Pharos Research Group sees discretionary spending halting worldwide due to the ongoing coronavirus pandemic. Accordingly, companies operating in the automotive, textile and electronics sectors will be most severely hit by falling demand as consumers ration spending and gravitate away from non-essential purchases.
According to the firm’s research note automotive sector to witness drop in demand. As consumers are likely to delay automotive purchases over the coming period, as the Ministry of Interior’s closure of traffic authorities for a month will make it harder for consumers to register new vehicles. Also, reduced working hours in dealerships and maintenance centres will reduce the purchasing window. Pharos indicates the closure of auto manufacturing plants worldwide will likely hinder vehicle and spare parts order fulfillment, if the lock-down lingers for longer.
Similarly, local demand for textiles will be pressured by the curfew imposed on all retail outlets, while textile exports face order postponement or cancellations, due to slower global demand. Oil-based raw material imports are also at risk of interruptions, due to global manufacturing hurdles.
Moreover, electronics sector will not be spared according to the research note. The curfew and social distancing efforts have affected consumer trends and purchasing behaviour, causing a relative slowdown in demand. In addition, global closure of plants could reduce/delay production of electronics spare parts and the launch of new
Meanwhile, Pharos Research provided an assessment of the Ground Update of Egypt’s Food and Beverage sector. Local press reported that the rate of food consumption has spiked nationwide since the coronavirus sparked widespread panic buying in recent weeks. Pharos contacted food and beverage companies to gain some colour on the current situation, with the main takeaways as following:
Companies producing consumer staples and shelf-stable foods will benefit most from the extended quarantine time. This trend is expected to decline heading into the Ramadan season in 2Q of 2020.
Companies who mostly cater to the tourism and hospitality sectors are going to be hardest hit by the curfew and flight suspensions. The absence of school and university-aged consumers, who are a big portion of the local demographic, will have an adverse effect on companies producing packaged snack foods.
Companies are moving towards securing 2-4 months of inventory on hand to protect against any future raw material shortages and/or depreciation in the Egyptian Pound. This is supported by the recent decline in commodity prices.
Although it is too early to judge the overall effect on the Egyptian F&B sector, we expect to see an increase in companies’ working capital level, resulting from more active purchasing activity. This will likely reflect in the higher use of overdrafts and short-term credit facilities over the coming period