Phl Firms Lack Confidence As 15 Percent Of Businesses Close Amid the Pandemic

Philippine companies have shown a “lack of confidence” on the heels of 15 percent of businesses permanently closing down amid the coronavirus disease 2019 (COVID-19) pandemic, according to a World Bank Group survey that predicts the economy will “stay subdued for an extended period.”

The “general pessimism” for the country’s immediate future leads companies to “limit additional investment and employment,” according to the report on the Philippines COVID-19 Firm Survey.

“Uncertainty is an important additional channel affecting firms during the pandemic, and as the economy re-opens, this could result in a lower desire for risk-taking and additional investments,” read the survey report.

The survey of 74,031 firms was conducted from July 7 to 14 by the World Bank Group in collaboration with the Department of Finance and the National Economic and Development Authority, with support from the Australian government.

Of the businesses that were still open by early July, 39 percent – or two out of five – said they did not know how long they could remain open under the circumstances. Another 36 percent said they expected to remain open only for the next three months.

Another 13 percent saw themselves staying open up to the end of the year (six months from the time the survey was taken). Only 12 percent felt they could remain in business by 2021.

The figures were worse for the businesses that closed down during the pandemic. Forty-five percent, or nearly half, did not know when their businesses could resume.

Relaxed quarantine didn’t improve sales

Part of the uncertainty was the fact that 28 percent of firms could not forecast how much their sales would change. Meanwhile, 23 percent expected their sales to increase, but 32 percent thought the number would decrease.

The survey noted that the level of uncertainty regarding the volume of sales was greater in the transportation and business process outsourcing sectors. Although the government allowed BPO workplaces to stay open during the enhanced community quarantine that lasted until May, it severely restricted public transportation to prevent employees from going to work.

Even as the community quarantine was largely eased by June, the survey found that 89 percent of firms continued to report a “deep reduction in sales revenue” – averaging 64 percent – from April up to July. This was on top of 75 percent of firms reporting a 65-percent slide in revenue from February to March.

Firms outside the National Capital Region and those in the automotive repair, tourism and accommodation, food services and real estate sectors reported a greater impact on their sales.

Meanwhile, 70 percent of firms reported having their operations affected by a decrease in the supply of inputs and raw materials used for the goods and services they sold. Fifty percent of the firms attributed this to local distributors ceasing or reducing operations and logistics getting disrupted.

Eighty-six percent of firms also reported having a hard time getting cash to fund their businesses, with 59 percent saying their access to financial services was hampered.

Impact on workers

In terms of employment, half the business said they reduced payments to their employees, and 48 percent of the respondents had to reduce the number of workers. Job loss was found to be the most significant in the education, food services and construction sectors, where more than 60 percent of firms had to lay off workers.

Only one percent of the firms surveyed reported new employment.

As with sales, the outlook for employment was also bleak. Thirty-three percent of the surveyed firms did not have an idea if they could increase employment by September. Ten percent expected to increase employment, but 24 percent said they would keep reducing their workforce. Even if employees were retained, firms admitted they expected to slash the payments further.

Workers in the education, arts, entertainment, and tourism and accommodation sectors, as well as those in Central Visayas and the Bangsamoro Autonomous Region in Muslim Mindanao were found to be “more pessimistic about the future sales and employment.”

Government help

As for government interventions, the survey showed that 46 percent of firms required cash assistance and 47 percent were able to get some relief. Ten percent needed wage subsidies and 17 percent were given grants. The 19 percent of firms that sought a deferral on their loan payments and 14 percent that sought regulatory relief got what they wanted.

Fewer companies received other much-sought reliefs such as loans with subsidized interest rates, credit mediation and refinancing, business skills training, and deferral or reduction of rent, mortgage and utilities.

Meanwhile, zero percent of the surveyed firms received any tax exemptions or reductions, tax deferrals, digital skills training, and, most damningly, improved public transportation services. This was despite demand for such government support.

Another problem with government support is that 27 percent of firms found it difficult to apply for the relief, 26 percent were not aware of such programs, 22 percent did not receive any support despite submitting applications, and 21 percent said they were found ineligible.

“This suggests the need for increased awareness and clarity on the guidelines and requirements of current programs as well as the timely implementation of the programs,” the survey report read.

The report concluded that government efforts should be concentrated on reestablishing demand, supply and financial channels, and helping firms to adjust to the “new normal” by improving their capability to boost their productivity.

Because the “new normal” would be “characterized by high uncertainty,” the survey report said the government should be aware that firms would be less willing to borrow and banks would be hesitant to lend money.

“Therefore, clear communications and consistent messaging about community quarantine measures on business operations in a timely manner will be crucial to reduce firms’ uncertainties about the future,” it said.

Three out of five surveyed firms (59.3 percent) were micro enterprises, and one out of five (19.2 percent) were small businesses. Medium enterprises accounted for 12.8 percent of the respondents, and large companies composed 8.7 percent.

As for location, 22.7 percent of the respondents operated in the National Capital Region, with 17.7 percent in the Calabarazon region, 11.8 percent in Central Luzon and 9.1 percent in Central Visayas.