Rapid Appraisal of Corona Impact (RACI) Main Findings Report
CEFE- UGD RESEARCH TEAM
MAY, 2020
EXECUTIVE SUMMARY
The aim of this paper is to analyze the impact of the newly occurred Corona crisis on the businesses in N. Macedonia. The surveyed companies belong to different business sectors and most of them include wholesale and retail trade, transport, information transmission, software companies, information technology services, etc. The number of employees measures the size of the company. Hence, the results showed that most of the companies have less than five employees, and the smallest part of them have more than twenty-five employees. Furthermore, the annual income of the companies was taken as a very important indicator for conducting the analysis. Data for the total revenue of the companies is presented in order to determine whether the Corona virus had any negative impact. Most of the data showed that there have been consequences from this crisis, mostly in the productivity levels, sales and revenues, but, when it comes to the employees there have not been any drastic negative changes.
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INTRODUCTION
The accelerated spread of COVID-19 has brought the world economy to a standstill. Projections of the potential impacts of the COVID-19 shock on the global economy are very significant. Yet there is near unanimous consensus that the world economy is facing the most serious challenge of the post-war era due to the sudden halt in economic activity in both advanced and developing countries. The factor of uncertainty afflicting the economic system and the capacity of decision makers to respond to the shock of the COVID-19 pandemic in a timely and effective manner is significant. Policymakers have rarely faced such immense challenges in responding to the existing economic conditions. At the moment, calculations are being made and a lot of attention is given to the use of budget funds, so that they are used in the right direction and there are no mass layoffs. The effects would be in several scenarios, primarily short-term and sectoral shocks, mainly on the directly affected sectors of the reduced workload from the disturbed supply and demand flows. The negative effects of the state of emergency with the corona virus spill over from one sector to another and they will affect all companies. For that purpose, this study examined the economic impact on the private sector in all sectors and activities, which suffered from a slowdown, to determine the need to support different sectors. In this context, the study touched on the impact of the spread of the Corona virus on several levels including the volume of companies’ production, international trade, as well as the labor market.
*As the circumstances and impacts of the COVID-19 pandemic are continuously changing, the interpretation of the information presented here may also have to be adjusted in terms of relevance, accuracy and completeness. The views expressed in this report are those of the authors based on their prior research.
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Precautionary Measures and Measures:
The most important precautionary measures taken by the Macedonian government to reduce the effects of the Coronavirus on the national economy: In order to reduce the economic impact on the economic sectors, especially small and medium enterprises the government announced a package of measures for the private sector and the business sector, which included: •
Subsidized contributions for employees;
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Reduction of statutory interest;
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Exemption from monthly income tax deductions;
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The reference interest rate decreased to 1.75%;
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Interest-free loans from 3,000 to 30,000 euros;
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5.7m euros for favorable credit lines for companies;
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50% reduced penalty interest on public duties;
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14,500 denars per month per employee for April and May, for companies affected by the crisis or 50% of the costs for contributions for each employee;
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Cash benefits for citizens who lost their jobs due to the crisis, according to the length of service through the Employment Agency;
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The Law on Enforcement is suspended until the end of June;
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Delay of bank loans;
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Reduction of the installment and reprogramming of loans to financial companies and leasing companies; These are economic measures designed after extensive consultation and substantive debate with the members of the Economic Council, formed for this purpose, as well as through the talks with the business community through 4
chambers of commerce, and through separate talks with top economists from academia and with reputable and successful real estate entrepreneurs.
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THE METHODOLOGY The study aimed to highlight the economic impact on the Macedonian private sector, especially small and medium-sized companies due to the spread of the Coronavirus epidemic. Data were collected in the period between 28th April -2nd of May in the year 2020, and the random sample size reached over 50 companies from various economic sectors. The CEFE-UGD research team developed an electronic version of the questionnaire and used Google form for easy distribution to the targeted group of companies to fit the current conditions (quarantine) at the present time. Then, the data were analyzed after scrutiny of the accuracy of the information contained in the submitted questionnaire using scientific research validation tools to achieve accurate results.
