Written by Jose Lapira, Operations Consultant
There are over 1.6 million micro, small, and medium enterprises (“MSMEs”) affected by the corona virus disease (“COVID-19”) lockdown in the Philippines. COVID-19, an infectious disease caused by a new strain of coronavirus, has caused a global pandemic. This new virus and disease was unknown before the outbreak began in Wuhan, China, in December 2019. It forced national governments to impose country-wide lockdowns to contain the spread.
On 30 January 2020, the Philippine Department of Health (“DOH”) reported the first case of COVID-19 in the country with a 38-year-old female Chinese national. The first local transmission of COVID-19 was confirmed on March 7. The World Health Organization (“WHO”) is working closely with the DOH in responding to the COVID-19 outbreak. On March 17, the Philippine government put Luzon, the country’ largest island, on lockdown wherein only essential services remain operational. The people’s mobility became limited. The remaining local and provincial government units eventually followed protocols and imposed community quarantines to their respective territories.
The Inter-Agency Task Force on Emerging Infectious Diseases revealed a National Action Plan on March 25, 2020. However, the lack of transparent, clear and decisive strategy put everyone in limbo. Aside from public health, livelihoods are also put at risk because of limited mobility and low economic activity. Foreign investments are dismal and unpromising. MSMEs, one of the primary engines of our economic growth, are struggling to stay afloat. Jobs and livelihood are threatened.
Micro, Small and Medium Enterprises
MSMEs are essential to the country’s economic development since they serve as seedbeds of Filipino entrepreneurial talent. According to the 2018 data of the Philippine Statistics Authority, approximately 99.5% of the registered businesses in the Philippines qualify as MSME, of which around 887,000 are micro, around 106,000 are small, and 4,895 are medium. MSMEs also dominate the market in terms of jobs generated. They are collectively responsible for 63.2% of the total employment in the Philippines.
Limited Activity and Revenue
MSMEs, if not all, suffered steep declines in their sales and revenues. Majority of the MSMEs can be found in regions that recorded the highest number of COVID-19 positive patients, and are eventually subjected to strict military lockdown measures. The National Capital Region (“NCR”) has over 200,000 business establishments, Region 4-A (“CALABARZON”) has close to 150,000, Region 3 (“Central Luzon”) has around 115,000, Region 7 (“Central Visayas”) has approximately 70,000, and Region 6 (“Western Visayas”) has roughly 60,000. Of the total 7,777 COVID-19 positive cases recorded as of April 27, 2020, 5,332 cases are from NCR, 1,087 from CALABARZON, 503 from Central Visayas, 363 from Central Luzon, and 68 from Western Visayas.
The IATF issued a list of services and establishments who are allowed to remain open during the quarantine period. They were ordered to adopt a skeleton workforce. These “essential” services and establishments include pharmacies or drugstores, hospitals, medical clinics, banks, money transfer services, public markets, supermarkets, groceries, convenience stores, food chains and restaurants, water-refilling stations, food delivery services, telecommunication companies, cable and internet service providers, water companies, energy companies, gasoline stations, manufacturing plants of basic food products, and medical manufacturing establishments. However, most MSMEs do not fall in these categories. MSMEs are mostly categorized as wholesale and retail trade, and repair of motor vehicles and motorcycles with 461,765 businesses, followed by accommodation and food service activities with 144,535, and manufacturing with 116,335 enterprises. Other service activities, which include personal services for wellness, repair of personal and household goods, funeral and related activities, repair of computer and communication equipment, laundry activities, accounts for 66,162 businesses. According to the Department of Finance, around 436,300 MSMEs were forced to stop since the ECQ was carried out, while only around 117,666 essential small businesses such as those involved in food service, logistics and some retail outlets like drugstores and supermarkets, have been allowed to operate.
