COVID-19 Impact: 5 Reasons Many More Companies May Shut In The Coming Months

COVID-19 has been termed as a generational crisis – affecting both our personal well-being (not just financially but also health) and businesses greatly. In Singapore, over the span of four Budgets, the government is allocating close to $100 billion to combat the downturn.

Much of the injection of stimulus into the local economy has been done by supporting companies to keep their doors open, their people in jobs and their future prospects brightened.

Some of the more popular and immediate-term schemes have been the Job Support Scheme (JSS), which will help companies keep existing workers employed by providing generous wage support measures, the Jobs Growth Incentive (JGI), which will provide salary support for new employees of 25% (for those under 40) and 50% (for those 40 and above), as well as the SGUnited Traineeships for new graduates to find employment and SGUnited Mid-Career Pathways Programme to help unemployed mid-career employees find jobs.

While much has been done for companies, we look at why many more business entities may be shutting down in the coming months.

#1 Only 28,000 Business Entities Have Shut Down From January To September 2020

Despite the government’s best efforts to support businesses, 27,983 business entities have shut down between January 2020 and September 2020. While this may sound like a great number of companies, we need to compare this against what happened in 2019 – when the economy was in full swing – to really get a sense of where we stand.

Over the same period in 2019, between January 2019 to August 2019, 32,110 business entities shuttered. This means almost 13% more companies closed down in 2019 – when things were normal – compared to in 2020 – in the same period.

This highlights just how effective the government measures may have been. It can also be argued that it has been so effective that it has kept more business entities in operation that should have normally been.

Read Also: Guide To Closing Down A Company In Singapore: Striking Off Company & Winding Up

This is one reason why many more companies may close down in the coming months. In the whole of 2019, 47,504 business entities ceased. To keep on a level footing with 2019, business entities will have to shut down at a much faster pace for the rest of the year, possibly even spilling over to 2021.

Of course, 2020 is not a normal year either. Businesses are badly hit, and we may see corporate shutdowns catch up in the later part of the year.

#2 Number Of Company Shut Downs Do Not Reflect State Of Economy

While some may see fewer companies shutting down as a positive sign in our battle against COVID-19, it is quite far from the real state of the economy.

The Ministry of Trade and Industry (MTI) has forecasted an economic contraction of between -5% and -7% in 2020, which will make it Singapore’s worst recession since our independence.

In the Ministry of Manpower 1H2020 Labour Market Report, Citizen unemployment rate was 4.3% (as at July), the highest in the last 10 years. Nevertheless, it was still lower than peak Citizen unemployment rates during SARS in 2003 (6.4%) and the Global Financial Crisis (GFC) in 2008 (4.9%).

However, an unprecedented 81,720 employees were placed on shorter work weeks or temporary layoffs. This is not considered in the 11,350 retrenchments that had already taken place in the first half of 2020.

At the same time, there were fewer job openings to unemployment in Singapore. With only 0.57 job vacancies (as at June 2020) for every unemployed individual. This highlighted a weakening economy compared to the previous quarter, with 0.71 openings for every unemployed individual in march 2020.

Read Also: 5 Singapore Job Statistics We Learned From The Ministry of Manpower (MOM) 1H2020 Labour Market Report

#3 More Companies May Shut Down As Government Schemes Dry Up

Because 2020 isn’t a normal year, a lot of money has been pumped into companies through various government grants and programmes. Some of these may come to an end in the later part of 2020 and into 2021.

Without these cash injection and protection measures, businesses may see an accelerated rate of closures at the time.

Some of the schemes we mentioned, the Jobs Support Scheme will be downsized from September 2020 and will run until March 2021. Even though this itself, is an extension to the scheme which should have ceased August 2020.

Another programme targeted at companies, the COVID-19 (Temporary Measures) Act, which seeks to provide businesses (and individuals) temporary relief in performing contractual obligations and increasing the threshold for corporate bankruptcy to $100,000 from $10,000 will also come to an end in the coming months.

#4 Entire Industries Are Going To Be Affected

Because of COVID-19, companies in several industries are going to be devastated. Sure, digitalisation, hustle and hard work may save them, but many will struggle.

These aren’t negligible industries either, encompassing tourism and travel, aviation, retail, entertainment and nightlife, hospitality and many more. For many companies in these industries, transforming or digitalising may not be enough to keep them alive.

Even for the large players in these sectors, using this downtime to transform can be a good strategy, but without the certainty of business, they will likely have to aggressively cut costs to survive long enough for their transformation to pay-off.

We’ve already seen lay-offs from Singapore Airlines (SIA), Resorts World Sentosa (RWS) and others cut staff. Many more may follow suit, especially after government support ends.

Read Also: Retrenching Some Staff VS Pay Cut For All: Pros And Cons Of Each Cost-Saving Method

#5 COVID-19 Is Accelerating A New Normal In The Business Landscape

If anything, COVID-19 has shown us that businesses need to adapt quickly to change. One of the main themes of this crisis has been the need for digitalisation as well.

With such trends accelerating, more businesses will find themselves lagging behind if they delay modernising. Regardless of whether companies have good reasons to delay this – prioritising current business operations or being incredibly busy with current problems – not adapting will spell the end of such companies.

With such a rapid rate of transiting into a new normal economy, many businesses may lag and have to close down. However, this also provides an opportunity for new businesses to spot gaps in the market or new ways to overrun these traditional businesses.

Some examples include F&B companies that cannot handle online orders, retailers who do not have a website or e-commerce capabilities, and other companies that cannot digitalise their services.

Read Also: Why 2020 Is A Good Year To Be Expanding Your Team, If You Are Prepared To Embrace The Challenge

An Avalanche Of Corporate Shut Downs May Be In Store – But This Also Provides Opportunities

For all these reasons, there may be a large number of companies that shut down in the coming months and even into 2021. This will mean more employees going out of jobs too.

However, also mentioned, this is not all doom and gloom. Government support has not only been targeted at companies, but also upgrading workers’ skill sets. This will enable employees who lose their jobs to bounce back quickly.

At the same time, new companies or existing companies that have been able to leverage on government support to strengthen or pivot their businesses successfully into the new normal will need to expand and likely require more employees to spearhead its growth.

At the end of the day, company closures have to be managed as well. It serves the government and Singaporeans for shutdowns to be artificially smoothened as well. This will help batches of employees find new roles while others continue to be paid by other companies on life-sustaining measures.

Join The DollarsAndSense Business Community

For more content that helps entrepreneurs, freelancers, and self-employed individuals and learn to build better businesses, join the DollarsAndSense Business Community on Facebook.

You May Also Like