MAIN RESULTS OF THE STUDY This report will present the results of the surveyed entities. The companies are from the territory of North Macedonia. Distributing the surveyed companies by Economic Activity The sample of the surveyed companies distributed according to their economic activity as follows: •
15.1% Wholesale and retail trade;
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11,3% Information transmission, software and information technology services;
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7,5 %Accommodation and catering;
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5,1% Transport, storage and postal industry.
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Other industries are: service companies, health and social work etc. wholesale and retail trade
Economic activity
information transmission, software and information technologu accommodation and catering transport, storage and postal industry
22%
15% 11%
11% 6% 4%
Agriculture, forestry, animal husbandry, fisheries Education Construction industry
8% 5% 8% 4%6%
Turisam Manufacturing industry
Financial and accounting Other
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Distributing the surveyed companies by employment size The sample of the surveyed companies was distributed according to employment size in the year 2019 as follows:
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49%of companies employ less than 5 workers;
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20.9% of companies employ 5 to 10 workers;
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17%of companies employ 11 to 25 workers;
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13.1% of companies employs more than 25 workers.
Employment size
more than 25 workers 13% 11 to 25 workers 17%
5 to 10 workers 21%
less than 5 workers
less than 5 workers 49%
5 to 10 workers 11 to 25 workers more than 25 workers
Exports activities The percentage of companies that work locally is the largest, 52.8%.The percentage of companies engaged in export activities reached about 11.3% of total companies in the sample. The most of exporting companies expected their export volume to decline by more than 20%.
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Companies’ annual income (2019) The companies ’annual revenue is a very important indicator as it reflects the size of the company and the extent of its success. The companies ’sample was distributed in terms of the annual income for the year 2019 as follows: •
About 36% were ranked on the list of companies, whose’ annual income was less than USD 20K.
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Some 27% were ranked on the list of companies, whose’ annual income ranged between USD 20-100 K
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About 31% were ranked on the list of companies, whose’ annual income ranged between USD 101 to 250 K
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Around 6% were ranked on the list of companies, whose’ annual income ranged between USD 250–1m USD
Companies' annual income 6%
Less than USD 20K 36%
31%
Between USD 20-100K
Between USD 101-250K 27%
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Between USD 250-1m USD
Volume of revenue In terms of total revenue, research has been done on the expected total revenue for 2020, before the Corona Virus appeared and now, when we consider the impact of the virus. The following results are obtained: Expect total income for 2020 (compared to 2019) before Corona Virus: •
Increase in total revenues 73.6%
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Be like last year 15.1%
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Decrease of total revenues 1.9%
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Unable to judge 9.4%
Increase in total revenues
9% 2% 15%
Be like last year
74%
Decrease of total revenues Unable to judge
Expected total revenue for 2020 compared to 2019, predicting the impact of the Corona virus:
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Increase in total revenues 13.5%
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Be like last year 13.5%
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Decrease of total revenues 57.6%
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Unable to judge 15.4 %
Increase in total revenues 15%
13% 14%
Be like last year decreaseDecrease of total revenues
58%
Unable to judge
Cash flow The results of the study indicate that one of the most difficult problems facing the surveyed companies at the present time is the lack of cash liquidity where it was reported by some of the companies, of which about 46% suffers from severe shortage in liquidity.
Number of workers When it comes to employees, most of the surveyed entities answered that they do not have problems with lack of employees, on the contrary, as a result of the reduced workload, they face redundant employees.
Production costs: Increase production costs: Many companies believe that coronavirus has a negative impact on higher production costs. 56% of them faced financial problems as a result of rising resource prices and transportation.
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Production capacity and resilience: Production capacity:
The study findings stated that 26.4% of the companies have completely stopped their business activities after 1st of March due to Corona impact, while 73.6% of the companies reported that they did not have to close their business due to Corona impact.
Completely stopped their business
26%
Did not close their business
74%
Resilience:
The companies’ responses varied when they were asked about “the period of time that they believed could be able to withstand and maintain the operational process without external support�. The answers were divided into approximately similar percentages, 18.9% of the companies reported that they could withstand for a period of less than a month if the current situation continued, while 32.1% of companies reported that they could withstand for a period ranging between one to three months, 15.1% of the companies answered from four to five months, and 34% can withstand a period of 6 months and more.
