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Small Business VS COVID-19
ECONOMIC PAUSE AND BUSINESS

Immediately after the introduction of social distancing regimes, it became obvious to all economists that the main blow would fall on small businesses and the population involved in it. In particular, the business with which we intersect every day: catering, personal services, retail (primarily non-food products), etc.  The same small business that is rightfully considered the springboard of any developed economy, ensuring its relative independence from external factors such as, for example, commodity prices or liquidity crises of financial institutions.

Of course, in terms of the level of integration of SMEs into GDP, Russia lags behind developed countries by an order of magnitude, and in reality it turns out that small business in the Russian Federation is not an economic immunity against low oil prices, but rather a side effect. However, from the downtime of this side effect, Russia's GDP in nominal terms for April 2020  lost 28%. For comparison, the US economy  has already sank by 34.9% with a forecast of 42.8% by the end of June, the German one is predicted to decline by 10%, and the English one - from 15% to 25%. And we see such falls, unthinkable for the modern economy, against the background of the fact that countries where capitalism is almost a religion are taking essentially socialist measures to support the population and small businesses in unprecedented volumes.

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Russia also introduces packages of measures to support SMEs, however, in terms of assistance volumes, preference is given to corporations and large projects, which can most likely be explained by the current structure of the economy with a resource bias. True, given the dynamics of nominal GDP, the authorities in the Russian Federation are likely to increase the amount of funds allocated to support the most affected small business sectors, otherwise the share of the SME segment in Russian GDP will become critically small. The goal of 32.5% by the end of 2024, unfortunately, can already be forgotten for a good reason, but it is extremely important now to “lose” the current 21% as little as possible.​

 

We appreciated  types of businesses that should recover most rapidly after the lifting of social restrictions. We identified 6 segments from the retail and consumer services sectors, for each of which a retrospective of dynamics is given in comparison with GDP so that the crises of 2008-09 and 2014 are covered. Of course, we understand that the current crisis has a completely different nature, but there has never been such a pan-economic phenomenon in history with which it was possible to draw appropriate analogies.

 

So, let's move on to recovery forecasts and  Here are the strengths and weaknesses of the selected segments:

AFTERNOON
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STRENGTHS AND WEAKNESSES
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Basic need for a service
Low margin of safety
The business has almost no large savings for unforeseen events.
Laundry_edited.png
STRENGTHS AND WEAKNESSES
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Good margin of safety
Significant decline in demand due to lockdown
In terms of stay  at home, clothes get dirty less
Cafe_edited.png
STRENGTHS AND WEAKNESSES
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Due to the small size, it will be easier to resume work in compliance with the additional sanitary measures at the first stages of lifting restrictions
Low margin of safety;
Critical decline in demand
Work for delivery compensates no more than 20-30% of losses
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STRENGTHS AND WEAKNESSES
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Increased demand before leaving
into isolation
Reduced demand during lockdown 
Many mended  technology for remote work
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STRENGTHS AND WEAKNESSES
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Basic need
Reducing the consumption of the most expensive products due to the introduced insulation
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STRENGTHS AND WEAKNESSES
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Part of the population that has not lost income spends savings to upgrade equipment
in the House
A general decline in demand will last for some period due to a drop in income of mass customers
FINAL FEATURE

Drawing a conclusion, it should be noted that we call the restoration of certain industries a return to pre-isolation turnover. Many economists expect pent-up demand to be offset and explosive growth, but this is not entirely true. Yes, at first there will be a concentration of certain services: in hairdressing salons, for example, probably  It will be difficult to make an appointment on the desired day. But this is not pent-up demand: hair not cut in April and May will not be cut 2 times in June, just as half-eaten steaks will not eat more than they fit. Moreover, one should not forget that for some time the fear of public places will remain among a part of the population. For example, in the Chinese city of Wuhan, after the restrictions were lifted, the explosive activity of restaurants has not yet been observed. Of course, it is not very relevant to compare the Chinese model of behavior with the Russian one, but it is worth keeping this fact in mind so as not to get burned by excessive expectations.

For all additional questions and clarifications on this review, please send us an e-mail or call, we are always happy to answer.

+7 (495) 997-3330

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