|Most of the support measures announced by the government have turned out either fatally delayed or inapplicable to micro firms |
"Repeating the measures from spring will be disastrous because businesses have already exhausted whatever reserves and flexibility they had," says Kaloyan Staykov, senior economist at Sofia-based Institute for Market Economics
"If there was a day during the period of the state of emergency when we got 30% of our usual turnover, that was a good day for us," says Darin Stoykov, owner of Daro bistro in Sofia. He is one of the thousands of small entrepreneurs to whom the freezing of life at the beginning of the pandemic meant drying up of revenues and risk of shutting down the business.
Several months later and now that life has been restored to the standards of the new normal, those who survived are not yet out of the woods.
Most small company owners are worriedly waiting to see whether the health crisis will aggravate, what the response of the state will be and how customers' behaviour will change. Now that most reserves have been spent, a second blow will throw many of the first-wave survivors out of business. At the same time, most of the support measures announced by the government have turned out either fatally delayed or inapplicable to those more than 90% of companies in Bulgaria that are small enterprises.
When the state of emergency was announced in mid-March, many people remained home, consumption practically froze and so did the turnovers of the companies running small shops, cafes and restaurants, gyms, workshops and service outlets. The first big shock, however, was the result of the contradictory orders and chaotic measures taken by the authorities in the beginning.
"Our problems started on March 13 when the minister of health issued an order that closed all shops. Later the order was revised, excluding many of the firms, but in the meantime, the municipal authorities had issued a local order on the basis of the minister's first order and we had to close and give away the flowers to the people in the street," says Tsvetelina Dukova, owner of a flower shop in Sofia.
"The most concerning thing for me was the chaotic way in which the measures were announced. We closed on March 13 with nobody knowing for how long and remained closed for two months," says Andrey Lyubenov, owner of a gym in the Bulgarian capital city. "Then suddenly on a Friday they said we could open on Monday but under very strange conditions: for instance, we could not sell bottled water to customers and there were crazy requirements concerning air conditioning," he explained.
No customers, no business
Even after shops opened, however, small firms faced another problem: lack of customers, as many people preferred to stay home or just reconsidered their expenses in the light of the emerging crisis and unemployment. That melted away the turnovers on which micro enterprises relied to pay the next day's supplies or cover wage and rent expenses.
"Our bistro relies on the people living and working in the area, as well as on tourists. With low-cost airlines Bulgaria turned into a weekend travel destination, the city changed. But there are no more tourists. We currently make 50% of the turnover we had the same month last year," Darin Stoykov says.
It is the same situation with most micro firms. "Small businesses were heavily hit by the quarantine, because they do not have deep reserves and any shock to the money flow is felt immediately," Petar Ganev of the Institute for Market Economics commented. "In many cases when fixed expenses are relatively low and the share of wage expenses is high the crisis is automatically transferred on to workers, which means sending them on leave or laying them off."
Support or not quite
Therefore one of the measures undertaken by the government, the 60:40 scheme, was aimed at preserving jobs. It is one of the few actually working anti-crisis mechanisms. However, the measure was used mainly by large companies, e.g. automotive plants with more than 1,000 workers, while small firms more often resorted to sending their workers to labor offices.
The scheme itself can hardly be called a mass measure. "I could not apply for financing under 60:40, because I had to send my workers on unpaid leave," says Darin Stoykov whose bistro remained open though working at a much-reduced capacity.
The 60:40 scheme is also inapplicable to companies that have completely suspended their business. The procedure itself is clumsy and the rules were changed several times. Such is the case of Andrey Lyubenov's gym. "We applied for a grant for small businesses but our application is number 22,000 and so far only 5,000 applications have been assessed, so we will hardly get aid for current expenses before winter," he said.
Newly registered companies cannot use the grants at all. "You have to have a 20-per cent drop in turnover, year on year, but we did not have the business in 2019," says Kristian Mitov, who, together with his partners, opened Sweet and Salty Bakery Café in downtown Sofia at the beginning of this year.
Economists define the VAT reduction for restaurants and gyms from 20% to 9% as an absurd measure. "That can in no way be an anti-crisis measure. VAT is not the main problem of companies when they have no turnover.," Kaloyan Staykov of Institute for Market Economics comments.
People in the restaurant business agree. "Eleven per cent of zero is zero. I did the math: if we take the result of July last year, when we paid 20% VAT, with 9% VAT today I will save 300 levs. That is the difference," Darin Stoykov said.
Still, there are exceptions that seem to have stayed out of the crisis. While big resorts and huge hotels practically remained without visitors this year, the small coastal towns and family hotels do not complain of tourist outflow. "By the end of July, we almost reached our last year's revenues. We managed to get a grant of 9,600 (levs?) under the support scheme for micro-enterprises and that filed the remaining gap," the manager of Asti Art Hotel in the coastal town of Sinemorets, Andrey Voynov, said.
Even companies that still struggle to survive have their good stories. "During the most difficult period I got help from the people I work with: the ones I buy flowers from, my colleagues," Tsvetelina Dukova said. "As a matter of fact, many of our customers supported us, because I am well aware that they did not have a vital need for tulips at that time. At least half of the flowers purchased they bought because they wanted to do something nice, not because they needed them. Survival is the result of the help: from friends, customers, colleagues, everyone."
The big question facing small companies now is what will happen in the coming months and if a second epidemic wave in fall will lead to new shop closures. "A second blow on consumption and more specifically on city life activity will have grave consequences for micro-firms in the area of services," Petar Ganev points out.
According to Kaloyan Staykov, the extreme measures at the beginning of the pandemic were justified by the many questions surrounding the virus itself but in future, the authorities should rely on local measures and monitoring hot spots, rather than on mass closures. "That is much morе sparing for both people and the economy. Repeating the measures from spring will be disastrous because businesses have already exhausted whatever reserves and flexibility they had," he added.
The more lasting consequences the crisis may have on small businesses are connected with the fate of entrepreneurs themselves, at least those who manage to survive. "Even a short-term effect on the money flows can totally change the trajectory of a given small entrepreneur and send him or her into an entirely different direction," Petar Ganev commented. "The macroeconomic effect of such a form of constructive destruction is much stronger on large industrial enterprises than on small firms in the area of services for instance. In social terms, however, the burden falls on the shoulders of small entrepreneurs, who will be sunk by the corona-wave and will have to look for a new way ahead."