The last 18 months was a “trial-by-fire” for the local restaurant industry. With government imposing the world’s longest, most stringent lockdown, restaurant operators found themselves with a mountain of obligations without the sales to back them up. Those with sufficient cash reserves were able to survive the onslaught but the thousands without ample cash runways had no option but to close permanently. Along with business closures came hundreds of thousands of lost jobs.
One of my businesses is a restaurant chain which is why I am well aware of how lockdowns affect the industry. Fortunately, our group has enough scale to survive the lockdown, but of course, not without accruing massive losses like everyone else. Still, we consider ourselves lucky to still be operating. We have seen too many of our industry colleagues succumb to insolvency over the last year.
The tragedy is that the government assumes (or would like to think) that take-out sales are enough to make restaurants survive. This is a great misnomer. Truth is, take-out sales comprise less than 10% of gross sales for most restaurant types. Hence, to prohibit or limit dine-in capacity by 50% or more automatically consigns a restaurant to losses.
This year, stringent lockdowns were hoisted over Metro Manila and Calabarzon in March and April, and again this month. The current ECQ (the strictest quarantine level, enhance community quarantine) came just as restaurants were beginning to recover. It wiped out whatever excess cash was raised in May, June, and July. Most restaurants are back to negative territory.
Government’s hit and miss and start and stop policies relating to contagion containment have caused more damage to the food and beverage industry than it may realize. Let us not forget, the Philippine economy is consumer led, one whose biggest sector is food consumption.
There is clearly a lack of balance between contagion containment and protecting the interest of the food industry and micro-, small-, and medium-sized enterprises (MSMEs), as a whole. Businessmen agree that government has been too liberal in declaring lockdowns without giving ample consideration to the plight of MSMEs. We think the IATF (Inter-Agency Task Force for the Management of Emerging Infectious Diseases) gives too much credence to the OCTA Research Group whom many agree is alarmist. It would do the IATF good to listen to business groups and give their voice the consideration it deserves.
The situation would be different if government provided direct cash subsidies to MSMEs whenever it declares a lockdown like other countries do. What actually happens is that MSMEs must survive on their own. Sure, loan facilities are available through government’s Small Business Corp., but the maximum loanable amount is only P5 million and the processing time could take up to three months, if one is lucky. This is too long to wait considering lockdowns are declared with only a one-day notice. Exacerbating matters is that portions of funds from Bayanihan II appropriated for MSMEs in highly affected industries (F&B and Tourism) have not been given out completely yet.
The plight of MSMEs is made worse by private banks. Despite government’s call for banks to be more liberal in granting new loans and re-structuring existing credit facilities to MSMEs, private banks are in fact doing the opposite. They call on loans even when they are not due, accelerate payment schedules, demand more collateral, and cancel existing credit lines. Banks are trying to hedge their risks in what is now a high-risk industry. Their actions only trigger more MSME closures. The Central Bank will do good by reviewing the MSME portfolio of banks.
There are 1.05 million business establishments operating in the Philippines, of which 996,000 are MSMEs. Of this number, the greater majority are involved in the food trade. While we understand that government must balance health concerns and business interests, we urge the authorities to put more weight on MSMEs survival. The sector is at its breaking point.
That said, we hope government will consider the following recommendations. First, if at all possible, do not extend the lockdown beyond Aug. 20. And moving forward, declare lockdowns only as a last recourse.
If lockdowns are a bitter pill we must swallow, government must at least provide a compensatory mechanism for beleaguered MSMEs. Direct cash infusions, tax holidays, and exemption from tax audits for 2020 and 2021 are relevant forms of support. Moreover, ample time must be given between the announcement and effectivity dates of lockdowns. This is to allow food establishments to consume their perishable goods.
To allow a higher dine-in capacity of 50% during MECQ and GCQ (the second and third quarantine levels) will provide food establishments with the volume they need to recover.
The restaurant industry must claw its way to survival until we reach herd immunity. This is the bleak reality. Until then, only government can provide the support the industry needs.
Andrew J. Masigan is an economist
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Twitter @aj_masigan
