The Path to Recovery
A Summary of the January, 2021 the BDC MONTHLY NEWSLETTER for ASE Clients
The BDC (Business Development Bank of Canada) publishes a monthly newsletter to help entrepreneurs stay informed of current economic conditions and the effect on their business. Our team at the Associated Senior Executives (ASE) thought it worthwhile to pass on a quick overview of the 58 pages in the newsletter, focusing on the key takeaways from the BDE’s solid analysis. Our thoughts for the near future (next 1 to 3 years) are following each heading, in bold,
The following then, is a summary of key headlines and a brief perspective on the big changes we are experiencing and the affect on small and medium enterprises, focusing on Ontario in particular. That said, most of the overarching points made here will be relevant for our clients et al in other provinces.
Covid-19 has had a severe impact on the world economy
-While, in 2020, China actually had almost 2% growth in its GDP (Gross Domestic Product), the U.S. and Canada has drops in GDP of 3.7% and 5.3% respectively.
-These drops may not sound so bad unless you are in a service industry, like hospitality or operating a gym, where, in fact, you may have had to shut down completely.
—For our clients in these kinds of businesses the impact is much more immediate and much harder for them and their families. We understand.
For Canadian companies – some interesting stats:
-76% of companies reported a decrease in sales
-45% reduced their staff
-76% reported a decrease in profit
-39% took on more debt.
-Employment in Canada dropped from 19.2 million in Feb. 2020 to 18.6 million in Dec. 2020. In simple math – this is a net 3.1% drop. But Canada went way down in the spring of 2020 to about 16.2 million or a drop of about 15% from Feb. 2020. While the memory of the spring hardship remains, it is important to acknowledge that Canada’s employment rates are improving.
-The U.S. overall took a slower approach to shutdowns (resulting in about 4 times as many infections per million people as compared to Canada) and consequently the U.S so far has recovered a bit more slowly. In fact, overall employment in Canada recovered up to 97% of the February 2020 level compared to 94% in the U.S.
– Manufacturing in Canada is fully recovered and all main sectors, except for Accommodation and Food Service, Information and Culture and Recreation, are at 90% or better compared to Feb. 2020.
-About a third of Canadians received financial support from the government. Interestingly though ‘Disposable Income’ (the amount you have to spend or save after deducting taxes) actually increased 11% between the first and second quarters of 2020.
-Retail sales have surpassed pre-Covid levels since June, 2020. Quite impressive in the circumstances.
Ontario –
– The Ontario unemployment rate at Dec. 31, 2020 was at 9.5% compared to the overall rate of 8.6% for Canada. About 10% worse off.
-Outside of hotels and restaurants, most sectors recovered well in Ontario, with overall 97% recovery.
—However, we know from our client base that other personal service businesses – while they have taken steps to adapt and to provide services in different ways – are still having a very challenging time.
Looking Ahead –
– Major economic growth is expected for 2021 in Canada, as the country tries to offset the 5.7% severe drop in 2020 with a recovery of 4.5% in growth of GDP in 2021. [This growth expectation is apparently one explanation for the overall positive impact on the TSX Composite index which at around 18,380 is at an all-time high – investors are expecting a big turnaround]. Good news.
– Government policies will continue to support the recovery –
-Employment Insurance Enhancement – At least $500 per week for up to 26 weeks until Sept. 2021.
– Canada Recovery Benefit – $500 a week for up to 26 week until Sept. 2021.
-Canada Emergency Wage Subsidy – Maximum subsidy of 75% between Dec. 2020 and Mar. 2021.
-Canada Emergency Rent Subsidy – Support until June 2021.
-The 2020 Ontario budget also announced:
– $1.3 billion over 3 years to reduce electricity costs for individuals and business.
-$180 million over 3 years to help workers retrain.
-$143 billion over 10 years to accelerate key infrastructure projects.
-The Bank of Canada base interest rate is just .25 percent. Good news for business is that overall, even if interest rates increase by 1% over the year (unlikely), rates will still be, historically, remarkably low.
– However, note that there will be increased unit costs for both agricultural (8%) and metal products (16%).
—Your competitors will also have to contend with these higher costs, so passing on price increases for your products should be carefully and seriously considered.
– With savings rates historically high, investment intentions in Ontario are also increasing.
Remote workers –
Most businesses plan on having some types of remote work arrangements after the Covid crisis for some or all workers.
– During the COVID era 83% of businesses are relying on remote working arrangements.
– Going forward, 15% of work arrangements will be “fully remote” and 44% of businesses will have “some remote”. Only 41% with have little or “no remote”.
– The BDC indicates that 18% of entrepreneurs believe their workspace needs will decrease in the future. Interesting factor in lease renewals.
—Therefore, you need to step back and consider if and how remote working can improve:
– Your company’s ability to innovate
– Employee productivity
– Employee motivation
– Your ability to attract employees
– Your overall corporate culture
At the ASE, we can help you review your overall systems and hiring approaches with these factors in mind.
Technology
40% of entrepreneurs will invest in technology in the next 3 years.
– To be more competitive
– To stay in business
– To reduce costs
– To expand
—Therefore, you need to consider how you will invest in technology to stay competitive.
Steps to increase on-line sales –
Retail e-commerce sales have dramatically increased every month, with $4.3 billion spent in Nov. 2020 compared to $1.7 billion in Jan. 2020. This is a 250% increase and is a wake-up call for all businesses to better understand their customers, to change and upgrade their internet presence and, more importantly, their company’s processes.
Further – half (50%) of young Canadians plan to spend more on-line in the next 6 months. Even the ’55 and older” types are expected to increase on-line purchases by 33%.
—Therefore you need to creatively think about –
– Improving your website and adding new features
– Being more active on social media
– Launching targeted promotional campaigns
– Increasing online advertising
– Interacting faster with online users and customers
NOTE – your stiffest competition certainly will.
Claude Bagley ASE, Mary Ruijs ASE