Digitization, Health-Related Products, and Supply Chain
Social distancing measures are leveraged to cause businesses to go digital. MSMEs are prodded to use digital tools to remain competitive in the midst of the crisis, as new businesses are expected to rise following the pandemic. MSMEs are exploring ways to make their services available online. Digitization allows certain MSMEs to augment revenues during the crisis. E-commerce and delivery services are thriving as the collective effort to reduce physical outside exposure increases. Although rapid technological advancements make digitization and cloud-based technology accessible to more Filipinos, most MSMEs are not financially and technically equipped to make the shift.
Agricultural and health products are emerging during this pandemic. Consumer behavior is influenced by the knowledge of fortifying immunity to reduce risks of any viral infection. Sustainable modes of food production are also getting traction, as consumers look for ways to limit food handling. Shortening food transportation from farm-to-table versus farm-to-distributor-to-table is becoming popular for certain consumer groups. People are also realizing the importance of national food security.
The unclear guidelines on the community quarantine created uncertainty for MSMEs for the first two weeks of the lockdown. Businesses were unsure whether or not they could operate during the lockdown. There were more questions raised than answers provided by the government. However, it is clear for business people that the sooner the virus is contained, the faster enterprises can return to their business activities and operations.
While revenues are declining, overhead expenses such as rent, accounting and legal fees, insurance, and interest remain the same. MSMEs face zero to minimal sales but must still meet payroll, rentals for office and factories, utilities and bank amortization even if deferred by 30-60 days. MSMEs extended their resources to provide for their employees, and hopefully to keep their human capital intact. Despite struggling to survive amid the pandemic, MSMEs deploy innovative solutions to help address the crisis (e.g., fundraisers, free rides for medical workers).
Business managers and owners are compelled to be creative to support their human resources and remain operational when the enhanced community quarantine (“ECQ”) is lifted. Businesses are also setting up their digital presence and injecting funds to advertising to stay visible and relevant. MSMEs which cannot operate remotely allowed their employees to use vacation and sick leaves to continue receiving their monthly salaries, then applying ‘leave without pay’ status when their leave credits are exhausted. While various MSMEs adopted ‘no work, no pay’ policies, some MSMEs continue to pay employees a specific percentage of their salaries (e.g., 50%, 80%, and 100%). Moreover, MSMEs extend assistance to their employees by providing relief goods. Meanwhile, a handful advanced year-end bonuses to help ease living and working conditions. However, most MSMEs do not have retained earnings and are merely getting by on a day-to-day basis leaving their employees to look after themselves for survival.
The world will adapt to a new normal after the COVID-19 crisis. Agriculture and health-related businesses are expected to multiply. Moreover, sustainability should be at the center of all business activities. MSMEs would continue to play a fundamental role in our social structures as they provide livelihood to over 70% of the Philippine labor force. However, MSMEs should be flexible and not be fixated with their current business models. They should be willing to adjust and tweak components which can be automated and digitalized. Agile marketing methods must also be applied.
As MSMEs show resilience and efficiency, the government should create an enabling business environment. The absence of supporting policies and legislation may render the efforts for sustainable development a mere lip service. Anti-farmer policies (e.g., rice tariffication, land redistribution) must be revisited to encourage small entrepreneurs to pursue agriculture-related ventures. Sustainable business practices must also be incentivized. Grants and funding opportunities for sustainable MSMEs. Subsidies, instead of loans, must also be handed out to entrepreneurs while they recover from the lockdown and adjust from the abrupt change in consumer behavior. Policy makers must identify creative means to enable these businesses to become effective catalysts for sustainable growth. Credit risk rating for social enterprises must also be developed to encourage lending by private banks and financial institutions. Complementary policies and strategies must be enacted to ensure that sustainability objectives by MSMEs are met. International trade agreements should be scrapped to pave the way to a more people-centered development. Multi-disciplinary reforms should be in order. The state, as the duty-bearer to safeguard the human rights of the people, should spearhead the change.
Revolution in our education system is also necessary to redefine business and its role in nation building. Business education should be transformed from wealth accumulation to sustainable livelihood and expanding our freedoms. It is also important to increase the resiliency of MSMEs to natural disasters and climate change. A new economic order must be established after this pandemic, and the new normal involves a conscious effort towards solidarity.