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Small firms: Little engines that could save the global economy – Al Jazeera English

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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.

Tarek Chehab, founder of Lebanese design firm Styro 3D, is most proud of a nine-metre clenched fist that he put up in the city’s central Martyrs Square in support of the 2019 October protests [File: Al Jazeera]

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.

Manohar Wagle, 62, owner of Wagle Sports shop in Mumbai, India [File: Tish Sanghera/Al Jazeera]

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.

Pratik Master and his wife, Bee, kept their corner store in the central English town of Wigston open by stocking it with what their community needed during the pandemic [Couresty: Pratik Master]

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.

In Minneapolis, Peace Coffee, a small roastery, teamed up with Wildflyer Coffee, a nonprofit dedicated to providing job stability and skills development to youth experiencing homelessness, to help both small businesses survive 2020 [Courtesy: Wildflyer Coffee]

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.

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Economy

Investor Optimism Over German Economy Rises Despite Restrictions – Bloomberg

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The German economy has navigated the crisis better than its major European peers, helped by generous government support and a strong manufacturing sector.

Germany risks severe economic consequences if it fails to contain the pandemic, according to one of the country’s leading economists.

“I believe we massively underestimate the economic risks of the second wave,” Marcel Fratzscher, president of the German Institute for Economic Research, or DIW, told journalists. “Many companies are over-indebted and have exhausted their reserves. I’m afraid we’re too optimistic about getting out of this crisis quickly.”

Stubborn Outbreak

Germany has struggled to contain the spread of the coronavirus

Source: Robert Koch Institute

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Fratzscher’s warnings sharply contrast with a report published earlier on Tuesday showing investors grew more confident in Germany’s outlook at the start of the year, betting that a nascent global recovery would bolster exports.

The German economy probably avoided a contraction in the fourth quarter, thanks in part to generous government support and a strong manufacturing sector that isn’t as directly affected by virus curbs that have hit restaurants and the travel sector.

Prospects for the first quarter are dire though. Chancellor Angela Merkel and state premiers are likely to extend already tough restrictions until at least mid-February and may impose yet more stringent contact rules as well as nighttime curfews and curbs on the number of people going to the office.

One-Two Punch

Mobility data show impact of German coronavirus restrictions

Source: Google, Bloomberg calculations of 7-day moving average

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Even if the lockdown ended at the end of January as currently planned, output in the first quarter would shrink some 2%, Fratzscher said.

The country won’t see an “economic reboot” until the third quarter at the earliest, he added — contingent on completing vaccinations and reaching herd immunity.

“Politicians must be prepared for and make people aware that if the second wave can’t be contained, the consequences will be enormous,” Fratzscher said.

The economy contracted 5% in 2020, the most since the global financial crisis, and most forecasts indicate it will take until 2022 to recover the ground lost.

— With assistance by Harumi Ichikura, and Kristian Siedenburg

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    China Says Its Economy, Recovering From The Pandemic, Grew 2.3% Last Year – NPR

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    People walk in Wuhan on Jan. 10, the eve of the first anniversary of China confirming its first COVID-19 death. Chinese officials said on Monday that its economy managed to grow 2.3% in 2020.

    Nicolas Asfouri/AFP via Getty Images

    Nicolas Asfouri/AFP via Getty Images

    Just over a year after the world’s first coronavirus cases were identified in China, the country’s economy has bounced back from the ravages of the pandemic.

    China’s economy grew by 2.3% last year, according to data published Monday by the country’s National Bureau of Statistics. The steady economic recovery was largely expected, and puts China on a track that other countries haven’t achieved.

    “It’s likely that China could be the only major economy that has significant positive economic growth in 2020,” Nicholas Lardy, a China specialist at the Peterson Institute of International Economics, told NPR in May. “The U.S. is clearly going to be negative. Europe is negative. Japan is going to be negative.”

    When the pandemic first hit, however, China’s economic outlook was a lot less sunny.

    Thanks to sweeping and strictly enforced lockdowns, the country’s year-on-year GDP for the first three months of 2020 shrank 6.8%, its biggest drop in decades. And as the economy constricted and unemployment rates rose, officials in the spring took the unprecedented move of scrapping their annual economic growth targets.

    As the year progressed and the pandemic receded in China, the country saw an economic upturn helped largely by an increase in consumer spending. Its GDP went up by 3.2% in the second quarter, 4.9% percent in the third quarter and 6.5% for the fourth quarter.

    China also reported a record $75.4 billion surplus in November, after exports to the rest of the world jumped $21.1% compared to the previous year. As NPR’s Scott Horsley reported, much of that increase was accounted for by exports to the United States, despite the tariffs imposed by President Trump.

    Still, an English translation of the statistics bureau report noted that “the changing epidemic dynamics and external environment pose a multitude of uncertainties and the foundation for economic recovery is yet to be consolidated.”

    As NPR’s Emily Feng has reported, Chinese policymakers have pledged to continue policies that support private businesses and consumer demand, but will scale back certain credit-boosting policies in the months ahead.

    The country has largely managed to bring the pandemic under control, allowing many businesses to reopen at pre-pandemic levels, according to Feng. And it still imposes strict lockdowns in regions with an uptick in cases: As of mid-January, a cluster of more than 600 cases in Hebei province has prompted the lockdown of some 11 million people.

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    Brent crude edges up as optimism over economy trumps demand concerns – TheChronicleHerald.ca

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    By Florence Tan

    SINGAPORE (Reuters) – Brent crude futures edged up on Tuesday as optimism that government stimulus will buoy global economic growth and oil demand trumped concerns that renewed COVID-19 pandemic lockdowns globally could cool fuel consumption.

    Brent crude futures for March rose 20 cents, or 0.4%, to $54.95 a barrel by 0351 GMT after slipping 35 cents in the previous session.

    U.S. West Texas Intermediate crude was at $52.19 a barrel, down 17 cents, or 0.3%. There was no settlement on Monday as U.S. markets were closed for a public holiday. Front-month February WTI futures expire on Wednesday.

    Investors are upbeat about demand in China, the world’s top crude oil importer, after data released on Monday showed its refinery output rose 3% to a new record in 2020. China was also the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic.

    “Yesterday’s data out of China was a positive for oil prices,” Michael McCarthy, chief market strategist at CMC Markets in Sydney said.

    Investors are watching out for U.S. President-elect Biden’s inauguration speech on Wednesday for details on the country’s $1.9 trillion aid package.

    OANDA’s Asia-Pacific senior analyst Jeffrey Halley said: “Like other asset classes, oil has received a gentle U.S. stimulus tailwind in Asia.”

    Oil prices have also been supported by Saudi Arabia’s additional supply cuts in the next two months which are expected to draw down global inventories by 1.1 million barrels per day in the first quarter, ANZ analysts said.

    Concerns about rising COVID-19 cases globally and renewed lockdowns weighing down fuel demand kept a lid on oil prices.

    ANZ analysts flagged concerns about falling fuel sales in India in January from December and rising COVID-19 cases in China and Japan that could dampen oil demand.

    “In Europe and the U.S., the slow rollout of vaccines is also raising concerns that a rebound in demand will remain elusive,” the bank said.

    (Reporting by Florence Tan; Editing by Richard Pullin and Kenneth Maxwell)

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