COVID-19 caused a widespread and persistent drop in sales, says World Bank


COVID-19 caused a widespread and persistent drop in sales, says World Bank

Business reporter

Wednesday, November 18, 2020

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The novelcoronavirus outbreak has left most firms in financial distress as they were forced to either close or reduce operations due to the large drop in sales and falling revenue, the World Bank has said.

Micro and small firms (less than 20 workers) have been affected disproportionately, experiencing a decline in sales of 50 per cent or more, according to the bank's COVID-19 Business Pulse Survey. Large firms of more than 100 workers, however, saw sales decline of 40 per cent or less.

The average decline of sales for firms in developing countries were 49 per cent and, according to the study, has been strikingly persistent, even months after the peak of the crisis.

The study indicated that less than 20 per cent of firms fired workers, and most businesses (64 per cent) adjusted payroll by reducing hours, wages, or granting paid or unpaid leave to workers.

Firms that experienced larger declines in sales were more likely to lay off workers, though not drastically. For example, a firm with 100 workers and an average reduction in sales of about 53 per cent shrank by just four employees on average.

However, the hardest-hit sectors, such as tourism-related activities, made the biggest adjustments. Businesses in the accommodation sector had the highest probability of laying off workers (19 per cent), granting leave (51 per cent), and cutting wages (33 per cent).

It's interesting to note that women-owned businesses and those with more female employees were more likely to lay off workers when faced with a shock of the same magnitude.

According to the study, more than half of micro and small firms are in arrears or expected to fall into arrears during the coming months.

The study noted that the hardest-hit sectors tend to have bigger financial woes with about 62 per cent and 56 per cent of firms in accommodation and food preparation are in arrears or expect to fall into arrears in the coming months, compared to 35 per cent and 43 per cent of firms in financial services and information and communications technology (ICT).

Underscoring the importance of providing support, it further added that the likelihood of firms in low- and middle-income countries falling into arrears is almost 50 per cent higher than in high-income countries.

“Despite the unprecedented challenges, there are opportunities to build a more inclusive and resilient economic system. Most countries have implemented firm support programmes, and some are undertaking challenging reforms,” said Caroline Freund, global director for trade, investment and competitiveness at the World Bank.

“Monitoring how businesses are responding to the shock and the effectiveness of government support programmes and policy changes will help shape better policy. To get there, the starting point must be more and better data to make informed policy choices,” she continued.

This study provided the first comprehensive assessment at the global level of the short-term impact of the pandemic across the world relying on a novel dataset collected during the months of April through August 2020. The data collected cover more than 100,000 businesses across 51 countries, primarily low- and middle-income countries across the world.

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