Advertisement

Start-ups and closures

Font Size
Marvin A. Tort

Static

I have yet to see data on how many businesses, particularly small and medium enterprises, in Metro Manila will not survive 2020 as a consequence of the COVID-19 pandemic. A few will probably start reopening by next week, some more perhaps by June 1. And of those that can resume by the second semester, I doubt very much if most will make it to the end of the year.

The most vulnerable, in my opinion, are freelancers, “professionals in general,” self-employed individuals, professionals working as consultants, small enterprises with limited cashflow, service enterprises with fewer than 10 employees, family-owned retail establishments, and small businesses run by families of overseas Filipino workers. Include on the list even small law firms, small medical and dental practices including neighborhood clinics, barbershops and salons, nail salons and spas, and small contractors and engineering firms. Small hotels and resorts and travel-related or travel-associated businesses, and travel-related transportation companies will also have much difficulty.

But while international travel and tourism may be dead in the water for now, I still see some opportunities in local or domestic tourism, particularly to destinations accessible by private land transport. Small families with private vehicles can still do weekends in private houses with pools or access to beaches; private lodges in cool climate destinations like Tagaytay and Baguio cities; and private farms with nature-related activities. It is a matter of how the owners of these private lodgings can strictly follow the required health and safety protocols.

But for many businesses that can still afford to restart, the concern is who can still afford to patronize them? A lot of people in the metropolis have lost their sources of income. Even those with some money tend to be more frugal in times of crisis. Business and consumer confidence are down. People are not ready to start spending for anything beyond basic necessities unless they are certain of surplus income in the medium to long term.

The Philippine Star has reported a recent survey by PwC Philippines indicating that less than 20% of start-ups in the country have enough cash to sustain their business operations for more than a year amid the impact of COVID-19. This was based on PwC-hosted discussions sometime last month with 90 start-up founders in the country. The survey showed only 19% of start-ups have cash good for over 12 months, while only 17% have the ability to sustain the business for more than 12 months if the enhanced community quarantine (ECQ) is extended, the Star reported. After May 15, Metro Manila, Laguna, and Cebu will be under modified enhanced community quarantine (ECQ) until May 31. It remains uncertain if this will be extended beyond May 31.

The Star also reported the survey showing that during the ECQ, 51% of start-ups have reduced their level of operations. One the bright side, 49% have also started offering a new product or service. My concern, however, is new offerings and the shift to the digital space is not enough to make up for what was lost and will be lost in the manufacturing, retail, and service industries.

Meanwhile, BusinessWorld reported that a survey last month by the Employers Confederation of the Philippines (ECoP) showed 67% of respondents said their companies postponed expansion or investment decisions because of COVID-19. The respondents were 148 large companies and 115 micro enterprises.

Only few respondents said they are observing normal operations, while 20% are on work-from-home setup. Another 26% said their business had to shut down due to the ECQ in Luzon, while 24% said they slowed down operations or maintained only a skeleton work force. Also, 22% saw a drop in demand for products and services; 19% said business dropped because of changes in work arrangements; and, 10% said they had difficulties paying salaries.

About 37% of respondents said they do not expect normal operations until after two to three months from ECQ lifting, while 14% said it would take them about six months from ECQ lifting to go back to normal. On the bright side, 38% said they expect operations to go “back to normal” a month after the lockdown ends.

Of the respondents, 34% also considered their companies poorly prepared to deal with the impact of COVID-19, while 28% said they do not have a written business continuity plan. Also, 64% have stopped hiring, while 9% said they laid off anywhere from 25% to 50% of their employees. For those who have kept their workers meantime, job cuts are expected in the future if the ECQ or the pandemic continue for another six months.

BusinessWorld also reported that Moody’s Investors Service already expects the country’s gross domestic product (GDP) to contract by as much as 2% this 2020. It quoted Moody’s as saying, “The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and financial market turmoil are creating a severe and extensive economic and financial shock.”

The Moody’s credit opinion shared with media on May 12 also noted, “As the ECQ will encompass much of the second quarter, we expect high-frequency data to continue to deteriorate despite the implementation of countercyclical policy stimulus, including handouts to vulnerable, low-income households.”

I take particular note of the comment of a Moody’s senior official, who reportedly e-mailed that the Philippine economic forecast was downgraded mainly due to the severity of the impact of the ECQ: “Given that we now expect the ECQ to last through most, if not all, of the second quarter, we are looking at an even larger contraction through the middle of the year.”

The official added, “Some of the key risks include the containment of the coronavirus outbreak itself, not just in the Philippines but also globally; an inability to contain the outbreak could lead to an even more prolonged imposition of measures that will weigh on economic activity.” But effective containment can result in “removal of restrictions on movement,” and this “will benefit consumption, allow people to return to work and alleviate the disruptions to the government’s infrastructure program.”

In a way, business under the COVID-19 environment is like pole-and-line fishing for tuna in open sea. The one with the longer line and stronger pole, as well as the patience and the determination to stay out in open water longer, can have better chances of catching fish. But, even the best pole and line, and bait, will be useless if the fish will simply not bite where you are. Or, there are just no fish to catch there. It all starts with knowing where to fish.

 

Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council.

matort@yahoo.com





Advertisement