Digital payments company Nium has been experiencing a surge of activity from mom-and-pop businesses in recent weeks. Unfortunately, that’s not as positive as it might sound.
With the novel coronavirus continuing its deadly spread across the globe, many of the inquiries have been from troubled small and medium-sized businesses, which normally use Nium to pay their bills or staff salaries but are now looking either to cancel their memberships or to stall payments to their suppliers.
Covid-19 has bitten these firms hard, resulting in the biggest contraction in Nium’s SME-related business since the firm started out six years ago.
“We have never seen anything like this,” said Nium co-founder Prajit Nanu. “The travel segment, for example, has been destroyed. Online agencies and small mom-and-pop businesses are gone. All we do now is refunds.”
Surviving firms, said Nanu, were now mostly concerned with how to conserve cash and stay afloat through a pandemic that has killed more than 160,000 people, infected 2.4 million and still shows no sign of slowing.
While the human costs mount, experts say the greatest economic casualty will be small and medium-sized enterprises (SMEs) – a problem that will be acutely felt in the Asia-Pacific, where SMEs account for more than 90 per cent of businesses, according to the World Bank, and employ 50 per cent of the workforce.
Many SMEs were already under pressure long before Covid-19, particularly those in traditional cottage industries, like weaving in Thailand and Myanmar, the demise of which would represent a cultural loss. Now, with economies across the world locked down and hopes dashed that a recession can be averted, economists fear the pandemic will be the final nail in their coffin.
The Economist Intelligence Unit has warned that despite a heap of rescue packages being sent their way, SMEs are on life support.
“Amid social distancing and quarantine measures that have wiped out final demand, large-scale fiscal and monetary stimulus measures will serve only to roll over existing debts for many firms. In many cases, private debt will rise even further,” the unit said in a recent report.
Even worse, when such firms do collapse, the job losses are particularly painful as 60 per cent of SME workers in the Asia-Pacific lack social protection, such as unemployment benefits.
As the United Nations Economic and Social Commission for Asia and the Pacific (Unescap) put it: “Even when employees have access to separation benefits, insecurity remains regarding longer-term employment prospects.”
Recognising this threat, governments in the region have been quick to announce measures aimed at softening the blow. Unescap pointed out that Cambodia, Japan and Thailand had all announced emergency cash handouts to relieve the burden on households.
Meanwhile, various fiscal and monetary stimulus packages have been launched across the region aimed largely at maintaining liquidity or cash flow for SMEs.
The idea, according to Unescap, is twofold: to maintain jobs and provide enough for SME employees to pay for basic living needs.
Fiscal stimulus measures have included targeted tax exemptions and subsidies to SMEs so they do not need to stand down staff, while monetary stimulus has included measures such as direct cash injections to instantly boost consumption.
At the forefront of such measures is Singapore, which since February has introduced fiscal policies worth about S$64 billion (US$44 billion).
These have included a S$4 billion Stabilisation and Support Package for firms and workers and a Jobs Support Scheme aimed at helping SMEs retain workers while tax rebates are implemented. It has also doubled its Working Capital Loan scheme to S$600,000 a year and will pay all Singaporeans above 21 years of age a one-off handout of S$600.
China is waiving or delaying SME’s social security contributions and deferring land-use rents and property taxes; Japan is providing wage support and consultative services; and Hong Kong, mainland China and Singapore have all rolled out funds to subsidise specific sectors such as retail, food and tourism.
Two-fifths of Malaysia’s US$57 billion fiscal stimulus package will go towards SMEs, while the country’s central bank has placed a six-month moratorium on all bank loans affected by the outbreak, except for credit card balances. Thailand is offering SMEs low-interest business loans, credit lines, tax deductions on salary expenses and refunds on electricity deposits.
Meanwhile, SMEs have been the chief focus of all three rounds of Australia’s stimulus measures. The first round entitled SMEs to cashback of up to A$25,000 (US$15,000); the second round granted tax-free cash handouts of up to A$100,000 to SMEs and charities with turnovers of less than A$50 million; and the third round introduced a jobseeker wage subsidy to encourage SMEs to keep staff employed over the next six months.
Unescap is optimistic such remedies will prove effective and says many countries have room for more measures if needed.
