Postapocalypse Now: what the pandemic teaches businesses in Tatarstan

The coronasrisis has revealed long-standing problems, hit the business community, but also brought positive aspects

Postapocalypse Now: what the pandemic teaches businesses in Tatarstan

How the picture of business in Tatarstan has changed in connection with the coronacrisis and what, oddly enough, the positive impact of the coronavirus lockdown is on the economy of the Republic of Tatarstan Manager of the Private Equity Fund Ruslan Khalilov speaks about this and more in the author's column written for Realnoe Vremya.

Russia is going to lose to 5,5% of GDP

Let's start with the fact that the coronavirus pandemic has adversely affected many sectors of the economy not only in Tatarstan and Russia but also throughout the world. For example, according to analysts at Deutsche Bank, the fall in global GDP in 2020 is going to be 4,5% — and this is very much by the standards of macroeconomics. And this is even an improved forecast — in June, we expected a fall of 5,2%. Approximately similar figures appear in the forecasts of most institutional investors and major analytical agencies.

Everyone has been affected. According to the same Deutsche Bank, the Euro zone economy is going to lose 8,6% in 2020, Germany — 6,4%, the US — 5,2%, Japan — 6,4%, India — 5,8%. Only China can grow out of the giant countries, and then only by 1,6% (although at the beginning of the year, much more optimistic forecasts were announced). In short, the forced shutdown of production and the paralysis of almost the entire international trade infrastructure have affected the entire world. At the same time, the coronacrisis has turned out to be much tougher in its course and consequences than the crisis of 2008.

As for Russia, the Central Bank estimates GDP losses for April-June 2020 at 9,5-10% compared to the same period in 2019. Annual losses are still forecast at the level of 4,5-5,5%. Tatarstan is also suffering losses, even taking into account the unprecedented measures of support provided by the federal centre to the regions. Certainly, small and medium-sized businesses are suffering the most, especially those segments that have not been included in the list of the most affected.

Even for experienced entrepreneurs whose companies have gone through several external and internal crises, the current situation in the economy has no analogues. Yes, there have been crises before. But never before has the world faced a situation where the work of entire large sectors of the economy was completely interrupted. And for many entrepreneurs, it turned out to be a stalemate.

Photo: kamaz.ru
The coronavirus has affected manufacturing companies that are closely tied to the supply of components from abroad. And their scale could be from large to small

Remembering the word “import substitution” again

In addition to the obvious sectors of the economy — for example, hospitality industry, entertainment or advertising — coronavirus has affected manufacturing companies that are closely tied to the supply of components from abroad. And their scale could be from large (for example, KAMAZ) to small. It is no secret that the complete shutdown of the lion's share of the Chinese production in February and March brought certain problems for their contractors in Russia (though a little later). Difficult tasks had to be solved in many situations: for example, it was not clear what to do if a long-term contract was signed between partners before the pandemic, and it was too late to find new suppliers, and the “old” one was closed for quarantine. Or if the money to prepay the product had already gone, but the counterparty can't fulfill its delivery obligations right now. Or if you still need to look for a new supplier of parts because the old one has not survived the “coronaquarantine”?

International agreements are almost the best protected legally, but no legal protection can help if the borders of countries are closed and the WHO declares almost a worldwide quarantine. Tatarstan companies from the medium-sized business segment also faced problems due to foreign contractors.

For example, one of the projects of the Direct Investment Fund is a factory for the production of yachts and boats Velvette Marine. Some of its component metal parts were constantly ordered abroad. Then came the pandemic, and for some time the plant managed to survive on “old stocks”. And then, in order to no longer depend on customs and international emergencies, we worked out the option of manufacturing parts for boats and started making them at Volzhanin plant (which, by the way, is the only national manufacturer of butt welding equipment for polyethylene pipes). In the case of the Direct Investment Fund, this collaboration was doubly successful, since Volzhanin is also our business project.

But given that because of the coronavirus many could not fly abroad on vacation, suddenly the demand for boats from Velvette Marine soared almost three times, so now the plant is working around the clock, seven days a week and by the 2021 season plans to create a warehouse of finished products.

This is the first positive lesson that the pandemic has taught Russian and Tatarstan businesses: we must be as autonomous as possible and try to focus only on those capacities that will remain available, no matter what happens. Therefore, the pandemic has pushed us to a new round of import substitution — this time we are not talking about Bryansk steaks instead of Argentinean one and not about Chuvash cheese instead of French one. This is about the actual sustainability and survival of the manufacturing business.

Photo: Maksim Platonov
According to some data, even despite extensive programmes of state support, one in four businesses from the SME category has not opened in Tatarstan — that is, the pandemic has mowed down almost 25% of enterprises in the republic

The pandemic dared businesses

It sounds cruel but this is a fact that, unfortunately, can't be avoided: the coronacrisis has tested Tatarstan's business for stability and viability and has become a kind of stress test. According to some data, even despite extensive programmes of state support, one in four businesses from the SME category has not opened in Tatarstan — that is, the pandemic has mowed down almost 25% of enterprises in the republic. The figures that have been voiced by the professional community of restaurateurs for several months are even more serious: according to average estimates, no more than 70% of cafes and restaurants in the republic will be able to overcome the finish line of the coronacrisis race.

The crisis 2020 has become a litmus test of the sustainability of small and medium-sized businesses. Only those who were ready for the lockdown were able to survive it. The managers of those enterprises that were forced to close down now know much more about crisis management than they did before, and they approach the new round of their business career with a checklist already formed. And I also see a positive point in this: we all received a kind of vaccination, painful and unexpected, but in the future it will help to avoid many mistakes.

Digitalization is not a fashion trend but a necessary tool

And finally, the third positive factor of the pandemic: the coronavirus put an end to the issue of digitalization of companies. The quarantine and self-isolation forced companies to switch to remote work in emergency mode. Most experts note that the financial crisis has only accelerated the processes that were long overdue. Rapid changes in the business environment under the influence of global trends — both technological and socio-demographic — even before the pandemic prompted companies to transform. What happened only served as a catalyst for these changes but the reaction was truly explosive.

At the Direct Investment Fund, we can cite two striking examples of digital transformation — Business Platform for attracting investment (a link between investors and authors of business projects) and ONLINECONTRACT — the electronic trading platform that helps businesses optimise costs and find suppliers in the shortest possible time.

Until recently, many companies did not consider electronic trading platforms as a way to sell products using traditional sales methods. Now suppliers have started to look for new opportunities. Our statistics show that even in the conditions of the coronavirus lockdown, by moving to the expanses of the Network and transferring their contracts to an electronic platform, they had the opportunity not only to support their sales but also to multiply them.

This new situation is unprecedented for businesses of any scale and industry. The path of digital transformation, which previously could stretch for several years, many have passed in a couple of months. Now everyone understands that you need to change quickly. Business is becoming more digital and flexible, which is probably the main sign of the post-pandemic era.

By Ruslan Khalilov
Tatarstan