Road to Recovery The Long Journey Begins

By Angus Gillespie

One of the more common phrases we’ve repeatedly heard from medical experts and government officials throughout the COVID-19 pandemic is the need to “flatten the curve”. It’s a requirement to get out in front of the virus and limit the infectious rate in an effort not to have and of the medical systems become overwhelmed. As of publication there were more than 51,000 confirmed cases of COVID-19 in Canada and just over 2,800 fatalities.

By all accounts the medical professionals have done an outstanding job, and that also includes the reciprocal companies that supply instruments and personal protection equipment. It has been an endeavour to which the world has never seen – at least not in our lifetimes. Other than the two World Wars, the only other comparative would be the 1918 Spanish flu pandemic, and it resulted in the deaths of millions of people over a two-year period.

The federal government, the provinces and territories have issued a joint statement on plans for moving forward and slowly restarting the national economy. But doing so will have to be done in gradual, staggered stages and not with one colossal push. A good analogy would be comparing the economy to a light switch in the dark. Flipping a light switch in the dark is a jolt to the eyes. A period of adjustment is needed before the pain subsides. Due to fears of another outbreak the economy is too fragile to try that. Instead of flipping the On/Off switch the better approach is to use a dimmer switch and gradually turn up the intensity as warranted and bring back enterprises as they are able to withstand internal and external pressures.

In many parts of the country the COVID-19 curve has been flattening according to Chief Public Health Officer Dr. Theresa Tam. Medical experts and government officials have an added confidence that now is the time to begin gradually opening up a select number of business sectors once again. While there is optimism that forward momentum can be achieved, there are no definitive timelines for opening up many various enterprise industries where the risks appear to remain to high.

Energy & Farming

Among many announcements of financial support, Prime Minister Justin Trudeau revealed the federal government would invest $1.7 billion for the struggling energy sector. It’s true the word struggling could be used to describe most industries, but the energy sector represents a massive percentage of the country’s overall financial well-being.

The $1.7 billion will be earmarked towards the cleanup of orphan and inactive wells in British Columbia, Alberta and Saskatchewan. Those wells provide a potential environmental and health hazard. The cleanup is expected to generate nearly 8,000 jobs.

The near-term may also introduce obstacles for dairy processing plants. Senator Don Plett believes the federal government has turned its back on Canada’s dairy processors by allowing the USMCA to go into effect on July 1.

Plett says nearly 500 processing plants that employ 24,000 people across the country stand to lose up to $100 million. The reason for concern is that the quota year for most key products begins in August and many terms of the agreement are tied into the production calendar.

The nation’s national dairy association echoes Plett’s concerns.

“We’re talking adjustment to products and portfolios — the product mix of my members, so that means that requires often plants retooling, new products, you have to find a new market. Now we’re left to do all of this basically within 30 days,” says Mathieu Frigon, President and CEO of the Dairy Processors Association of Canada.

In exchange for agreeing to fast-track the government’s implementation bill, Plett says Conservative members in the Senate received a guarantee from the governing Liberals that the USMCA would not go into effect before August. However, by signing off on the agreement back in April it has effectively given the start date decision to the Americans.

The largest outbreak so far in the country is linked to the Cargill beef processing plant in High River, Alta., and is a reminder about what health officials are guarding against as provinces plan to reopen their economies.

Fast-food chain McDonald’s Canada plans to start importing beef due to concerns that the Canadian supply chain won’t be able to provide the quantities needed due to ongoing pressures brought about the COVID-19 pandemic.

This is a big switch in policy for the company, which has always been very transparent about using Canadian suppliers for all its locations.

Capacity has been impacted due to a drop in production from a number of key suppliers including Cargill Inc. in Alberta. Operations there had to be temporarily shut down after a worker died from the virus and hundreds of other employees tested positive for having contracted it.

McDonald’s has pledged to use as much Canadian beef that is made available, but if their needs are not met, the company will turn to U.S. imports.

The company is also temporarily removing its Angus burgers from menus in Canada. Locations that still have a supply may still sell them until they are gone.

Meanwhile, U.S. President Donald Trump has mandated that all meat processing plants remain open, even if there are cases of COVID-19. It’s estimated that if all those impacted by the virus were to close it could cripple the U.S. supply chain with available meat products possibly declining by as much as 80% nationwide.

Reboot: Phase One

In the first phase the businesses that are reopening now are cases whereby social distancing can be more easily attained and maintained. It’s also expected that schools will be high on the list for reopening. Medical experts have reached a consensus that the virus does not impact children 17 and under nearly to the same extent as it does older adults, and in particular, those over 70. Of all deaths worldwide, about 80% have been over the age of 70 and that number increases to 90% for those aged 60 and older.

