The GCC or Gulf Cooperation Council is the economic and political alliance of 6 countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, the economies of which were shocked by the advent of the COVID-19 pandemic during the aftermath of lower oil prices. Family businesses in the GCC were already in dire financial straits as they were dealing with high leverage, lower profits, and restricted liquidity. Thus, combination of the two economic hits has severely stressed all 6 country’s economies.
Fortunately for most of these businesses, they have taken action and implemented measures to help counteract the economic crisis with new company formation in Saudi Arabia and new company formation in UAE. However, these family businesses are now faced with adapting to a dramatically different post-pandemic landscape. Most of them are retaining the existing staff that is important for long term success of the business apart from coordinating actions with suppliers and main clients to enhance business continuity. It is our belief that these businesses must adopt the following 4 strategies in order to attain a better position over the long term:
Digitize core operations and invest in a “stay-at-home” economy
Prior to the pandemic, shopping and working online was on the rise. Now it will likely be the new of conducting business for businesses and consumers alike. Therefore, family owned companies in the financial and retail sectors will have to adopt their business models and core operations to this newer, “stay-at-home” economy.
Diversify their financial portfolios
With sharper financial crises and shortened economic cycles becoming more frequent and more globally based, the traditional focus of risk management is failing to protect their financial portfolios. Consequently, family businesses must pursue a more encompassing approach to risk when managing their portfolios. They should incorporate cash flow threat assessments with the valuation drivers of demand and price.
Pursue opportunities in the private sector
As a result of decreased oil revenues, GCC government’s deficits are growing. Consequently, they will need these family businesses to drive their economy more than ever. It’s important for these businesses to take on more PSP (private sector participation) projects such as opportunities in the infrastructure by developing partnerships between multi-family companies in order to combine their talents and minimize risk.
Take advantage of more local opportunities
By closing their national borders, GCC businesses were forced to re-examine their supply chains and increase their localization efforts. By investing in local production and new chains of supply, businesses can protect themselves from supply chain disruptions while at the same time reducing their reliance on imports. Given the stable performance of the manufacturing sector during Saudi Arabian oil cycles, increased opportunities in this sector will be more attractive.