Businesses laid off a quarter of employees, trimmed 18 percent pay during the lockdown, survey saysThe survey showed that half of the companies’ business is financed by debt and as a result, they were unable to pay their employees as their cash flow dried up.
The four-month-long lockdown imposed by the government to prevent the spread of Covid-19 pandemic forced 61 percent of businesses to close down completely, causing a dire effect on the economy by rendering tens of thousands of people jobless and disrupting the production and supply chain, according to a survey released on Wednesday.
Businesses laid off one-fourth of their employees during the lockdown period that lasted for four months.
The survey conducted by the central bank—Nepal Rastra Bank—shows that only 35 percent of businesses operated partially while 4 percent operated fully during the lockdown period. The small and medium scale enterprises and early-stage startups were badly hit, according to the survey titled: The Effect of Covid-19 in Nepal’s Economy, which was prepared particularly for the monetary policy for this fiscal year.
Nepal imposed a complete lockdown on March 24 to contain the spread of coronavirus. The nationwide lockdown was lifted on July 21.
The three-week-long online survey started on June 8 and covered 52 districts involving 674 industries, business entrepreneurs and startups, according to the central bank.
The survey shows that 22.5 percent of employees were laid off by businesses—that includes manufacturing and service sectors. Two-thirds of laid-off employees were either working on a contract basis or were hired temporarily.
The hotel and restaurant industry appears to have laid off most of its employees during the lockdown period, followed by small and medium scale enterprises.
According to the survey, hotels and restaurants, which saw almost zero visitors since the lockdown, laid off 40 percent of employees. The small and medium scale enterprises laid off 30.5 percent of their employees. The educational institutions laid off 5.6 percent of employees—which the survey said was the lowest by the sector.
On average, industries and businesses trimmed 18.2 percent off their payroll, with hotels and restaurants coming in the forefront, followed by transport entrepreneurs and educational institutions. However, the average pay cut by the large business enterprises was 22.5 percent as compared to 13.6 percent by the medium enterprises.
According to the survey, hotels and restaurants cut employees’ salaries by 36.4 percent while transport entrepreneurs cut 31.2 percent. The educational institutions cut 21.1 percent of their employees’ salaries while the health and social sector cut the lowest 5.4 percent of their employees’ pay.
From the survey, 96.7 percent of business firms responded that they saw their business transactions or production falling by 73.8 percent as compared to a normal time. However, 0.9 percent of business firms said that their production and sales levels rose by 15.4 percent.
The respondents of the survey said that it would take at least nine months for most businesses to normalise. The survey painted a bleak picture for hotels and restaurants as they have been hit hard by the Covid-19 pandemic with respondents saying it would take at least 13 months for the industry to recover.
While 82.3 percent of industry and business firms decided to continue their business after the lockdown, several have decided to switch to other areas or close their business permanently.
The survey says that 77.2 percent of business firms did not have enough cash flow to pay employees’ wages and salaries, rental fees and bank’s loan interest and instalment. Around 80 percent of business firms said they would take loans from banks and financial institutions to run their businesses.
The survey showed that the average debt-to-capital ratio of companies and industries in Nepal stands at 48.7 percent or half of the businesses of the companies are financed by debt. This ratio is also known as financial leverage.
“The higher the debt-to-capital ratio, the riskier the company is. In this context, as per the survey, it shows that most of the companies in Nepal are funded by debt rather than equity, which means a higher liability to repay the debt and a greater risk of forfeiture on the loan if the debt cannot be paid on time,” said Gunakar Bhatta, spokesperson for Nepal Rastra Bank.
“They need to go for share capital to absorb the financial shock in the future. This will also ensure their sustainability,” he said, adding that the Covid-19 pandemic showed that most companies were unable to pay their employees within a few months of the lockdown. “If companies can manage to boost their equity ratio, it will ease the burden to borrow loans.”
The survey said that most of the companies were planning to take out loans, cut employees' pay to reduce the company expenditure and find a new strategic investment partner after the lockdown is lifted.
- The survey shows that 22.5 percent of employees were laid off by businesses
- The hotel and restaurant sector laid off 40 percent of employees, followed by small and medium scale enterprises which laid off 30.5 percent of employees
- Businesses trimmed 18.2 percent of employee payroll on average
- The average pay cut by big businesses was 22.5 percent, against 13.6 percent cut by medium businesses
- Hotels and restaurants cut their employees’ salaries by 36.4 percent, followed by transport entrepreneurs 31.2 percent and the educational institutions by 21.1 percent
- The respondents of the survey said that it would take at least nine months for businesses to normalise, while for hotels and restaurants, it will take at least 13 months
- More than 82 percent of businesses decided to continue their business after the lockdown
- More than 77 percent of business firms did not have enough cash flow to pay employee salaries, rental fee and bank’s loan interest
- The average debt-to-capital ratio of businesses in Nepal stands at 48.7 percent
- Most of the companies plan to take out loans, reduce employees' pay to reduce the company expenditure