How has the COVID-19 pandemic impacted micro-, small-, medium-, and large-sized enterprises?
Government policies should be based on the answer to this question. Decision makers should understand the nature of problems that businesses have already encountered, their expectations moving forward and areas of support they require. This will ensure that recovery measures are business-centric.
The insights from PwC Georgia’s recent surveys outline the real sentiments of local businesses and how their challenges have shifted throughout the pandemic. We conducted two online surveys: one of businesses "first" reactions to the pandemic, and a second on their “follow-up” reactions and adjustments four months later. Understanding how sentiments have shifted over time can ensure new policies take into consideration how businesses are adapting and that they address specific needs.
Over time, we have seen a change in the nature of problems and expectations. While the initial survey showed a sharp drop in demand as a key challenge, companies also cited exchange rate fluctuations, late payments and the closure of external borders in the second round. But as the surveyed businesses adjusted to the new reality, supply chain disruption has become less problematic, for example.
The survey results were descriptive of the main problem areas and clearly identified the causes of difficulties that companies are facing. Results were shared with the government, IFIs (International Financial Institutions) and the intentional business community.
Finding 1: Businesses across sectors have seen a decrease in demand.
Surveyed companies and interviewed businesses have seen a significant decrease of demand as a result of COVID-19. Revenues have dropped by more than half for 39% of respondents.
The most commonly cited reasons for this decrease were:
- Closure of business activities during quarantine fewer tourists as a result of closed borders
- inability to timely collect payables (mostly from food service and hotel industries)
- changing consumer habits towards cheaper products and basic needs
- and problems faced by buyers in the foreign export markets.
Despite the decline in demand, respondents have a more positive future outlook than our earlier survey. Only around 1/5th of respondents, compared to half of companies in April, expect to have more than a 50% drop in revenue in the upcoming 3 months, compared to the same period of last year.
Finding 2: Companies faced significant complications in operations.
Sixty-three percent of all surveyed businesses have suspended business activity during the quarantine, while 75% of those businesses that have renewed their activity continue to experience complications in their day-to-day operations.
The most widely experienced complications include:
Difficulty in forecasting inventory and need for increased orders due to transportation delays
higher cost of raw materials due to exchange rate fluctuations
increase in transportation price - both in-land and sea transportation
inconsistency in application of operation permit rules by state inspection bodies
in-country operation permit absence in the whole value chain
post-quarantine spot closures of regions create problems in staff transportation
and machinery-related problems, due to difficulty in bringing specialists from foreign countries.
Increased costs, especially in raw material stock, motivated companies to rethink their operations and consider creative opportunities to improve efficiency. Companies with Hazard Analysis and Critical Control Points (HACCP) or International Organization for Standardization (ISO) certification appreciated the processes already put in place that simplified the fulfillment of COVID-19 sanitary and health and safety regulations.
Finding 3: The pandemic put significant pressure on employment.
The unpredictability of COVID-19 and the quarantine measures put significant pressure on employment. Our findings show 23% of companies in the first and 11% in the second survey have reduced their headcount by 100%.
The most significant headcount reduction trends are:
Large-size companies are more capable and willing to maintain staff since they:
Have better access to financing to cover cash shortages
have more significant investments in staff recruitment and training
are able to make savings in other costs to maintain staff.
The most affected staff reductions were related to part-time and hourly employees, the majority of which is the younger generation.
Around 15% of the respondents grant unpaid leave to their employees.
The accommodation and food service sector was the only sector where 75% of all surveyed companies had headcount reductions.
Government incentive packages related to salary subsidies and personal income tax deferment helped companies maintain more staff.
Respondents in the latest survey are more optimistic than in the previous survey. A large majority (71%) either plan to reduce their employees below 15% or not at all, compared to the previous survey where 51% of companies planned to have above 15% reductions. However, companies in the accommodation and food service sector have the highest reduction plans, with 20% planning full staff dismissal and only 26% planning no reductions in the upcoming three months.
What does this mean for Georgia and the region?
Although problems associated with the COVID-19 pandemic are a temporary occurrence, its consequences on the economies and businesses will have longer-term implications. In order to mitigate the longer term implications, governments need to fully understand what impact the virus is having on businesses in Georgia.
Based on our survey findings, the key areas that governments need to address are liquidity losses, strain on cash flow, and difficulties on the foreign market. They can do this by:
Helping businesses obtain financing to cover their immediate liquidity issues
continuing deferment of taxes to enable companies to concentrate on retainment of employees and continuation of operations
and introducing new policies and attraction mechanisms to strengthen the investment climate and attract foreign capital to the country.
We have already seen that these types of measures can support companies. Following tax deferment, salary subsidies and co-financing mechanisms of the state, fewer companies said they would have to suspend activities. In the first survey, almost half of the respondents said they had to suspend activities, compared to under 20% in the second survey.
Beyond the immediate measures governments should take, there are three overarching takeaways for public sector transformation:
Digital flexibility is crucial to enable business operations during lockdowns
Online presence allows some continuation in sales and revenue generation
Continuous monitoring of consumer needs is important to accomodate to rapid changes.
As consumer habits have shifted online due to restricted mobility, companies need to respond and adapt to their needs. Companies that already had an established online presence saw less decline in demand. Those that did not have the resources to implement remote working, on the other hand, suffered setbacks. Both of these points highlight the importance of digital flexibility. As governments look to rebuild their economies and society, support for companies’ digital transformation and upskilling should be at the forefront.
The key challenges we see in Georgia are related to closing businesses and rising unemployment, which are common across the region. Lessons learned from this survey can therefore be applied to the region as a whole. But what the specific measures look like should consider the local climate in each country.
Methodology
Both surveys were conducted via an online questionnaire,and the second one also included in-depth interviews with the large size companies. The questions covered: current COVID-19 related difficulties, companies’ actions related to combating the effects of the virus, financial liquidity, businesses' predictions regarding the development of the situation in their companies, utilisation of the government initiatives and supply chain-related problems.
