Story: Gautam Viswanathan
One of the biggest impacts of the COVID-19 pandemic has been seen in just how hard it has hit people’s wallets and drastically reduced people’s willingness and ability to spend.
Around the world, companies have taken the step of putting many of their people on leave, reducing salaries of their employees, and have even gone to the extent of retrenching several of their non-essential staff.
A direct consequence of this, unfortunately, is that in Oman and elsewhere, people who’ve faced salary cuts or have been dismissed from their positions no longer have the sort of spending power they did, while those whose jobs are safe for now, do not know how long it’ll stay that way.
Dr Syed Mujahid Hussain is the head of the Economics and Finance Department at the College of Economics at Sultan Qaboos University. Well-versed in the concept of economic theories and how they apply to people, he feels that people’s unwillingness to spend will last at least as long as the economic uncertainty created by COVID-19 remains.
“Whenever there is an uncertainty, people stop spending, or they resort to keeping cash with them as a kind of safe haven,” he explained. “One of the effects we have seen of this is that people have started trying to save more, and have begun converting their cash into US dollars, which is why the value of the dollar has risen.
“This is definitely going to hit the spending behaviour of people – these are uncertain times, so people will spend less, and we don’t know how long this is going to persist,” added Dr Hussain. “We should actually be saving more money, so that in case we lose our jobs, we have something to live off, so this will affect the spending of consumers.
As part of the steps designed to minimise the risk of infection, shops in Oman have minimised the number of people who can walk in at any given time, with some of them not allowing customers to go past the entrances of their stores.
While it is a necessary step, along with the regular disinfection of shop premises, Dr Mujahid feels that with customers already unwilling to spend, businesses need to make sure they don’t pass on the costs associated with safety to their clients.
In terms of customers looking for both safety and value for money, he said, “people will definitely look for both, but there will be additional operating procedures by companies that could add to their costs. There has to be a balance between having these procedures, and the costs associated with them, because if it becomes too costly, then, definitely, people will be more reluctant to spend.”
But not all sectors have been equally affected by the pandemic. Given the serious danger posed to one’s health during the pandemic, people are of course willing to – or need to – fork out on products that help improve their hygiene, they will continue to spend on basic supplies that are required every day.
According to both Krishan Kumar Chutani, the CEO of medical giant Dabur International, and AV Manohar, who heads Wisdom Business and Training Services, it is shops that sell items which people can put off buying for now, or don’t really need to spend on, that are coming off worse during the pandemic.
“When purchasing power and consumer confidence both come down, their spending habits will change,” says Chutani. “They will switch to those items that can offer them benefits in the here and now, which are health, hygiene and food, so these are the behaviours that are going to change.
“For the rest of the products, they will try and preserve cash,” he adds. “They might spend a little bit on small luxuries and consumer products, but things they used to enjoy earlier like clothing, eating out, going to the movies, or going on a vacation, those things will take a break for a while.”
Classifying consumer goods into three broad categories to help explain people’s spending habits, AV Manohar says, “There are three main types of consumer goods. The first is daily essentials and necessities. That segment continues to do well. There is very little decline there, because people still need their necessities. The second segment is non-essential items whose purchase can be postponed.
“To not buy these right now is a really good strategy: the purchase of these items is being postponed, so their sale is not happening. Shops selling those sections have been closed as well. The third section we discuss while talking about consumer goods is luxury items. People will not even look at luxury items right now, because of the mental state people have towards buying. Right now everyone is afraid to go to the supermarket.”
Chutani feels that until there is an end in sight to the COVID-19 pandemic and its subsequent impact on the economy, which has a direct relation to people’s spending habits, it is unlikely that they will be willing to splash the cash on anything more that was is required for them to live from day-to-day.
Until such time as there is something that can help alleviate its effects, such as a vaccine, he has reminded people of the importance of obeying rules set up by governments to stop the spread of the disease: any violation of these, after all, could lead to further infection, leading to longer time taken to stop its impact, and as a result, a continued lowering in consumer confidence.
“This is not just on account of the fear of getting infected, but also because they are fearful of future income,” he explains. “Therefore, consumers are preserving cash: they don’t want to waste their money, and they don’t know how long their jobs will last. They do not know what the future holds and they are looking to save for a rainy day.
“COVID-19 is an unprecedented, once-in-a-lifetime thing that has happened to every one of us,” Chutani adds. “People are scared: they are worried about their safety, the safety of their family, the safety of their income, their future, and consumers are no different.”
A similar sentiment is shared by AV Manohar, who provides insight on how the impact of COVID-19 on a particular segment of the economy is felt in all others associated with it. At present, with businesses across so many sectors affected by the pandemic, its effect is nevertheless being felt by those that continue to run.
“The markets that meet people’s food requirements are of course doing well right now, but what about the food services market?” he wonders. “This is an indirect sector that deals with the supplies being made to hotels, restaurants, and catering services. This segment is facing a difficult situation: all of their clients are closed. Travel and tourism is greatly affected, and no events are happening at the moment.”
Nevertheless, the duo add, it’s not all doom and gloom: efforts taken by the authorities to limit the impact of COVID-19 are already paying off, in some ways acting as a springboard for what we could see in the months to come, once the effects of the virus begin to lessen.
“Everyone wants to stay safe and preserve their health. In that way, social distancing and other disciplines are proving to work well,” AV Manohar admits.
Chutani adds, “I’d want to say that we as human beings are very resilient, so we will definitely come back from this, but it will take a lot of effort from all the stakeholders: from the consumers, from the industry, and from the government.
“But until a vaccine properly comes out, people must continue to abide by the safety protocols put in place by their governments,” he says. “We have had a very difficult previous quarter, but May was better than April, June was better than May, so consumer confidence is definitely returning to certain categories.” – [email protected]