protect site staff whilst enabling works to continue.”

Some 85 per cent of DRS Bonds’ clients are located in the UK, with the remaining 15 per cent based in Ireland.

However, a third of their UK business is with British/Irish firms, meaning overall their British/Irish business makes up around 43 per cent of their total revenue.

As such they have paid close attention to the Covid-19 business support packages offered by both the British and Irish governments during the health crisis.

“Government support for pay roll was not only welcome but essential for many firms to simply survive,” Mr Davies admits.

“The UK government stepping in to guarantee Trade Credit insurance is a reflection of how serious the risk of a chronic failure of liquidity in the financial system is.

“As folks return to work it is essential that employers make payment of certified work in a timely manner and where they have the cash to do it, consider making advance payments to contractors to help with working capital shortfalls.”

He added: “The ex gratia loss and expense programme for public works in Ireland is an excellent innovation and, anecdotally, we have heard of private employers making similar gestures with contractors, to the benefit of everyone associated with their project.

“Sadly, redundancies are inevitable as government support for pay roll tapers off,” Mr Davies warns.

“However, the endemic skills shortage in construction suggests that for many the scourge of unemployment should be temporary.”

Looking to the future, Mr Davies is confident both the British and Irish economies can and will recover, but it will take time to get there.

“Both new governments in the UK and Ireland appear to have an appetite for new infrastructure programmes which will help to mitigate against the worst of the continuing economic fallout,” he explains.

“Whilst we do not expect the recovery to be ‘V shaped’, not least as the fall was literally vertical,” he added, “we are optimistic that despite the need to navigate significant headwinds in both the UK and Irish economies in current fiscal year, we expect things to return to something like normal by this time next year.”