Whether it is your local grocery store or a startup with a tiny amount of capital and big dreams, almost everywhere you look, small firms typically form the backbone of a country’s economy. Together, they employ the majority of the global workforce and tend to generate a substantial share of economic output.
But small businesses’ size and relatively diminutive political clout compared with, for instance, large airlines or banks, mean they are also more vulnerable to economic downturns than their better-funded peers.
During the 2020 coronavirus pandemic, untold thousands of small- and medium-sized enterprises (SMEs) — generally defined as firms with up to 500 employees — lived through the toughest year imaginable.
But as our series of stories in recent weeks has shown, small businesses from Minneapolis to Mumbai and beyond have used their grit and ingenuity to survive — and in some cases, thrive — in the time of COVID-19. For that, these entrepreneurs deserve respect, admiration and probably a day off, too.
Yet small businesses need more than praise. They require access to credit, technical advice and protection programmes to cope with tough times, supply chain failures and the myriad other challenges they face.
But they do not always get it. In fact, the International Monetary Fund estimates that the failure rate of SMEs could increase by almost nine percentage points without government support, according to a working paper it released in September based on data from 17 countries.
That may not sound like much until you consider the fact that globally, SMEs represent about 90 percent of all businesses, according to the World Bank.
They also account for some 70 percent of global employment and 50 percent of global GDP, the International Labour Organization found. That means an increase in small-business failure rates of this magnitude would be crushing for many millions of people.
Closing up shop
Gauging the number of SMEs that have closed up shop is surprisingly hard. Many owners apparently just switch off their lights and lock up behind them without claiming bankruptcy protection.
Data from online review site Yelp Inc suggests that more than 80,000 small businesses in the United States permanently shuttered between March 1 and July 25, according to Bloomberg News.
And most small US businesses fear the hits will keep coming. More than 62 percent of small business owners believe the worst of the COVID-19 pandemic is ahead of us, according to a fourth-quarter 2020 survey by the US Chamber of Commerce and insurer MetLife.
The developing world stands to feel the effects of the pandemic on small businesses even more acutely, as they form an even bigger component of these economies compared with those of developed nations, which is why helping small firms is a good way for policymakers to support overall employment and thus their broader economies.
More help needed
Many governments and central banks have indeed poured trillions of dollars into helping people who have lost their jobs and aid companies — large and small — that have been forced to scale back operations to control the spread of the coronavirus.
But even though more help is likely coming, some politicians are already sounding the alarm about the potentially adverse long-term effects of such huge amounts of government borrowing.
But it does not have to be that way. The IMF’s September working paper suggests public intervention, narrowly targeted at eligible SMEs, could cost a “modest” 0.54 percent of a country’s gross domestic product (GDP).
Stories of resilience
But even without outside help, the small businesses Al Jazeera has profiled in recent weeks have survived the COVID onslaught. So what traits do these stoic entrepreneurs share?
One is resilience, something you need in bucket loads if you are a small-business owner in Iran, which had suffered years of US-led sanctions even before the pandemic.
Ehsan, who makes clothes and accessories in a workshop outside Tehran, says he had become battle hardened.
“We’ve worked in the worst of markets and I’ve seen all the lows and highs in the 21 years I’ve been working, so we’re still carrying on and we’re not scared,” he told Al Jazeera.
Agility and the willingness to take big risks appear to be the other common threads running through their stories. Being able to overhaul an entire business model overnight is not something a large multinational can do, but with a whole lot of bravery, a smaller entity can pull it off.
Styro 3D, a design factory in Beirut used to make window displays and parts for movie sets out of styrofoam, including a huge Godzilla and Incredible Hulk.
But after an enormous port explosion devastated large parts of the Lebanese capital on August 4 and killed two of the Styro 3D’s employees, the company quickly pivoted to making wooden frames and doors to rebuild homes and businesses damaged in the blast.
“Don’t ask me where we got the courage to go on,” Styro 3D’s Tarek Chehab told Al Jazeera. COVID-19 and the ongoing currency crisis have added to his pain.
