Lockdown Economy Oceania
3 Entrepreneurs: 1 small business; 2 micro businesses
Geography: Maidstone (Australia), Melbourne (Australia), Akaroa (New Zealand)
Timelines: November 2020 - February 2021
Sectors: restaurants, travel, real estate
Australia is known as the “nation of small businesses”. Nighty nine percent (99%) of organizations in the region are classified as MSMEs, equating to two million businesses, with 60% of them being sole operators. As a result, Australian economy strongly relies on MSME’s that acount for the third of the country's GDP.
According to the Australian Bureau of Statistics (ABS), 70% of all companies surveyed reported a drop in their revenue compared to 2019, and this is likely to be detrimental. The research is showing that Micro, Small and Medium-Sized enterprises MSMEs are twice as likely to experience a greater decline in revenue than large companies. A survey by ABS shows that around 60% of small businesses are more uncertain about the future and whether they should invest into their operations.
Research undertaken by Judo Bank, an Australian MSME-focused bank, estimates that MSME’s debt throughout the pandemic is at AUD$40 billion. It is likely that 8% of MSMEs will not be able to recover from these challenging times with over 160 thousand business closures across Australia. The Australian Central Bank backs this trend stating that sales made by MSMEs decreased by 15% in 2020. It is estimated that 2 out of 3 small businesses have been adversely disrupted.
The ASB also notes the lack of digital maturity among the Australian MSME. In 2019 only four out of ten small businesses had online presence. Furthermore, only 35% of businesses with fewer than four employees receive orders digitally.
The lack of digital maturity across the vast number of MSMEs has impacted sales during the COVID-19 pandemic. There are great levels of uncertainty among entrepreneurs far and wide. Australian states with higher MSME counts such as New South Wales, Queensland, and Victoria, record higher levels of distress as a result of COVID-19.
New Zealand also saw the adverse effects of COVID. Seventy one percent (71%) of small businesses across the region saw a decrease in revenue, and a further 39% said that they were struggling to survive. When asked about the possibility of another lockdown post the emergence of the delta variant, less than 30% of New Zealand MSMEs said that they could make it through.
The situation in New Zealand is likely to be exacerbated due to their lack of digital maturity, with MSMEs estimated to have lost 90-100% of their revenue. According to Yellow, 37% of SMEs did not have an online presence prior to the pandemic, with six out of ten small businesses relying on personal references for promotion and sales.
The large businesses in New Zealand tend to be much smaller than those abroad, however the MSME landscape differs little from Australia. Nighty nine percent (99%) of companies across the country are characterized as MSMEs totaling 530 thousand enterprises that contribute a quarter of New Zealand's GDP. Seventy percent (70%) of MSMEs are sole operators, and more than 70% are located in metropolitan regions and managed or built within a more modern and constantly changing dynamic. That said, 40% of MSMEs do not have an online presence, and for those who do, 50% require digital support.
Both Australia and New Zealand are known worldwide for ease of doing business and agility in starting companies. The high count and density of MSMEs have won them a title of “small business nations”, with both countries' prosperity, long-term sustainability, and GDP health relying heavily on MSMEs success and growth.
However, the lack of digital maturity and online sophistication in the SME sector has meant the implications of COVID were magnified, with both of the Oceania countries severely impacted.
The response of local governments to the impact of COVID-19
Given the importance of MSME to the national economy, the government has had to act quickly and broadly to ensure that the country could survive the COVID-19 crisis.
Australia established several billion-dollar support programs and packages designed to keep jobs with wage subsidies, guarantee new loans for MSMEs, and also changed bankruptcy law to improve the environment. In addition, banks rallied together to pause loan repayments. Internet providers started to guarantee free services for eligible MSMEs.
New Zealand followed suit, implementing tax cuts and wage subsidies, as well as legislative changes, such as the mandatory arbitration between landowners and MSMEs when tenants are unable to pay rent due to COVID-19. The government's decision to lend money to MSMEs was also a significant gesture to support them.
Key needs among MSMEs in Oceania
Through its initaitive Lockdown Economy, Think Tank AlterContacts interviewed a number of entrepreneurs from Oceania about the impacts of COVID-19. All respondents were small entrepreneurs from different fields of activity, and were directly impacted by the pandemic.
