|We are in the early stages of the ‘Delay Phase’ of managing the Covid19 pandemic in Ireland.
While most public focus has rightly been on public health measures to guarantee the wellbeing of citizens, we will also need to take measures to ensure the survival of as many small enterprises as possible throughout this crisis.
All businesses need cash to survive, but SMEs, which typically have higher payroll costs and lower margins than large enterprise, are particularly exposed to prolonged business slow-down.
There are about 250,000 small enterprises in Ireland, employing just over five people each. This represents almost 70% of the active Irish workforce. If the ‘job mortality’ of Covid19 equalled that of the 2% of the disease itself, some 25,000 workers could lose their jobs. Any increase in business mortality will have a significant negative impact on employment levels. Reports from China suggest the emergence of a liquidity problem in areas most affected by Covid19, which is hurting both businesses and their lenders.
ISME CEO, Neil McDonnell said this morning;
‘Nothing provokes worry and irrationality in the market quicker than the absence of liquidity. The panic-buying we have seen in our supermarkets over the last few days will be replicated just as quickly in the availability of credit, and the discharge of debt, unless there is confidence about the availability of liquidity.’
We know well the impacts of liquidity crisis on our banking sector, and indeed Ireland is still recovering from our last liquidity crisis a decade ago. It is important, therefore, for Government and the banking sector to appreciate the extent to which the SME sector will be squeezed in the coming weeks. The effects are already visible in the hospitality, travel, wholesale and childcare sectors. These are all populated by viable businesses, but they will become very vulnerable over the next number of weeks if liquidity solutions are not found for them.
Service businesses, in particular, are being asked to maintain the net incomes of workers while at the same time they face dramatically lower, or non-existent, sales. The temptation for many SMEs will be to lean on the trade and squeeze their creditors. Ultimately this is a ‘beggar-thy-neighbour’ approach, which will impoverish everyone.
In the same way the Taoiseach took a dramatic but necessary public health decision on 12th March, ISME is now calling for some equally dramatic decisions on the provision of liquidity in the Irish economy.