Quick thinking and a radical revamp also saved Albert Chen and his father, Tim’s, business in Hong Kong. Their outdoor furniture business slumped after the outbreak in February. Tim Chen decided he wanted to buy a machine from Taiwan to make surgical face masks.
“I remember my first reaction was, ‘Are you crazy?’” Albert told Al Jazeera.
They formed a new company, called MaskLab, producing myriad colourful face masks for a fashion-conscious city which sold out in minutes of their July launch online. They have since opened their fourth shop and are also selling overseas.
If you operate a neighbourhood grocery store, knowing your customers well does not just make you popular. In a crisis, it can save your livelihood.
That was the secret behind the survival of two grocers we met.
In the small town of Wigston in the United Kingdom, Pratik Master used social media to reach out to his customers. He took requests for goods that the local supermarkets were running out of in the early days of the outbreak and delivered them to his customers’ homes.
In Pakistan’s capital, Islamabad, Aamer Khattak used a similar strategy to save his 20-year-old business, though he went old school, taking orders by phone and giving credit to those who needed it.
Elsewhere in Islamabad, other entrepreneurs embraced mobile phone apps to launch startup grocery delivery services.
Technology also helped entrepreneurs we met in India.
Manohar Wagle, the fourth-generation, 62-year-old proprietor of the 155-year-old Wagle Sports shop in Mumbai, was forced to embrace WhatsApp and GooglePay to keep his customers supplied with equipment to keep them fit and sane while they endured one of the world’s toughest coronavirus lockdowns.
Meanwhile, in New Delhi, Meghana Narayan and Shauravi Malik moved their business manufacturing organic baby foods entirely online, eliminating their third-party store network and letting go more than half of their staff of 45 people.
But for Eugenia Santome of BeWe Home, a small firm that produces frames, boxes and other home decor items made from recycled wood in Argentina’s capital, Buenos Aires, eliminating her 20 employees was not an option.
Ahead of the country’s lockdown in March, Santome told her staff to work as if there was no tomorrow.
A few days later, she pooled all the money she had in the family-run company she founded and summoned her staff again.
“I said, ‘Take this money. It’s not your whole salary, but take this money and don’t pay off anything. Just use it to buy food,’” Santome told Al Jazeera.
BeWe Home was able to get back to work 15 days into the lockdown because it fell under the umbrella of “essential” companies that manufactured wooden pallets. Government aid eventually arrived, but until then, Santome used her own credit cards to pay salaries and buy raw materials.
So far, everyone at the company has been able to keep their job.
And in Minneapolis, Minnesota in the United States, small business owners weathered not only the pandemic but the civil unrest following the killing of George Floyd, a Black man, by a white police officer. The entrepreneurs we spoke to chose to use rebuilding their businesses as an opportunity for social change, too.
Lee Wallace, the owner of Peace Coffee, a roastery dedicated to selling 100 percent organic and fair-trade coffee, realised she had something valuable to donate to her community: Physical space.
After switching to online orders, she decided she did not need her physical cafes any more, so she leant two of her spaces to a local food bank that feeds 100 families per week.
Two other former Peace locations will be used by Wildflyer Coffee, a nonprofit dedicated to providing job stability and skills development to youth experiencing homelessness.
“It’s always been about community, but in an even more direct way,” Wallace told Al Jazeera.
Toronto Stock Exchange trades flat with Fed speakers in focus
Toronto Stock Exchange index traded flat on Tuesday as investors looked to the upcoming speeches from U.S. Federal Reserve officials after the central bank’s hawkish tilt last week weighed on risk-driven assets.
* At 9:42 a.m. ET (13:42 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.02 points, or 0.08%, at 20,172.38.
* All eyes are on the U.S. central bank, after the Fed last week signaled a potentially tougher stance on inflation and shifted projections for its first two rate hikes into 2023, sparking a selloff in global stocks.
* But strength in commodity prices, as well as renewed buying into technology stocks, had seen the TSX scale record highs last week.
* The heavyweight energy sector dropped 1.2% as U.S. crude prices were down 0.3% a barrel, while Brent crude lost 0.2%. [O/R]
* The financials sector slipped 0.1%. The industrials sector rose 0.3%.