34% 15%
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19%
Less than 1 month 1-3 months
32%
4-5months 6months and more
More than 50% (specifically 66.1%) of enterprises would have to shut down their businesses within the next 3 months and 34% after 6 months if they don’t receive any form of support.
34% 66%
Would have to shut down their businesses within the next 3 months Would have to shut down their businesses within the next 6 months
The most important problems and challenges:
Regarding the types of problems that the companies faced due to the outbreak of the epidemic when they were asked to select the three most important problems from the questionnaire, the results were as follows: •
Low demand for products and limited number of orders (60%)
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Financial problems (56%)
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Difficulties in fulfilling contracts (32%)
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Problem in transport and logistics services (22%)
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Insufficient protection possibilities against the disease (14%)
The following two had the same percentage: •
Shortage of raw materials (10%)
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Cost of raw materials and total operation costs (10%)
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Shortage of staff and workers (4%) .
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Low demand for products and limited number of orders Financial problems
5%5% 7%
Difficulties in fulfilling contracts
29%
11%
Problem in transport and logistics services Insufficient protection possibilities against the disease Shortage of raw materials
16% 27%
Cost of raw materials and total operaton costs Shortage of staff and workers
Shortage of workers and staff wages:
The study findings indicate that 69.8% of the companies do not suffer from any shortage in the number of employees. About 11.3% of the companies even have increased number of employees. Due to the current situation 34% of the companies answered that they used wage cuts as a mean to deal with the financial problems.
14%
Do not have shortage in the number of employees Increased number of employees
86%
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Government’s role:
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56.6% of the companies aspire to a role that the Macedonian government plays by providing direct financial support (in the form of grants) as one of the measures that it must be taken to reduce the impact of the virus on them;
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34% think that the government should support the salaries of the workers for a period of three months (to enterprises that do not lay off staff);
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49.1% look to a governmental role as reducing rental costs for small and mediumsized companies and reduce fuel and electricity prices and fees imposed on logistics and other services;
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22.6% of the companies ask the government to play a role in postponing the tax paying;
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26.4% ,aspire to extension of loan terms or partial debt relief;
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54.7% of them hope the government to reduce the tax rates. Provide direct financial support (grants)
23%
23%
11%
14% 9%
20%
Support the salaries of the workers for a period of three months Reduced rental costs for small and medium sized companies and reduce of fuel and electricity prices, logistics, utilities, etc. Postponed tax paying
Extension of loan terms and partial debt relief
Reduced tax rates
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The general impression of the counterpart companies on the current situation:
Regarding the companies’ impression of the mood of companies operating in the same sector about the current situation, the companies’ response is distributed as follows: •
64.2% of the companies think that they have the same expectation;
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30.2% of the companies think that they have more pessimistic expectation;
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5.7% of the companies think that they have more optimistic expectation.
6% Think that they have the same expectation
30%
Think that they have more pessimistic expectation
64%
Think that they have more optimistic expectation
Assessing corporate feelings about the current situation 16
Companies were asked to rate their own feelings regarding the coronavirus crisis (from a minimum of 0 to a maximum of 10), the answers were the following: Anxiety level (not at all anxious to very anxious) [score 0 – 10]
About 13.2% of the companies indicated that they are not anxious at all, 73.5% are somewhat anxious, and 13.2% stated that they are very anxious. Level of concern about the future of the business (not at all concerned to very concerned)
About 7.5% of the companies indicated that they are not at all concerned about the future of their business, 60.4% are somewhat concerned and 32.1% of the companies are very concerned about the future of their business.
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Level of optimism (very negative – pessimistic to very positive – optimistic)
About 7.5% of the companies stated that they are very pessimistic, 79.3% of the companies are somewhat optimistic and 13.2% of the companies indicated that they are very optimistic.
Level of dissatisfaction with policy decisions related with corona
About 9.4% of the companies stated that they are not at all satisfied with the policy decisions related with corona, 71.1% of the companies are somewhat satisfied and 18.9% of the companies indicated that they are not at all satisfied with the policy decisions related to corona.
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Lacking transparency
About 3.8% of the companies think there is not lack of transparency, 56.6% showed that there is somewhat lack of transparency and 39.6% indicated that there is lack of transparency. Too slow with protective measures
About 7.5% of the companies think that the implementation of protective measures is not slow at all, 69.7% indicated that the implementation of protective measures is somewhat slow and 22.6% stated that the implementation of protective measures is very slow.
