According to his words, the crisis has given rise to some successful companies while financially destroying others. However, he believes it's not the end for them:
"Another new beginning, more realistic, with smaller scales and probably supported by the state. Just as states "rescued" the financial sector through nationalization and government aid after the 2008 crisis," he says.
Markovic also discusses possible scenarios after the pandemic and how to navigate through this crisis.
What was the past year like for you, if you could describe it in one sentence?
If you ask me to describe the year in one sentence, the title of Pekic's masterpiece, "The Years the Locusts Have Devoured," reminds me of the year behind us. It was a challenging, strange year that somehow passed by in anticipation, hoping that things would change and that something better awaited us just around the corner. But it wasn't so; moreover, half of Europe is still in conditions that involve lockdowns, social or, more precisely, physical distancing, and consequently reduced economic activity.
On the other hand, the past year has been successful for our collective, which has been operating mainly via Zoom and other digital platforms in recent months. We worked, albeit under challenging circumstances, mostly from home. Still, we managed to achieve growth even in such conditions and continue towards our goal of being one of the top 3 management companies in Southeastern Europe.
Is this the end of the world as we know it? In that sense, which businesses have shown they can operate in such circumstances, and which jobs might represent the future?
The world has not changed. We, the ones who live in this world, have changed the most, and to my great regret, all the flaws have come to the surface. The way we live and work is different. We travel very little or not at all, socialize less, and live under psychologically solid pressure, even if we may not know it. This affects everything, including business operations.
When it comes to which businesses have proven to be "resilient," it's clear that those that managed to digitize in time and transition to online work modes are coming out of this crisis less "damaged." On the other hand, entire industries will regress decades in every sense - from work practices to revenue and profits they can expect. Take, for example, the airline industry. Does anyone expect things to return to normal quickly there? Everyone hopes low-cost airlines will "revive" the sector soon. I don't believe that low-cost carriers will become high-cost carriers because many airlines will disappear.
As for the jobs of the future, they have long been known - everything in the services and online realm, mainly if they don't depend too heavily on supply chains, has the potential for further growth. Additionally, a far more significant impact can be expected on local economies and consumption. Just look at the growth projections of the World Bank. Economies that have a considerable influence on local consumption in their GDP are the ones that will recover faster, unlike those that rely on services and "foreign" money.
On the other hand, what are the industries witnessing the beginning of their end?
In Egzakta Advisory, we published a study in April last year on the impact of Covid-19 on the economy. At that time, we predicted that industries providing services, especially tourism, hospitality, and restaurants, would experience up to 80% decline. The same goes for airlines, the auto industry, and consumer goods. However, I don't believe it's the end for these industries.
It's more of a new beginning, more realistic, with more minor scales and likely government support. Just as states "rescued" the financial sector through nationalization and government aid after the 2008 crisis, I'm sure these companies, especially the large ones, will receive assistance from their governments in this crisis. On the other hand, banks and private equity funds are very liquid, and there is money in the market. So, acquisitions, mergers, and takeovers will start a new development cycle after this crisis. Many business owners will lose their companies but remain in the market with a new ownership structure. Every situation has its losers and winners.
When I ask the owners of large companies what the most significant consequence of the pandemic is, they say that there will be far fewer companies when all of this is over. How do you view this? What will companies need to do? What battles will they fight? When can we expect a full recovery?
Companies can expect a significant drop in sales, especially if they come from "critical" industries, whether large companies will become smaller or poorly formulated. The main question is whether they will survive because projections indicate a sales drop ranging from 20% to 40% or even 60%. There will inevitably be a fierce battle for survival in the market. With this scenario, the only companies that won't face it are those in pharmacy, dietetics, or the food industry. A 60% drop in sales, for example, implies that if recovery doesn't happen within a year, the company must significantly reduce its workforce (over 40%) and start selling assets, especially if it has debt service obligations for loans in its structure.
Companies need to prepare well for recovery, and we are ready to help them. Our work is based on methodologies and mathematics. We work together with the client. In practice, this means a detailed analysis and preparation of activities through several steps. First and foremost, companies need to understand potential scenarios, be prepared to react quickly, ensure the stability of financial liquidity, transition to digital channels, and prepare for a fresh start. Effective communication is also essential, and they should seize the crisis's opportunities.
Through these six steps, companies will cover everything they need to do to overcome the crisis. I emphasize that a detailed analysis is required at each of these steps, and only through practical work and additional engagement of all employees will companies succeed in overcoming the inevitable crisis. Whether companies do this by relying on their resources or engaging external consulting help, one thing is sure: if they still need to start preparing, they must begin immediately. We have an experienced team that can support them in this, and we have successfully implemented several projects where we helped clients prepare and implement crisis recovery measures.