The interviews backed up the aforementioned data and trends, showing that digital strategies and implementation remain a significant challenge for MSMEs in Oceania.They mentioned that “increasing digital presence” has become a necessity since the pandemic. However, the entrepreneurs believed that they need to improve digital skills.
Another important issue highlighted in the interviews was the connection between MSMEs and local communities. That confirms the research findings that MSMEs often rely on personal references to promote their business. The community will play a great role in supporting MSMEs throughout the pandemic and post-recovery.
How should the government act?
One of the most important needs that was identified between interviews and surveyed data was the difficulty of MSMEs to have a digital presence or improve their digital skills. In that light, the development of a digital support program for MSMEs is essential.
Local governments should look to collaborate with local universities and develop a training program for MSMEs, with a focus on increasing sales and delivering services digitally. The training should be provided on an ongoing basis whereby university students could act as volunteer-consultants in specific areas. This concept helps support MSMEs to grow and upskill, while also providing students with valuable real-life learning opportunities.
Communities need to be involved in the construction of public policies aimed at MSMEs. The majority of residents and the key source of vital information to inform change are self-employed professionals. Governments can improve their participation through digital consultation mechanisms, such as online applications and forms, asking how they can help with training or even specific issues of local infrastructure.
The impacts of COVID-19 are strong on many MSMEs, but the biggest countries in Oceania have already shown that they are resilient enough to survive. A digital education program for MSMEs and improved community participation in public policy decisions will help them recover from the pandemic. Australia and New Zealand show the world the strength of small entrepreneurs and their importance in the post-pandemic world.
Written by Alan Patrick Cavalcante da Silveira
Edited by Kate Wellard
Editor-in-Chief - Julia Skupchenko
Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Australia in a Cafe with E-Gene Soh. Available at https://www.youtube.com/watch?v=UuhP4ly6dZY .
Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Australia in Property Investment with Uwe Jacobs. Available at https://www.youtube.com/watch?v=tQXEpouRdB0 .
Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy New Zealand in a Tour Company with Marie Haley. Available at https://www.youtube.com/watch?v=qfRXIKwEU94 .
Reserve Bank of Australia, The COVID-19 Outbreak and Access to Small Business Finance, Available at https://www.rba.gov.au/publications/bulletin/2020/sep/pdf/the-covid-19-outbreak-and -access-to-small-business-finance.pdf
Bankwest curtin economics centre, Back in Business? WA smal businesses and the impact of COVID-19, Available at https://bcec.edu.au/assets/2021/02/BCEC-Back-in-Business-WA-Report-2021-WEB.pdf
Financial Review, COVID-19 could kill 160,000 small businesses in Australia: Judo Bank, Available at https://www.afr.com/companies/financial-services/covid-could-kill-160-000-small-businesses-in -australia-judo-bank-20201012-p564a6
OECD, One year of SME and entrepreneurship policy responses to COVID-19: Lessons learned to “buil back better”, Available at https://www.oecd.org/coronavirus/policy-responses/one-year-of-sme- and-entrepreneurship-policy-responses-to-covid-19-lessons-learned-to-build-back-better-9a230220/
NZ Herald, COVID-19: Half of small business fear pressor of lockdown, MYOB survey, available at https://www.nzherald.co.nz/business/covid-19-coronavirus-half-of-small-business-fear -pressure-of-lockdown-myob-survey/EL5T2TZXCEGUTA4LJAPB7ZJ2BU/
Yellow, New Zealand's Small Business Nation 2020, Avalable at https://f.hubspotusercontent10.net/hubfs/5250769/Yellow%20-%20NZ%20Small%20Business%20Nation%20Report%202020.pdf
Stats NZ, New Zealand business demography statistics: At february 2020, Available at https://www.stats.govt.nz/information-releases/new-zealand-business-demography-statistics-at-february-2020
In 2020 Think Tank AlterContacts launched the Lockdown Economy, an international non-profit grassroots social-economic and educational initiative to help small businesses and self-employed professionals overcome the challenges of the pandemic and reactivate the economy. It is registered by the United Nations as an Acceleration Action for SDG. From May 2020 until July 2021 we have been collecting insights from small business owners and self-employed professionals from different business sectors and countries to see how the COVID-19 pandemic affected their business, their life, and future. This article is based on the field research of the Lockdown Economy.