Jock Finlayson: BC has done a good job flattening the curve of COVID-19 - but don't lose sight of the fact that the province’s economy has been devastated by the pandemic, and measures taken to contain it.
In its June 2020 Monetary Policy Report, the U.S. Federal Reserve – America’s central bank — observed that the COVID-19 pandemic “poses acute risks to the survival of many small businesses,” adding that widespread failures among such firms “would adversely alter the economic landscape of local communities and potentially slow the economic recovery and future labor productivity growth.”
The B.C. government would be wise to take this message to heart. Small businesses, as defined by the government’s statisticians, account for 98 per cent of all enterprises and approximately half of private sector jobs. In the current challenging and uncertain economic climate, policy-makers should be acutely sensitive to the financial health of the overall business sector, including smaller firms. Many of these companies are in sectors that have been hard-hit by pandemic-related social distancing, outright business closures, dwindling consumer demand, and reduced investment – for example, food services, accommodation, recreation, non-essential retail, travel, arts and entertainment, construction, and personal services.
Compounding the risks for small firms, they also tend to be more financially fragile than larger companies, with most having limited cash reserves and lines of credit.
Although B.C. has done a good job flattening the curve of COVID-19, the province’s economy has been devastated by the pandemic and the measures taken to contain it.
For 2020, the Business Council forecasts that economic output (GDP) in the province will drop by almost 8 per cent, which is far greater than the GDP declines experienced in previous recessions. As of mid-June, B.C. is down 350,000 jobs compared to early 2020 — a catastrophic fall in employment. While the worst of the COVID-19 economic downturn may be over, the consequences of steep declines in GDP, employment and business activity since February are expected to be felt for years to come. And much of the pain will be visited upon smaller and mid-sized enterprises in every sector and region of B.C.
The dramatic slide in consumer spending and business activity triggered by mandated closures across large segments of the economy, coupled with the virtual cessation of travel, border closures, and the onset of a global recession, has already led to casualties among B.C. firms. Under the government’s staged economic re-opening plan, many formerly shuttered businesses are – or soon will be — open again.
However, in sectors like retail, restaurants and bars, leisure, recreation, hotels and motels, and personal services, businesses are now required to maintain strict social distancing for customers and staff, to limit the number of people on-site, and to devote more resources to cleaning and sanitation. This amounts to a significant change in the operating environment for many businesses, one that is likely to translate into both lower revenues and higher costs.
Looking ahead, a substantial number of businesses will not last through the end of 2021. We estimate that at least 10 per cent of the 200,000 B.C. businesses with paid employees could be gone in the next 6-18 months. Some will make the difficult decision to cease operations, while others will be forced into insolvency because they are no longer able to cover their bills or service their debts.
The impact of a shrinking private sector will not be limited to business owners/operators. Fewer firms also mean lost jobs for B.C. workers, less vibrant communities, and greater economic hardship for families.
Faced with this alarming prospect, the provincial government must do what it can to minimize the loss of companies. Equally important, it should focus on creating an environment that supports business start-ups to help fill the gap that will open up as thousands of existing companies fail.
Despite a few positive steps, to date the NDP government has come up short in supporting the business community and in encouraging new business formation. In fact, the government has largely carried on with its pre-pandemic policy agenda, which paved the way for increased tax and regulatory burdens for most businesses – and rising payroll costs for employers in general.
A change of direction is necessary if policy-makers are interested in kick starting economic recovery and making British Columbia a top-ranked jurisdiction for new private sector investment and entrepreneurial activity.
Jock Finlayson is executive vice-president of the Business Council of British Columbia.
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