* Fertilizer maker Nutrien rose 2% after it outlined plans to increase potash output in the wake of European Union sanctions on Belarus.
* On the TSX, 93 issues were higher, while 130 issues declined for a 1.40-to-1 ratio to the downside, with 21.25 million shares traded.
* The largest percentage gainers on the TSX were Ballard Power, which jumped 2.7% receiving a follow-on order for fuel cells, and Alimentation Couche-Tard, which rose 2.5%.
* Kinross Gold fell 4.7%, the most on the TSX, while the second biggest decliner was Endeavour Silver, down 2.8% as precious metal prices slipped o
Canadian regulator lifts banks’ capital buffer to record, priming for post-pandemic world
Canada‘s financial regulator raised the amount of capital the country’s biggest lenders must hold to guard against risks to a record 2.5% of risk-weighted assets, from 1% currently, in a surprise move that could pave the way for them to resume dividend increases and share buybacks.
The new measures, which take effect on Oct. 31, is a sign that the economic and market disruptions stemming from the coronavirus pandemic have abated and banks’ capital levels have been resilient, the Office of the Superintendent of Financial Institutions (OSFI) said in a statement.
But the regulator acknowledged that key vulnerabilities, including household and corporate debt levels, as well as asset imbalances caused by steep increase in home prices over the past year, remain.
In a sign of concern about the housing market, OSFI and the Canadian government raised the benchmark to determine the minimum qualifying rate for mortgages, starting June 1.
The increase in the Domestic Stability Buffer (DSB) to the highest possible level raises the Common Equity Tier 1 (CET1) capital – the core bank capital measure – to 10.5% of risk-weighted assets; a 4.5% base level, a “capital conservation buffer” of 2.5%, and a 1% surcharge for systemically important banks, plus the DSB.
The change “gives OSFI more leeway to loosen a restriction down the road, namely the freeze on buybacks and dividend increases,” National Bank Financial Analyst Gabriel Dechaine said.
OSFI felt it was “useful for the banks to understand what our minimal capital expectations are and to give them time to adjust to that… ahead of any lifting of the temporary capital distribution restrictions,” Assistant Superintendent Jamey Hubbs said on a media call.
Even with the higher requirement, Canada‘s six biggest banks would have excess capital of about C$51 billion, dropping from C$82 billion as of April 30, according to Reuters calculations.
That was driven in part by a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020, although a pandemic-driven surge in loan losses has so far failed to materialize.
The Canadian banks index slipped 0.25% in morning trading in Toronto, while the Toronto stock benchmark fell 0.1%.
The increase is the first since the last one announced in December 2019, which did not come into effect as planned in April 2020, as OSFI made an out-of-schedule change https://www.reuters.com/article/canada-mortgages-regulation-idUSL1N2B636J that dropped the rate to 1% in March. It has maintained that level at its twice yearly reviews.
Prior to that, OSFI had raised the required level by 25 basis points at every twice yearly review since it was introduced at 1.5% in June 2018.
($1 = 1.2326 Canadian dollars)
(Reporting By Nichola Saminather; Editing by Marguerita Choy and Jonathan Oatis)
Canada Economic Indicators
The economic indicators used to gauge the performance of an economy and its outlook are the same across most nations. What differs is the relative importance of certain indicators to a specific economy at various points in time (for instance, housing indicators are closely watched when the housing market is booming or slumping), and the bodies or organizations compiling and disseminating these indicators in each nation.