At the end of April a single-day record of 26,000 new COVID-19 tests were administered across the country. But Canada is likely going to be fighting the effects of this pandemic for some time yet. One major positive breakthrough is that government officials are saying a vaccine may be ready for public inoculations as early as September. Ontario, Quebec and British Columbia have had to deal with the most number of COVID-19 cases. Pond Inlet, Nunavut had its first confirmed case of the novel coronavirus on April 30.

As of publication the vast majority of companies – and by extension the Canadians who work for those companies – are doing everything possible to tread water long enough to survive. Life preservers in the forms of the Canadian Emergency Relief Benefit (CERB), the wage subsidy program and the Canada Emergency Commercial Rent Assistance (CECRA) program have greatly benefitted many people and enterprises. Unfortunately, it hasn’t been enough to rescue every company. The wage subsidy program only came into effect as of April 27, and by then it was already too late for some.

In Ontario, a survey of restaurant owners indicated that one in 10 have permanently closed their doors with another three out of 10 estimating they are in jeopardy of that same fate. The other six in 10 believe they will survive, but likely with somewhat of a scaled-back approach during a recovery period.

Saskatchewan Premier Scott Moe laid out five-step plan that includes golf courses reopening in mid-May. Ontario Premier Doug Ford and Quebec Premier Francois Legault also announced their provincial reopening plans.

“As we move forward over the coming months, we will be able to see careful reopenings in certain sectors of the economy, certain things being allowed as people try to get back to something a little more like normal,” says Trudeau.

Quebec and Saskatchewan are trying carefully planned restarts for some enterprises where it is believed the risks are low. The other provinces all have plans ready to go, but have not set firm dates as to when a rollout might begin. South of the border, more than 20 U.S. states have begun the process of slowly restarting their economies and integrating work personnel where it seems feasible.

Retail store outlets in Quebec as well as a significant portion of the manufacturing sector will be part of a phased opening in the province.

Prime Minister Justin Trudeau says that “normal” is a “long way off” for all Canadians — and that some differences implemented as a result of lessons learned during this pandemic will last for “years.”

“If we want life to get back to the way it was exactly before, it won’t,” Trudeau said.

“We are actively discussing reopening plans with our provincial and territorial partners. I want to reassure Canadians that this process will be gradual, it will be collaborative, and it will be guided by science and our obligation to protect the health and safety of Canadians,” says Deputy PM Chrystia Freeland.

Chief Public Health Officer Dr. Theresa Tam compared the hopes to returning to a normal way of life to the question a child might ask on a long car ride, asking “are we there yet?”

“I’m sorry to say we are not quite there yet, and though we are getting closer all the time, we can’t let go of the wheel yet,” states Tam.

The Atlantic provinces are also showing excellent signs of flattening the curve and are putting together agendas for restarting various business operations. All this is made so much more emotionally difficult for the people in Nova Scotia, where Canada’s worst mass shooting in history is still fresh in the minds of everyone. A crazed gunman inexplicably massacred 22 innocent people before police killed him.

Major league sports are also devising methods on how best to restart their stalled seasons. Both the NHL and NBA had about 20 games left in their respective seasons before playoffs were to have begun. A lot of possible options have been floated about, but it stands to reason there would be a truncated playoff format in both leagues in order to declare champions and do it before we reach the late summer months of August and September, although it is a possibility.

Baseball could easily shorten its 162-game season and the NFL doesn’t start until September. Regardless of the sport, it stands to reason most, if not all, could well be played without spectators in the stands. At the major-league level that is not a concern, other than it leaves the atmosphere sorely lacking. MLB, the NFL and NBA can all self-sustain on national television contracts. The NHL is somewhat more dependent on gate receipts from games in order to pay out multi-million dollar salaries so this could pose more of a challenge in that regard.

Financial Leadership

Starting next month there will be a new governor leading the way at the Bank of Canada. Stephen Poloz steps down on June 2 and Tiff Macklem takes the helm the following day. He’s going to have the position for the next seven years and he couldn’t possibly come into the role under more adverse conditions.

According to Export Development Canada (EDC), there’s never been such a short, sharp drop in the world outlook as seen over the last two months.

“Initial indicators clearly show the COVID-19 lockdown is having a catastrophic effect on economic activity,” says Peter Hall, EDC’s vice-president and chief economist.

According to EDC’s Global Economic Outlook, international activity will fall by 2.8% this year, with developed markets being hardest hit at an estimated 4.2% overall in 2020. The United States is expected to be negatively impacted by 3.7%, while the United Kingdom and France will fall 6.5% and 5.7%, respectively.

Emerging markets will be less impacted for the simple reason they had less to lose in the first place, so the growth potential moving forward should still stand. However, with the industrialized world having to collectively hit the reset button, the output is expected to be off by nearly 2% this year.

