Recovery Strategies in Business by Josiah Go

Metro Manila is in week three of the community quarantine that took effect last March 15, 2020, which eventually included the whole of Luzon, in hopes to contain the corona virus, or as many call it- “to flatten the curve.” Other parts of the Philippines has since followed suit. As we hope for fast recovery and normalcy in all aspects of living, we need to anticipate and plan for the new normal that will now rule our lives. Where do we begin the recovery effort when most small entrepreneurs, comprising 99% of all businesses in the Philippines, need to be optimistic but are also hurting?  Many did not have revenues during this period but still need to support six basic constituents:

•   Customers

•   Employees

•   Suppliers

•   Family

•   Front liners

•   Neighboring Community

In addition, these entrepreneurs need to pay for six major expenditures:

•   Rent

•   Salaries

•   Taxes to Internal Revenue

•   Taxes to City Government 

•   Taxes to different Government Agencies

•   Loans

Seasoned entrepreneurs will have lesser problems drawing from their emergency funds that they have been accumulating for decades, but the newer as well as the struggling entrepreneurs will not be able to do that, and they will have to pay from their own pockets. 

Surely, entrepreneurs are expected to rate high in adversity quotient or AQ, a trait that corresponds to the ability to handle uncertainties and business challenges. However, the corona virus is not of their own making and is a fortuitous event that no pre mortem strategizing could have predicted. As such, they need a lifeline to cushion or soften the impact to them. It is important as well for business owners to take care of their own physical and mental health conditions due to anxieties caused by the challenging situation.

Why Government Should Help

Why should the government offer a lifeline to businesses early when entrepreneurs are supposed to be resilient? From a marketing perspective, support from the government is expected because:

1. Businesses pay various taxes to the government. In effect, they are customers of the government. Like companies, governments invest to help their customers grow.
2. Businesses provide jobs that enable employees to address their families’ basic needs such as food on the table, payments for rent, for wellness, for schooling, etc.
3. Not supporting markets today may affect the future growth prospect of a country. In other words, the country can only grow if businesses will grow.
4. Business people need to know what the ultimate path to recovery will be; the earlier, the better.

How are some countries’ (including the Philippines) governments helping their businesses?

The Philippine government has already announced some packages, among others (partial list)

1. No rental for companies affected during the quarantine period, i.e. malls
2. Deferment of deadlines to pay taxes
3. Waiver of late payment penalties
4. Subsidized loans
5. Free retraining for the unemployed
6. P5,000 to employees who will not be able to work because of the crisis

In other countries, this is how their respective governments have extended assistance to those affected by the corona virus pandemic.

• China reduced value added tax (VAT) from 3% to 1% for small businesses, as well as to suppliers directly providing for the outbreak until end of May 2020; carry-over of business losses extended to 8 years; and additonal benefits received by health workers involved in fighting covid19 are income tax-exempt.

• Indonesia is delaying income tax payment for six months. They have also suspended the 10% hotel and restaurant tax of the local government with the national government subsidizing this for six months.

• South Korea increased VAT exemption temporarily to small businesses from the US$30,000 to US$80,000 revenue bracket.

• Singapore will pay 25% of monthly wages for every local worker in employment (capped at S$4,600 monthly wage) until the end of December 2020 with a higher support of up to 75% to sectors more affected by Covid-19 (like aviation). For low and middle-income employees who lost their jobs, S$800 monthly for 3 months will be provided.

• Taipei allowed postponement of tax payment up to one year and pay on installment up to three years.

• Vietnam’s central bank ordered commercial banks to eliminate, cut or delay interest payments on loans to companies facing losses due to the coronavirus outbreak.

• Malaysia extended for six months payment of taxes for tourism businesses, medical workers, among others.

• Thailand offered soft loans at 2% to 3% interest rates, while withholding taxes for businesses will be reduced from 3% to 1.5%, and they will be offered 1.5-times tax deductions on interest rates, and 3-times tax deductions on wage expenses to preserve employment.

• Greece reduced VAT from 24% to 6% for goods related to addressing the outbreak, they have also suspended value added tax remittance for four months, while the deadline for social security contributions has been extended to end of June 2020.

• Denmark guaranteed 70% of new bank loans to companies.

In effect, there is a self-serving interest for a country to stimulate growth by ensuring employment and purchasing power to boost spending. Furthermore, foreign direct investment (FDI) is, to a large extent, based on the image of a country. Hence, if the growth of the Philippines will lag versus other countries, it would lose its attractiveness as an investment destination. 

How much to offer Entrepreneurs?

As in formulating incentives, it can become difficult to define government support because if it’s too small, entrepreneurs may perceive it as conciliation, while too much could mean that you leave money on the table that may be used elsewhere.  The key is to be clear with the goals and ensure the incentives will solve the problem or attain the goals defined. Of course, the president of the country, like a CEO, may also want not just a compelling but a compassionate stimulus package to be the finest hour of the country, and of the president. There is an opportunity for a potential “reset” that if done right, the Philippines may end up growing faster than the neighboring countries which are all suffering because of the corona virus pandemic. This may happen so long as the package will not lead to too high of a government deficit that its citizens will end up paying in the future.

Measures

One way to ensure success is to offer criteria if the combination of solutions or the stimulus package would be relevant and sufficient to stabilize the economy. Here, I propose 4Cs – confidence, consumption, capital and climb as basis, and the key question to ask in determining the desired direction:

1. Confidence – Will it bring confidence to the entrepreneurs to continue dreaming and acting on their dreams?
2. Consumption – Will it make consumers spend to help create more revenues for companies, especially in the tourism sector?
3. Capital (or Credit) for liquidity – Will it put money again in the coffers of the company so that they have the cashflow to invest in more machines, more IT, more R&D, and the like?
4. Climb – Will it enable companies to grow again without retrenching their employees? Will it enable our country to climb faster than our neighbors?