“Countries also have substantial reserves and exchange rate flexibility as buffers against the shocks if they materialise,” said Unescap Executive Secretary Armida Salsiah Alisjahbana.
AMP Capital’s chief economist Shane Oliver said while he expected a rise in unemployment in Australia, the subsidies and rescue packages would cap job losses as long as the virus was brought under control.
However, S&P Global Ratings APAC chief economist Shaun Roache warned that if the lockdowns were extended for another two to three months the region would start running out of ways to support its SMEs.
In other words, there is a grace period – but it’s limited.
A LONG RECESSIONARY RIDE
While places such as Australia and Hong Kong have more tricks up their sleeves than emerging markets, the consensus among economists is that regional SMEs are in for a long recessionary ride. Many warn that the effect of fiscal policies will diminish over time as they lose their novelty and fatigue sets in.
“[The fiscal packages] are important to ensure that credit continues to flow and firms have liquidity support. However, the measures will have a limited effect in immediately mitigating the adverse demand shock that is likely to follow the supply shock, as containment measures are eased,” said Oxford Economics lead Asia Economist Priyanka Kishore.
Roache at S&P Global agreed that rescue schemes would eventually wear out both governments and SMEs in the long run as they were very expensive.
“Wage subsidies tend to work with a cap on the total amount paid by the government,” he said.
“This means that employers still need to pay a proportion of the wage and this gets harder if sales have dried up. If the benefits keep getting pushed further into the future, both governments and firms may decide that these policies would not be worth pursuing.”
The myriad layers of shock in this crisis – from country specific to regional impacts and the possibility of a second or third wave of the disease – mean that even when countries are swift to implement relief measures they are constantly playing catch-up.
“Although Asia’s external and fiscal buffers are generally more robust than those in other regions … the policy responses to date will only cushion some of the impact and not fully offset the economic and credit damage. In addition, not all countries in the region have the same capacity to respond,” Moody’s Assistant Vice-President Deborah Tan said.
That may all sound rather glum. The good news, however, is that even in an unprecedented event like Covid-19 where both the supply and demand sides of the economy are being hammered, the creativity and ingenuity of SMEs is leading to new ways of doing business that will help them emerge stronger in the long term.
Andrew Barker, chief marketing officer of the Australian alternative currency exchange business Bartercard, said that in the past two months SMEs had embraced its online currency Qoin as a way of selling excess stock and taking on new customers who preferred to use non-cash currencies.
Driving this switch, he said, was that SMEs recognised [the fact that] the boost from government rescue packages would last only so long. “We are seeing a phenomenal number of merchants on Qoin,” said Barker. “The pandemic has forced many SMEs into becoming more innovative and they have realised they are more innovative than they thought.”
Examples of this were a fashion retailer that had shut its physical stores using Bartercard to sell its clothes online and bakers selling their end-of-day bread to customers in return for payments in Qoin.
Unescap’s Alisjahbana said that ultimately it was by embracing new ways of doing business that both SMEs and governments might find the antidote to the Covid-19 downturn.
Governments could help SMEs innovate by promoting e-commerce and easing regulations on digital trade. They also needed to invest in education and vocational training to look after those workers that needed to learn new skills, she said.
Meanwhile, SMEs were proving their ingenuity by using the pandemic “as an opportunity to produce Covid-19-related goods and provide services, as well as expand their use of e-commerce platforms”.
All of which leads back to Nium, the digital payments company being swamped with inquiries from mom-and-pop businesses.
Co-founder Nanu was among the many industry voices to agree that there was a flip side to the downturn. In Nium’s case it is the sudden popularity of its BizPay product, which converts unused credit on credit cards into working capital for SMEs.
While the number of Nium’s remaining SME users has dwindled, those still around are increasingly using BizPay to settle invoices from suppliers, rather than using bank loans.
This helps them get around what the World Bank says has long been a problem for SMEs: accessing credit. It also means they can stall loan repayments for a few extra weeks – time that could prove vital to their long-term survival.
Nanu said usage of BizPay had ballooned 400 per cent in the past six weeks. Ironically, he credits its success to the same element of uncertainty that is causing so many other SMEs to fail.
“Some SMEs have the money,” said Nanu, “but they don’t want to spend it, because they don’t know what the circumstances are going to be.” ■
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This article Coronavirus: can Asia’s small businesses survive Covid-19? first appeared on South China Morning Post