Another expectation is that Canada will be harder hit than the rest of the Organization of Economic Co-operation and Development (OECD), with the national economy shrinking by 9.4%. Numbers to date show a substantial drop in first-quarter output, with the worst to come in the April-June period.

The Canadian government has introduced aggressive monetary and fiscal policy actions as a bridge gap until businesses are once again able to sustain themselves at full capacity. However, weakened commodity prices will keep Canada’s currency in the low 70-cent range compared with the U.S. greenback.

“Economic recovery will be directly related to the timing of return-to-work developments across the globe. When that happens, we can expect high positive numbers,” says Hall. “While this is expected in the latter half of this year, we will have to wait until 2021, when world output rebounds, to the tune of an impressive 6.2%. Patience, persistence and collectively working together will provide Canada and the globe with ultimate economic victory.”

Global Recovery

On the other side of the world, New Zealand seems to be doing well in its battle with COVID-19.

In fact, New Zealand’s Prime Minister Jacinda Ardern says her country has earned a significant victory against the spread of the novel coronavirus and as such is beginning a phased exit from lockdown.

“There is no widespread, undetected community transmission in New Zealand,” Ardern declared. “We have won that battle.”

The country endured more than five weeks at the maximum Level Four restrictions, which allows only essential services to operate. Ardern says the move is now underway to move to Level Three, which will permit some businesses, more restaurants with take-out or delivery options and schools to reopen.

The easing of restrictions comes as New Zealand reported only one new case of COVID-19 in a 24-hour span. The country has had 1,122 confirmed cases with 19 deaths.

Other countries that were initially hard-hit by the virus, including Spain, Italy and China, are all faring much better and opening up sections of their respective economies. Then there are other countries such as South Korea and Singapore that were not overtly impacted at any point. How they managed that is a question that researchers will be spending a considerable amount of time on – but not yet. Additionally, a number of states in America are opening, including Georgia, Florida and Texas. It remains to be seen if those states will have a spike in new cases of the novel coronavirus or not.

It has become plainly apparent that one of the most serious issues to have come to light during the pandemic is the abysmal state of many nursing home and retirement home facilities throughout the country. The vast majority of victims have been the elderly. The vast majority of deaths attributed to the virus have been 60 and older. Many of those who have died that were 59 and younger had underlying health issues and compromised immune systems making them far more vulnerable to sickness and death.

The New Normal

On a number of occasions we’ve heard world leaders say everyone is going to be experiencing a “new normal” once we come out of this pandemic. What that exactly means, nobody knows for sure. In some countries and/or industries there may be significant changes in work life and lifestyle while change may seem imperceptible in others.

Essential services and the people employed within them have had no choice but to keep working through the pandemic to its conclusion. Moving forward those industries stand to soldier on, although it wouldn’t be a surprise is some are due some extra vacation time.

Healthcare, transportation and logistics companies, grocery stores, police, fire and other essential services have all performed with great distinction over the past two months. The phased-in approach for many other industries, including the likes of tourism and retail will be more complex as social distancing measures will remain in place. Companies with an ability to sell their products online will have a large advantage over some of the smaller operations that require in-person sales.

What also remains to be seen is whether this unfortunate world pandemic will encourage companies to allow a greater number of people to work from home? It’s quite plausible the numbers will increase permanently but other enterprises will still prefer to have their employees back in the office as a means of bonding integration and the promotion of working in a team environment.

Survey data from the Canadian Internet Registration Authority (CIRA) offers new insight into how technology and internet use has changed in Canada since the COVID-19 pandemic began. With school closures and social distancing, working from home has significantly changed the way many people use the internet to learn, work and stay connected with friends and family.

Findings from the survey indicate the number of Canadians working from home has increased by 700%. Half of Canadians (52%) currently employed say they are now working from home as a result of the COVID-19 pandemic, compared to only 7% who were working from home before it began. Just over 60% of respondents working from home say having no commute is by far the biggest perceived benefit of widespread working from home while 45% say the biggest drawback is fewer face-to-face interactions – and of course none with fellow co-workers.

This is going to be like putting together a huge puzzle back together after it had been dropped and broken into many pieces. Making the task more difficult is that some of the pieces are now missing – permanently gone. Some of the pieces will be relatively easy and quick to put back together while others will take a greater amount of time and effort. It will also require new parts to be made to put in place of the ones gone missing. But eventually the puzzle will re-assembled as best it can be and as such it will represent Canada’s economy and by extension the global community to form one large economic picture.

With a number of provinces and U.S. states now dipping their toes into the water the month of May will be crucial in determining whether our economy is ready to continue heading towards the deep end or whether it’s going to be a scamper back to shore. Lockdown measures cannot remain in place at infinitum so the need to keep this virus capped to the point where healthcare centres do not become overwhelmed. That will be the overriding factor that determines the path we all take at the next intersection.

Leonovus Business and Financing Update