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Insufficient support measures
Only 5.7% of the companies stated that the support measures are not insufficient at all, 60.4% of the companies have expressed that they are somewhat insufficient and 34% indicated that the support measures are very insufficient. Support addressing wrong type of businesses (strongly disagree to strongly agree)
About 15.1% of the companies strongly disagreed that the support is addressing wrong type of businesses, 66% of the companies somewhat agreed that the support is addressing wrong type of businesses and 18.9% of the companies strongly agree that the support is addressing wrong type of businesses.
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Promises given but not implemented (strongly disagree to strongly agree)
About 13.2% of the companies strongly disagree that the given promises are not implemented, 52.9% of the companies somewhat agree that the given promises are not implemented and 34% stated that the given promises are not implemented.
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RECOMMENTATIONS Corona crisis has affected the Macedonian economy in such a way that has decreased the revenues, it postponed or canceled the new and already started projects, it has reduced the consumer demand, and created difficulties in paying of the financial debts. This crisis influenced the population to stick to what they know and avoid the unknowns. Based on the obtained results from the questions answered by several companies in Macedonia that belong in different industrial sector, below are presented several recommendations which can serve as future guidance in case of a potential occurrence of similar crisis: •
Every business, whether in the private or public sector should be more flexible and find ways to easily adapt do different, unpredictable situations. This is very important because it is of crucial importance for implementing additional measures which will assist in financial survival.
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The businesses should develop plans in case of a potential worst-case-scenario and they should do internal analysis on at least a quarterly basis where they will have better understanding of their cost structure, their relationship with the customers, as well as their key resources and activities. They should also check their liquidity on a weekly or monthly basis. These steps are important because they will assist the companies to have clearer picture on which position they currently belong and it will help them to make plans in case of a crisis. Hence, they will be less vulnerable to shocks, uncertainties and financial difficulties, or at least they will have prepared plan B.
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Despite the businesses, the governments should also work on creating back up plan in case of another financial turbulence. In this way, they will be prepared to immediately offer assistance of those that need it mostly, such as the start-ups, micro and small enterprises.
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Governments and the financial sector, composed mostly of banks and other financial institutions should develop stronger cooperation and they should 22
formulate new policies for decreasing or eliminating the interest rates, create new ways that will assist in the tax payment etc. in a situation similar to the Corona crisis. •
Governments should also work on implementing new policies and creating campaigns that will stimulate the Macedonian population to purchase local goods, because in crises it becomes obvious that the domestic companies are the main driving force of the economy.
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For most of the Macedonian companies, the main problem represents the financial liquidity. Thus, as a long-term plan for the future should be the zero interest rate loans, which will be of great support for every business that needs liquidity assistance.
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Every company should create its internal back up marketing, production and selling plan for the future, because this situation taught most of the business owners that in case of unpredictable situations it could be very challenging to rationally and immediately respond without causing other unwilling situations, such as firing employees.
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Governments should implement long-overdue measuresthat will strengthen the social protection, enhance the financial safety net and create policies for debt sustainability.
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Macedonian companies should also find ways to improve their cooperation and should make efforts in creating better sustainable, social and economic impact.
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Small and medium-sized companies are the driving force in the Macedonian economy. Hence, there should be policies that will address the issues that mostly affect these companies and avoid situations of insolvency and default.
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Companies should also provide training for its employees that will make them more prepared and to be able to deal with situations of crisis and panic.
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Considering that most of the companies (around 70%) did not have problems with the employees, they did not fire any employees and even have increased the number of employees; it can be recommended for all of the firms to keep working like this in order to keep the economy stable. 23
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Most of the firms have decreased level of expectations when it comes to the revenues. Before the crisis most of them thought they’ll have increased revenues compared to the previous year. Nevertheless, since the occurrence of the corona virus, most of those companies predicted they’ll have decrease in the revenues (around 60%) compared to the previous year. Hence, educational programs, seminars, conferences and other stimulating packages for the companies have to be organized in order to boost the positive attitude of the managers and keep the companies function normally.
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