Family businesses surprisingly positive in the wake of Covid-19

Family businesses in the Middle East have turned their attention to life beyond Covid-19, signaling a “surprising” level of optimism according to a new Deloitte report.

Deloitte surveyed 80 of the Middle East’s most prominent family groups, spread across the UAE, Saudi Arabia, Qatar, Kuwait, Bahrain and Oman. The resultant report “explores how unprecedented external market forces have impacted the family ecosystem,” according to Scott Whalan, co author & partner at Deloitte Middle east.

Whalan refers to the Covid-19 economic impact, which featured recession, demand shocks, supply chain disruptions and day-to-day operational disruptions due to lockdown. In the Middle East, all this was topped off with one of the biggest oil price crashes in history. According to Deloitte’s report, family businesses in the region were simply not ready for such an onslaught.

Well over 70% of families had to change their strategy in the wake of Covid-19, while nearly half say the same of their governance structures. Perhaps the least prepared business aspect for most was their tech infrastructure. Virtual working became a reality almost overnight while digitally enabled agility and efficiency became crucial for survival. 

As a result, nearly two-thirds of family businesses had to upgrade their technology. A lot of this was at the back end – featuring investment in business continuity tools – while well over half also had to invest in customer-facing technology to take their product or service offering online.

Technology upgrades aside, many also lacked the financial strategy to cope with the pandemic, which required real time updates on liquidity and cash reserves. All things considered, Middle East family businesses were caught off guard by Covid-19, evidenced by the impact on their revenues.

A third of family businesses in the Middle East report losing more than 20% of their revenues due to Covid-19. Nearly 40% more lost between 10% and 20%. The Covid-19 and oil crash double whammy are the main factors at play here, all while tax and cash flow challenges play out in the backdrop. 

Positive response

Challenging as the circumstances were, the response from family businesses has been clinical to say the least. As mentioned pivots were required in strategy, governance, technology, finance and service offerings. In most of these cases, family businesses have already resolved the issue, and 15% report that normal business activity has resumed.

Most others expect their business to be back at 2019 revenue levels within six months or a year at the latest. In fact, 75% of all family businesses in the region expect to be making pre-pandemic revenues in the next 18 months if not before. For Whalan the “survey was particularly interesting and the results equally surprising as we would expect areas like optimism to rank low or not appear at all as a theme.”

Yet, this resilient business segment expects to be back on track in the near future, and is gearing up for life after Covid-19. Nearly 70% have changed their medium term strategy this year. “The theme has shifted from one of pessimism to optimism as families focus on positioning to thrive in the new normal,” noted Whalan.

While surprising in the wake of Covid-19, the optimism and resilience is true to form for the segment. Back in 2018, Deloitte published a similar reflection on the state of family business in the Middle East, to find a sense of confidence despite a host of growth challenges. 

Now, as they adapt to the new normal, Whalan suggests there is a long way to go. The resilience and flexibility shown has been promising, although “further work remains across areas such as succession planning, private wealth structures, and optimizing business performance and investment portfolios.”