Ideas

June 17, 2020

Are we out of the woods yet? Latest research from the Business Council of Alberta and Viewpoint Research says no.

Since COVID-19 hit, we have all become information hungry. Now the lingering question on everyone’s mind: is the worst behind us?

To get information in real-time for Alberta, the Business Council of Alberta, in partnership with Viewpoint Research, conducted a survey of the CEOs of leading Alberta businesses to gauge the impact of the COVID-19 shutdown and the oil price collapse and the outlook for the future. In total, 61 CEOs responded: 37% representing small businesses (<100 employees); 22% medium (100 – 499); and 42% large (500+), spanning a wide range industries.

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The immediate hit to business

Few Alberta businesses are unscathed – 90% have experienced a decline or total evaporation of revenue since the crisis. As a result of depressed sales coupled with new protocols and evolving restrictions, businesses have had to adapt – fast – to survive. They have responded by cutting costs wherever they can: cancelling or deferring capital projects (64%); contracts or tenders (52%); and marketing projects (41%). They have also had to cut their labour costs by laying off employees (61%), reducing staff hours (44%), and/or cutting worker pay (54%).

Beyond cutting costs, some are also rethinking their business model and product offerings. Business innovation and ingenuity have gone from a proactive approach to meeting future needs to an essential principle for survival. For instance, many businesses responded to the crises by introducing or increasing online operations (43%), while some introduced a new product or service (25%).

Step 2: Government support

Additionally, 72% of businesses have taken advantage of at least one of the federal government’s programs. Nearly 66% of our respondents reported that they are using the Canada Emergency Wage Subsidy (CEWS) or have used it for at least one month since March. This program has strict eligibility criteria coupled with generous benefits – it requires a business to have experienced a 30% decline in revenue to qualify and pays 75% of an employee’s wages, up to $847 per employee per week. CEWS is effectively the federal government’s flagship business support program. Though the government initially reported it to be underutilized relative to expectations, our survey indicates that uptake is, in fact, generally high. This finding suggests that job losses in the absence of this program could have been substantially higher than they have been to date.

But has the government done enough? Thirty-four percent of our respondents anticipate they will need continued or additional government support beyond what is presently available while another 11% are still unsure. When asked about government actions to date, over half (63%) of respondents gave the provincial government a score of four or five (out of five), whereas only about a third (34%) of respondents rated the federal government’s response as a four or higher. Though Alberta businesses seem happier with the provincial response to the crisis than with the federal response, this could be in part because of different expectations. A national crisis demands a national response and the federal government has both the responsibility and the fiscal firepower to act. Higher expectations of Ottawa likely figure into these results.

Step 3: Longer-term implications

The worst may not be behind us. Several of our findings point to longer-term implications for Alberta. A few areas, if unaddressed, could mean a long road to recovery.

Some statistics are especially troubling. First, the number of businesses that cut their capital (64%) and R&D (23%) budgets could have ramifications in the recovery phase. These types of spending are essentially investments in the future and thus serve as a leading indicator of business and economic growth.

In addition, most businesses (74%) expect a slow return to normal demand levels. A few even expect demand to slow down further before picking up. Not only does this mean that businesses will not resume pre-crisis activity for a while, but it also has concerning implications for workers. Of the businesses that laid-off employees, 31% expect to refill only a portion of those lost positions, 18% expect that lost positions will not be refilled at all, and 13% expect to make additional layoffs. And many of these initial layoffs were not insignificant: 24% have laid off a quarter or more of their workforce while 11% have laid off more than half.

The abrupt end to the CEWS program on August 29th is likely a confounding factor in businesses’ employment decisions and their ability to keep workers on the payroll beyond the summer months. Some employees who have held on to their jobs so far may lose them once the wage subsidy expires. To be sure, employment decisions are not being made lightly, as business survival is anything but guaranteed – about 1 in 4 of our respondents (26%) are unsure their business will survive the crisis.

A lot of this uncertainty goes beyond COVID-19. The number one barrier to resuming normal operations in Alberta was the continued impact of low oil prices on the provincial economy. And it wasn’t just energy producers who said that. Nearly 70% of non-energy businesses agreed. The second most important barrier is related to the first: the weak global economy and the anticipated impact on foreign demand for Alberta’s export products. Nearly 60% of survey respondents shared that concern.

Businesses in our survey clearly see a continued need for government support; specifically, businesses think the government’s top priority should be to stimulate demand. On a broad scale, the government can do this by building consumer confidence – by creating and enforcing sound policies around health and safety. Until businesses reach pre-crisis levels of revenue and employment, the government will also need to aid the transition of many unemployed individuals to new work or job training opportunities.

Our survey indicates relaunch is not synonymous with recovery and, in some ways, the worst might not be behind us. Now is not the time to breathe a sigh of relief – now is the time for the federal and provincial government to take a proactive approach by building consumer confidence and supporting unemployed individuals, to strengthen what could otherwise be a very slow, prolonged recovery.

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