COVID-19 lockdowns are wreaking havoc on businesses of all types here in Canada and around the world. Our country’s experience is illustrated in full colour by the March employment numbers: We lost as many jobs in one month as we did in nine months during the 2008-2009 global financial crisis, and almost one-quarter of Canada’s labour force was laid off or placed on reduced hours. Just weeks before, businesses were bemoaning a dire lack of skilled workers. The swift shift to layoffs was very reluctant, revealing how blindsided businesses were by the plunge in activity. While all businesses are impacted, are some affected more than others?
Some impacts are certainly more obvious than others. Those tightly wound into Chinese supply chains were the first to be hit. Airlines, accommodation, restaurants and all others caught up in business and consumer tourism were also hit fast and hard. But it didn’t take the lockdowns long to arrest broad swaths of business activity just about everywhere—so is it even possible to rank relative impact? EDC Economics studied the issue, and looked at four key factors: economic importance; pre-COVID-19 financial strength; the estimated need for liquidity; and the impact on sales as a gauge of urgency.
Considering all these factors, the results were largely unsurprising. Topping our list was the accommodation and food services category, given relatively poor financials, a high relative borrowing need and impact on sales. The oil and gas sector is a close second, together with arts, entertainment and recreation. Also, both the auto and aerospace sub-sectors of manufacturing were close to the top of the “need” rankings. Information and cultural industries and the primary agriculture, forestry and fishing categories rounded out the most-affected list.
On the other end of the spectrum, essential services proved to be the least affected. This seems intuitive, but before considering the direct impact of COVID-19 on activities, the starting financial and economic position was strong. It doesn’t seem that there will be much in the way of activity reductions in health care and education has used virtual means to keep schooling going at all levels. And of course social assistance is in high gear meting out public support programs. Professional, scientific and technical services are also better off, as many in this grouping are able to work virtually. They also entered the downturn in a financially healthy position. Rounding out this category are the construction sector and wholesalers. The food processing sub-sector of manufacturing, which initially looked good, finds itself in the lower-need grouping for the moment.
In the middle of the pack, we have transportation and warehousing, personal services, administration and support, retailing and the real estate sector.
Complicating the analysis is the reality that within these industries, there will be sub-sectors with particular characteristics that can change their specific vulnerability scores. That’s probably most obvious in the manufacturing sector, where there are industries at opposite extremes. The same is true with retailing; sellers of food and health-care items are having some of their best days ever, while clothing and footwear, luxury, and specialty items are seeing sales plunge. Ultimately, relative duress boils down to the enterprise level; regardless of industry, any enterprise in the middle of a large capital expansion is likely to be compromised by current conditions.
Without question, all industries are heavily impacted by current conditions, and have needs that require varying levels of assistance. Our exercise is an attempt to rank the order of those needs. An additional factor that will weigh on the total amount of assistance needed is time. Some industries will recover more quickly than others. For instance, it may take time to pluck up the courage to go on an international vacation, purchase fast food, attend a concert or sporting event, import foodstuffs from a particularly COVID-19-affected country and so on. And of course, some things are likely to change; more virtual work, for example, could reduce commuting and business travel and more online purchases could accelerate changes in retailing, likewise shifting demand for various ranges of goods and services.
The bottom line?
COVID-19 has created universal need for business support—lots of it. But that support isn’t uniform; some need more, some need it sooner and certain others will need it longer. EDC is working hard with Canada’s financial institutions, insurers and other financial Crown corporations to implement the federal government’s BCAP and CEBA programs.