Here are the 12 key economic indicators for Canada, the world’s 10th-largest economy:1
Statistics Canada, a national agency, publishes growth statistics on the Canadian economy on monthly and quarterly bases. The report shows the real gross domestic product (GDP) for the overall economy and broken down by industry. It is an accurate monthly/quarterly status report on the Canadian economy and each industry within it.2
Employment Change and Unemployment
Key data on the Canadian employment market, such as the net change in employment, the unemployment rate, and participation rate, is contained in the monthly Labour Force Survey, released by Statistics Canada. The report contains a wealth of information about the Canadian job market, categorized by the demographic, class of worker (private sector employee, public sector employee, self-employed), industry, and province.3
Consumer Price Index
Statistics Canada releases a monthly report on the consumer price index (CPI) that measures inflation at the consumer level. The index is constructed by comparing changes over time in a fixed basket of goods and services purchased by consumers. The report shows the change in CPI monthly and over the past 12 months, on an overall and core (excluding food and energy prices) basis.4
International Merchandise Trade
This monthly report from Statistics Canada shows the nation’s imports and exports, as well as the net merchandise trade surplus or deficit. The report also compares the most current data with that for the preceding month. Exports and imports are shown by product category, and also for Canada’s top ten trading partners.5
Teranet – National Bank House Price Index
This composite index of house prices across Canada was developed by Teranet and the National Bank of Canada and represents average home prices in Canada’s six largest metropolitan areas. A monthly report shows the change in the index monthly and over the past 12 months, as well as monthly and 12-month changes in Canada’s six and 11 largest metropolitan areas.6
RBC Manufacturing Purchasing Managers’ Index – PMI
Released on the first business day of each month, this indicator of trends in the Canadian manufacturing sector was launched in June 2011 by Royal Bank of Canada, in association with Markit and the Purchasing Management Association of Canada. RBC PMI readings above 50 signal expansion as compared to the previous month, while readings below 50 signal contraction. The monthly survey also tracks other information pertinent to the manufacturing sector, such as changes in output, new orders, employment, inventories, prices, and supplier delivery times.7
The Conference Board’s Consumer Confidence Index
The Conference Board of Canada’s Index of Consumer Confidence measures consumers’ levels of optimism in the state of the economy. It is a crucial indicator of near-term sales for consumer product companies in Canada, as well as an indicator of the outlook for the broad economy since consumer demand comprises such a significant part of it. The index is constructed on the basis of responses to four questions by a random sampling of Canadian households. Survey participants are asked how they view their households’ current and expected financial positions, their short-term employment outlook, and whether now is a good time to make a major purchase.8
Ivey Purchasing Managers Index – PMI
An index prepared by the Ivey Business School at Western University, the Ivey PMI measures the monthly variation in economic activity, as indicated by a panel of purchasing managers across Canada. It is based on responses by these purchasing managers to a single question: “Were your purchases last month in dollars higher, the same, or lower than in the previous month?” An index reading below 50 shows a decrease; a reading above 50 shows an increase. Panel members indicate changes in their organization’s activity over five broad categories: purchases, employment, inventories, supplier deliveries, and prices.9
Canada Mortgage and Housing Corporation (CMHC) issues a monthly report on the sixth working day of every month, showing the previous month’s new residential construction activity. The data is presented by region, province, census metropolitan area, and dwelling type (single-detached or multiple-unit). The indicator is an important gauge of the state of the Canadian housing market.10
This key indicator of housing activity is compiled by the Canadian Real Estate Association (CREA) and is based on the number of home sales processed through the MLS (Multiple Listing Service) Systems of real estate boards and associations in Canada. The monthly report from the CREA shows the change in home sales across Canada, as well as for major markets, from month to month. The report also includes other important housing-related information, such as the change (as a percentage) in newly listed homes, the national sales-to-new listings ratio, months of housing inventory, the change in the MLS Home Price Index, and the national average price for homes sold within the month.11
Statistics Canada releases a monthly report on retail sales activity across Canada, with changes shown on month-over-month and year-over-year bases. The headline number shows the percentage change in national retail sales on a dollar basis; the percentage change in volume terms is also shown. The retail sales figures are shown by industry and for each province or territory, and provide insights into Canadian consumer spending.12
The building permits survey conducted monthly by Statistics Canada collects data on the value of permits issued by Canadian municipalities for residential and non-residential buildings, as well as the number of residential dwellings authorized. Since building permit issuance is one of the very first steps in the process of construction, the aggregate building permits data are very useful as a leading indicator for assessing the state of the construction industry.13
The Bottom Line
The 12 economic indicators briefly described above show the health of key aspects of Canada’s economy: consumer spending, housing, manufacturing, employment, inflation, external trade, and economic growth. Taken together, they provide a comprehensive picture of the state of the Canadian economy.