Businesses renegotiating contracts to cope with Covid-19, ERG says

The Business Standard
June 7, 2020

Businesses are renegotiating contracts with their counterparts to cope with losses caused by Covid-19.

The Economic Research Group (ERG) recently completed a study on selected areas of contracts where renegotiations being made were observed.

These were presented in a webinar, attended by researchers and academia from The Dhaka University, North South University, Brac University, Brac Institute of Governance and Development, Centre for Policy Dialogue, Youth Policy Forum and the ERG, including its Chairperson Dr Wahiduddin Mahmud.

On behalf of the research team, the key presentation was made by ERG Associate Mutasim Billah Mubde and the session was moderated by Dr Sajjad Zohir, executive director of ERG.

A phone survey was administered on around a hundred firms during the second and third week of May 2020.

The businesses surveyed covered sectors including  RMG, electric and electronics, plastic, IT, agro-processing, food and services. Office-based works have largely been shifted to home-based or a mix of both office and home-based activities.

This may be further promoted with implications for both property rentals and employment of less-skilled labour. The study did not look into the negotiations underway with client groups. In cases of work order reduction as, three coping strategies are observed.

Delays in rent payment are observed, though some firms could renegotiate 10 to 50 percent reduction, while a few others went for deferred payment. Yet many have not made a move to resolve.

Participants suggested that social conflicts may surface unless these are amicably resolved right now when both property owners and tenants commonly face uncertainty and threat of Covid-19.

It was suggested that no rule be made to meddle with the issue of rent. However, the government, NGOs and community-based organizations should facilitate conflict resolution and protect the weaker party.

Employment has been adversely affected in all sectors. Relatively it was the least in the IT sector, which lost a large volume of work order from foreign markets, but got new clients in the domestic market, particularly, in health E-commerce and government service sectors.

Amid disruption, firms running with 16-59 percent capacity in May were expected to increase that ranging from 40 to 77 percent, depending on their sectors.

Uncertainty is revealing, given the finding that none of the surveyed firms could retain their workforce if no revenue was earned before October/November. More than 15% reported their inability to pay salaries in June.

87.3% of firms operating in rented or leased premises will have to delay rent payment. While 43.1% of firms operating in the same space were successful in renegotiating delayed rent payment, the implications of it were discussed in terms of the national economy.

Discussion on government intervention was followed, and the requirement of space for tenants to raise concerns or complaints came up.

Compassionate media coverage is necessary for such spaces to play the role of facilitating outcomes beneficial to both parties, the discussants suggested.