Returning to your last question, it's challenging to predict when we can expect a full recovery, probably not until the third quarter of 2021, while many regions might see the sun on the horizon after spring 2022.
Can you outline at least 3-4 crisis scenarios?
We developed four scenarios, as I mentioned: Basic, Positive, Dark, and the potential new basic scenario, which depended on whether the virus would return in the fall. Unfortunately, it did return. According to this scenario, the return of the virus in the fall and its further spread brought new pressure on most economies and pushed them back into isolation. Crisis management was more accessible due to the experience from the spring of 2020, and protective measures could be limited only to parts of the country, maintaining certain regions without isolation and without hindering work. Unfortunately, most countries had to apply more restrictive measures. According to this scenario, we assume the virus will come under control by April of this year. After that, economies, as well as societies, will start returning to normal. This is a "W"-shaped recovery, where most economies should return to pre-crisis levels by the third quarter of 2021.
Of course, it remains to be seen whether the pandemic and the deepening of the crisis will stop by summer. If not, and it seems that our prediction about vaccination is starting to yield "serious" results only around mid-2021, the crisis will deepen into the whole of this year and the first half of 2022.
A return to the "old" will never happen again. Changes in work practices, especially in the production and supply chain segments, a new geopolitical situation, and the setback of some industries by up to 30 years are, unfortunately, the new reality as it is called today.
It is evident, when we talk about companies in general that IT-related ones adapted the fastest. In that sense, those in the field of bio and healthcare excelled on the stock exchange. Do you expect their further expansion, and how do you see the stock market in the coming period?
The stock market is always a good litmus test for the economy. Companies coming from industries that are unaffected or even benefited from this situation will be the ones experiencing growth on the stock exchange. Companies related to IT, pharmaceuticals, biotech, last-mile logistics, and home delivery are the winners of this crisis. Just look at how much Amazon has grown in the past year; their business model is ideal for this era. All online commerce is growing, so the main problem is delivery.
But it won't be only those stocks traded. I expect significant transfers and market ownership changes because funds have entered this crisis, as they say, "loaded with money," so I expect them to trade on the stock exchange actively. This, of course, requires the crisis to start decreasing. Vaccines will have to do the job here, as the economic situation is, in fact, just a reflection of the health crisis, which is still at its peak. If vaccination proceeds as expected, we can expect increased economic activity. Until then, everything will be in a "standby" mode. What is now clear to everyone, and what I want to emphasize once again, is that without digital business models, companies have no future. This won't change any more.
The Serbian government has issued generous aid measures for the economy. However, some sectors still call for help and ask for sector-specific efforts. What do you think? How have the actions affected? Could something have been different?
The measures of the Serbian government were reasonable, especially those related to incentives through credit schemes with state guarantees. Assistance in salary payments also helped many companies overcome the initial impact of the crisis. However, the lockdown measures were much milder than those in March and April last year, partially because the state doesn't have the means to provide more substantial support packages to the economy. Sectoral support is expected, and it has appeared for tourism, hotels, and more. Honestly, in the period ahead, it's unrealistic to expect the state to have enough resources to help the entire economy directly. There will likely be packages of measures for specific sectors. We see that, through salary increases in the public sector and support for pensioners, efforts are still being made to stimulate consumption. But this will also have its limitations. Looking at the budget approved for the next year, we can see that public works and investments will stimulate economic growth. That is one way to help the economy, but it's also crucial to encourage local companies.
Now more than ever, it's crucial to direct resources for stimulation, both for investments and development, towards domestic companies and the economy. Local companies should be stimulated in some way, even through public procurement. Additionally, developmental loans for investments in producing goods that are currently imported are a typical example of how the domestic economy can be helped in the long term. I also expect a program to develop startups and new entrepreneurs in Serbia. This should also help create new jobs that will inevitably be lost in large companies due to the crisis.
However, we all look forward to 2021 with hope. What kind of year could be awaiting us?
It's still too early to celebrate the end of the crisis. We're facing another challenging period until the middle of the year, when things should start getting better. But as I often like to say to my colleagues, "It all depends on us. The more effort we put in, the more prepared we are, the better it will be for us."
The American writer and journalist Jeannette Walls claims that "sometimes a little crisis is what gets your adrenalin flowing and helps you to realize your potential."
In that sense, an open question during crisis days should be: what could your company gain in this process? Business results will probably suffer over the next few quarters, but numerous opportunities will also emerge. You can use this opportunity for recovery and even growth.
Ultimately, crises can create space for structural improvements in a company's operations, which seemed too painful to deal with in less stressful conditions. It's essential to recognize and make the most of all potential opportunities that come with change.
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