SMEs, on the frontlines of the pandemic

Small and medium-sized enterprises are the first to be affected by an economic crisis, both at the national level and in the European Union (EU). Most small companies are now facing difficulties amid the Covid-19 pandemic, with most fighting for their lives.

Experts say that in Romania, the situation is more difficult than in the EU, given the fact that here the SMEs are not as mature as companies in Western countries.

A poll released yesterday by consulting firm McKinsey shows that more than half of Europe's SMEs, which together provide jobs for two-thirds of the continent's employees, fear they will not survive the next 12 months if their revenues do not recover.

The survey was conducted in August, before the outbreak of coronavirus infection in Europe forced governments to impose new restrictions.

According to Cristian Pârvan, general secretary of the Romanian Association of Businessmen (AOAR), Romanian SMEs are even more likely to fail, as they have not had time to mature like those in the West: "For example, enterprises from HoReCa, those that make tablecloths, napkins, etc., are part of value chains where if one part fails, then all of them do. The latest communique from the INS on business services shows that the only sector that saw growth in this period was IT. Along with all the activities, there were also problems, network overload, etc. that did not happen before. That is the only service sector that has seen growth, the rest have contracted".

Ovidiu Nicolescu, president of the honorary meeting of the National Council of Small and Medium Private Enterprises in Romania (Consiliul Naţional al Întreprinderilor Private Mici şi Mijlocii din România - CNIPMMR), is of the opinion that about two thirds of SMEs, both in the EU and in our country, are negatively affected by the quarantine. "If the pandemic lasts another year, I think the danger of small and medium-sized enterprises not surviving is about a quarter in Romania and one in five in the EU," Mr Nicolescu told us yesterday.

In the opinion of Dan Schwartz, Managing Partner within RSM Romania, the EU financial support programs announced so far are not enough. In addition, entrepreneurs want to do business, not to receive grants, to carry out their activity, not to barely get by, he told us. The specialist noted that it is banks that are worried over the insolvency of SMEs: "Banks are afraid of the insolvency of their customers, which would have a negative impact on the banks' business, because the loans of companies that go bankrupt become non-performing. It is the banks that should support the activity of small businesses, together with EU governments".

According to the McKinsey & Co survey, quoted by Reuters and reproduced by Agerpres, which was conducted among more than 2,000 SMEs in the top five European economies (Germany, France, Italy, Spain and the United Kingdom), 55% of these companies expect to close their doors by September of next year, if their incomes remain at the current level.

If the current trajectory persists, one in ten SMEs is expected to file for insolvency within six months.

"This is a substantial burden on the financial sector," said Zdravko Mladenov, one of the authors of the report, speaking about just one of the consequences of such an evolution, which could lead to an increase in unemployment and to the reduction of the general level of investments in the economy.

Economists interviewed by Reuters last month they forecast that the Eurozone economy will grow by only 5.5% next year, after falling by almost 8% this year, but warned that even this modest recovery is in jeopardy as a result of a new spread of virus.

Small and Medium Enterprises are companies with up to 250 employees. In Europe, these companies have more than 90 million employees, but their small size makes them vulnerable to liquidity crises. For example, in Spain 83% of the 85,000 SMEs that went bankrupt since February had less than five employees.

The measures taken by the states in the region, ranging from moratoriums on insolvencies to pausing loan repayments, have so far managed to keep thousands of SMEs afloat. However, as some of these measures are expiring in some states, central banks in Germany and the United Kingdom are among the institutions that have sounded the alarm over the rising number of insolvencies.

"Decision-makers must do whatever it takes to keep under control the pandemic and its economic consequences and not prematurely withdraw support measures to avoid mistakes made during the financial crisis," the IMF recently stressed. Citing measures such as facilitating debt restructuring and making capital available to healthy companies, Fund officials say: "For companies, policies must go beyond liquidity support and ensure that healthy but now insolvent companies can stay in business".