Save the Restaurant Industry – BusinessWorld Online

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The past 18 months have been a “trial by fire” for the local restaurant industry. As the government imposed the longest and strictest lockdown in the world, restaurateurs found themselves with a mountain of obligations without the sales to sustain them. Those with sufficient cash reserves were able to survive the onslaught, but the thousands of tracks without sufficient cash had no choice but to close permanently. Along with business closures, hundreds of thousands of jobs have been lost.

One of my businesses is a restaurant chain, so I am well aware of the impact of lockdowns on the industry. Luckily, our group has enough scale to survive the lockdown, but of course not without racking up massive casualties like everyone else. However, we consider ourselves lucky to still be in business. We have seen too many of our industry colleagues succumb to insolvency over the past year.

The tragedy is that the government assumes (or would like to think) that take-out sales are enough to keep restaurants alive. This is a great misuse of language. The truth is, take-out sales represent less than 10% of gross sales for most types of restaurants. Therefore, prohibiting or limiting restaurant capacity by 50% or more automatically exposes a restaurant to losses.

This year, strict lockdowns were lifted on Metro Manila and Calabarzon in March and April, and again this month. The current ECQ (the strictest level of quarantine, improves community quarantine) came just as restaurants were beginning to recover. It wiped out any excess cash collected in May, June and July. Most restaurants are back in negative territory.

The government’s hit and miss and start and stop policies of contagion containment have done more damage to the food and drink industry than it realizes. Let us not forget that the Philippine economy is consumer driven, the largest sector of which is food consumption.

There is clearly a lack of balance between containing contagion and protecting the interests of the food industry and micro, small and medium-sized enterprises (MSMEs) as a whole. Business people agree that the government has been too liberal in declaring closures without paying much attention to the plight of MSMEs. We think the IATF (Inter-Agency Task Force for the Management of Emerging Infectious Diseases) gives too much credit to the OCTA research group, which many agree is alarmist. It would do the IATF good to listen to business groups and give their voice the attention it deserves.

The situation would be different if the government provided direct cash grants to MSMEs each time it declared a lockdown as other countries do. What is really happening is that MSMEs have to survive on their own. Of course, loan facilities are available through Small Business Corp. from the government, but the maximum loanable amount is only 5 million pesos and the processing time can take up to three months, if one is lucky. It’s too long to wait given that closures are declared with only one day’s notice. What exacerbates matters is that parts of the Bayanihan II funds allocated to MSMEs in heavily affected sectors (F&B and tourism) have yet to be fully distributed.

The plight of MSMEs is made worse by private banks. Despite the government’s call for banks to be more liberal in granting new loans and restructuring existing credit facilities to MSMEs, private banks are in fact doing the opposite. They are calling in loans even when they are not due, accelerating payment schedules, demanding more collateral and canceling existing lines of credit. Banks are trying to hedge their risk in what is now a high risk industry. Their actions only trigger more closures of MSMEs. The Central Bank will do some good by reviewing the banks’ MSME portfolio.

There are 1.05 million business establishments operating in the Philippines, of which 996,000 are MSMEs. Of this number, the vast majority are involved in the food trade. While we understand that government must balance health concerns with commercial interests, we urge authorities to place more weight on the survival of MSMEs. The sector is at its breaking point.

That said, we hope the government will consider the following recommendations. First, if possible, do not extend the lockdown beyond August 20. And in the future, report lockdowns only as a last resort.

If closures are a bitter pill we have to swallow, the government must at least provide a compensatory mechanism to beleaguered MSMEs. Direct cash injections, tax exemptions and exemption from tax audits for 2020 and 2021 are relevant forms of support. In addition, sufficient time must be allowed between the announcement and the effective dates of the closures. This is to allow food establishments to consume their perishable foodstuffs.

Enabling 50% higher dine-in capacity during MECQ and GCQ (the second and third levels of quarantine) will provide food establishments with the volume they need to recover.

The restaurant industry must fight its way to survival until we achieve herd immunity. It’s the sad truth. Until then, only the government can provide the support the industry needs.

Andrew J. Masigan is an economist

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Facebook@AndrewJ. Masigan

Twitter @aj_masigan


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Cecil N. Messick