Current Business Outlook
and the impacts of COVID 19

November 27, 2021 9:20 pm | Posted in Features | Share now TwitterFacebook

The Vanuatu Chamber of Commerce and Industry (VCCI) has published a research report on the impacts of
COVID-19 on business. This research report was a follow up on the one that was conducted in 2020 and
was conducted through a series of qualitative interviews with a number of businesses throughout Vanuatu. A
cross section of 103 businesses from fifteen subsectors of the economy under the Agriculture, Industry and
Services sectors were analyzed. It comprised of small enterprises to large employers with more than 125
staff.
The Vanuatu Government is well aware of the contraction of the economy during the pandemic. The Economic data that has come out

from the half yearly Economic and Fiscal reports suggests that whilst there is real economic pain, it has been
able to get through these troubling times less affected than other countries in the Pacific. This has largely been
due to the revenues the country has been able to obtain through the VDSP and VCP programs. These programs
now contribute more to government revenues than VAT and has enabled the Government to implement 2 Economic
Stimulus packages, fast tracked major infrastructure projects whilst at the same time operate surpluses.

The key findings of the report:
The Majority of businesses interviewed reported that turnover remains consistently down.

This is highlighted by the VAT amounts that were reported in the Half Yearly Economic update which showed
that VAT collections for the period of January to June 2021 were 9.5% below 2020 levels and 17% below those of
2019 (pre COVID-19) levels. The fall in VAT collections by the government reflects the downward trend of demand
consumption in the country, despite government support through a second economic stimulus package and higher
remittances from seasonal workers.

There are large increases in the cost and difficulty of doing business

Due to the Global supply chain crisis, the delays in ship arrivals and longer shipping cycles have affected business logistics. Freight costs have increased dramatically which have then been passed on to the landed costs of imported goods. There have been reports of continued intermittent shortages of imported items like flour, onions, basic construction materials, cement and spare parts for motor vehicle. Along with the inflationary effects, these have had a serious impact on how businesses have been able to operate.

Some businesses have absorbed the cost increases while others have tried to pass on the costs. A staple in the construction industry is cement. The increased freight costs

have affected the price of cement which has increased from approximately VT900 per bag to VT1600 per bag. In addition to the price increases, the recent shortage of cement created delays in construction jobs. The Global price of fuel has increased approximately 50% since January which has impacted the price of fuel at the pump with increases of approximately 20%. UNELCO’s base rate has increased by 28% since January and VUI has increased 18%. The price of a batard bread loaf has increased from VT60 to VT70 at some bakeries.
There remains a high risk of imported inflation for the wider economy.

Merchandise Exports have Fluctuated with varied results

Due to a combination of lower international demand and the global shipping problems, overall exports in 2020 were 11% lower than in 2019. There are mixed results in 2021 as compared to 2020 with exports in the first Quarter of 2021 the lowest recorded since 2010. Conversely, assisted with a large increase in copra exports of 268%, exports in the second Quarter of 2021 were higher than any level since 2017. Kava exports fell during the 1st and 2nd Quarters but overall, exports in the first half of 2021 was at the same level as the first half of 2019

Microbusinesses have reported sharp falls in income

The feedback from the larger businesses have been varied. Unsurprisingly the smaller the business or the more dependent it was on international tourism, the more likely the business reported being at risk of not surviving the economic crisis. Despite the issues with global supply chains and cost increases, the industry sector which includes construction appears to be well positioned to cope with the economic crisis with large government infrastructure projects currently being rolled out and planned for 2022.

Micro businesses such as handicraft vendors and market mamas have been seriously affected. This group without exception reported large falls in income of at least 50% compared to before COVID and remain extremely vulnerable to increases in the costs of living. Within the rural areas, there has been widespread variation in the economic impacts of COVID depending upon the specific economic characteristics of each community. Those dependent upon tourism have experienced large falls.

More variations in the situations of the larger more formal businesses within Port Vila

The feedback from the larger businesses have been varied. Unsurprisingly the smaller the business or the more dependent it was on international tourism, the more likely the business reported being at risk of not surviving the economic crisis. Despite the issues with global supply chains and cost increases, the industry sector which includes construction appears to be well positioned to cope with the economic crisis with large government infrastructure projects currently being rolled out and planned for 2022.
A positive note is that businesses have become much more use to the situation that confronted them than the same period last year and many have restructured and adapted to the crisis either through cost restructuring, reduced working hours for staff, not replacing those staff that have left and refinancing bank debt to improve working capital positions. Confidence however remains low.

Mixed attitudes on the Economic Stimulus Package

In 2020, the government implemented the first economic stimulus. It provided a range of subsidies, waivers of license fees and other measures to assist the economy. The first round of the ESP mainly targeted the Tourism and hospitality sectors with the main component of the package the Wage Subsidy. The wage subsidy was able to buy some time for those in the Tourism sector to restructure and adapt to the situation they faced. In 2021, a second Economic stimulus was implemented.
It involved 2 parts. A small business Grant of VT15,000 per month for small businesses with a turnover of less than VT4m and a wage subsidy to the larger employers. The wage subsidy was 15,000 per employee over a period of 8 months and to qualify, the criteria was that businesses needed to demonstrate a 30% fall in revenue for the 4th Quarter of 2020 compared to It also needed to hold a business license and be completely up to date with its VNPF contributions which would be used to verify payments.

The take-up of the second wage subsidy has been low. In the report 58% stated that the WSS did not make much difference to their position. The interpretation of this could have been viewed from two perspectives. A lot of businesses have restructured and have now been operating in such a way that the subsidy would not make much
difference, or that these businesses have since closed and there was no point in employing additional staff just
to receive a wages subsidy. In addition to this was that cashflow problems had meant that a lot of businesses had not
paid VNPF and were therefore ineligible to receive the subsidy.
There has been criticism of the design of the Wage Subsidy and the set criteria for businesses to qualify as some businesses experienced falls in revenue but just failed to meet the stress test. It has been argued that
these businesses are the ones most likely to maintain employment of staff, be up to date with their VNPF, have
the support of their banks and have a greater chance of coming out of the economic crisis stronger than those
businesses who have basically closed.

Due to the poor uptake of the Wage Subsidy, the government announced recently that it would revise the criteria
for other businesses to qualify and this was to include data from the 3rd Quarter of 2020 as compared to 2019.
A further 83 businesses qualified.
Some businesses have since received their first payments of the Wage Subsidy. Further payments are still being processed.

In its Key findings,

“ the report concludes that there is an extremely high level of uncertainty within the business community, caused
by a raft of internal and external factors. The lack of a clear roadmap from Government out of the current border
closure scenario was a commonly reported contributor to this uncertainty. Businesses were united in their desire
to see an accelerated vaccination program rolled out nationally as laying the foundation for economic recovery.
Overall, the risk level of further negative economic shocks remains exceedingly elevated. There are a
number of contributing factors to this, including but not limited to: Vanuatu’s low level of preparedness for COVID
(vaccination rates, public health readiness, business preparedness), when COVID will come to Vanuatu,
when borders are able to re-open to tourism”