A survey commissioned by the Puerto Rico Chamber of Commerce (PRCC) has revealed that the top recurring concern for businesses owners is the island’s fragile economy, not the coronavirus (COVID-19) pandemic.
The PRCC - a private entity whose associates represent the island’s commercial sector - recently hosted a forum where Estudios Técnicos presented its Entrepreneur Confidence Index, based on a survey conducted between Oct. 13 to 30 this year, with 150 local business owners.
Of these, 28.7 percent are in the Service industry, 24.7 percent in Health, 8.7 percent in Finances, 6.7 percent in Wholesale Trade, 4 percent in Real Estate, 4 percent in Communications, 3.3 percent in Manufacturing, 2.7 percent in Insurance, 2.7 percent in Transportation and 5.3 percent classified as “Others,” including Construction, Agriculture, Hotels and Inns, Restaurants, Education and Government.
Among the key revelations, 54.7 percent of businessowners said that the current economic scenario is their biggest obstacle. The second most recurring concern was taxes, with 51.3 percent, followed by government bureaucracy with 37.3 percent. Other areas of concern include energy costs (36 percent), restrictions over the pandemic (29.3 percent) and labor force shortage (20 percent).
On the latter, José Villamil, chairman of the Board of Estudios Técnicos and a former president of the PRCC, commented that the concerns on a labor force shortage seems at odds with the high number of unemployed workers on the island. “It’s interesting because when you analyze the numbers of the labor market, more than 100,000 jobs have been lost and over 350,000 people have applied for unemployment benefits. That is, it is curious that there is a lack of workforce in an environment like that,” he said.
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According to Economic Development and Commerce Secretary Manuel Laboy, the number of job losses on the island is around 70,000.
To boot, 43.3 percent of participants informed that their businesses had been closed in the six months prior to the survey; i.e., since COVID-19 was detected on the island. Of these, the average time closed was 100 days, with the highest being 240 days since the government began enforcing restrictions in March under executive orders to mitigate the coronavirus outbreak in Puerto Rico.
Moreover, 84.7 percent affirmed that Puerto Rico is experiencing a severe economic depression. “Business owners were asked if the economy was under a recession, and it is no surprise that roughly 85 percent said yes… In fact, this responds to a reality that the economic projections for 2020 reflect a contraction,” Villamil said. A lower 14.7 percent answered ‘No’ and 0.7 percent were unsure.
Small Businesses Most Affected
While discussing the survey’s findings, Villamil warned that the numbers must be dissected by a company’s size, provided that small businesses would face different challenges than larger enterprises. For example, in terms of government bureaucracy, 45 percent of businesses with fewer than 20 employees listed it as a primary concern, compared to 24 percent of companies with 20 or more workers. By contrast, 46 percent of companies with 20 or more employees listed energy rates as a major challenge, compared to 30 percent of small businesses.
“In Puerto Rico we have to be very clear that we cannot operate with averages; we must go further into detail on, for example, company size in this case. In other cases, for instance, in terms of average consumption and that type of thing, the reality is that Puerto Rico, despite being so small… is very heterogeneous,” Villamil said.
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Relative to size, small businesses disclosed more negative behavior overall throughout the pandemic. Although these have been able to retain more staff by a slight margin, larger companies reported better performance in consumer demand and sales.
On employment, 7 percent of small businesses said that they had increased their staff, 63 percent said they had the same number of workers and 30 percent said that their workforce had been reduced, compared to 13 percent, 63 percent and 30 percent of larger enterprises, respectively.
But regarding consumer demand, 16 percent of small businesses said it had improved, 47 percent said it was normal corresponding to the season and 38 percent said it was below the normal level; larger companies responded 19 percent, 50 percent and 31 percent in those respective categories. Meanwhile, 16 percent, 47 percent and 38 percent of small businesses reported more sales in the six months leading to the survey, the same number of sales and a lower sales number, respectively. In these same categories, larger businesses responded: growth, 30 percent; no changes, 33 percent, and fewer sales with 37 percent.
Although multiple economists from Puerto Rico and the U.S. mainland share a positive economic outlook for 2021, mainly due to the prospect of mass vaccination, most participants had an austere or pessimistic projections for the next 12 months.
In general terms, 38.7 percent of business owners indicated that the economy would be worse, 34.7 percent surmised that it would remain the same and 23.3 percent said that it would improve.
Breaking down those averages by company size, 26 percent, 34 percent, and 40 percent of small businesses believe that Puerto Rico’s economy will improve, remain the same or worsen, respectively. Larger companies have more bleak projections: 21 percent think the economy will improve, 34 percent believe it will remain the same and 40 percent affirmed that it would get worse.
Asked what they expect for their business sales to be in the six months after the survey was held, 41 percent of small companies and 52 percent of larger businesses project that they will have greater sales, 45 percent total; 50 percent of small businesses and 37 percent of larger enterprises estimate that their sales would remain the same, 45 percent total; and 9 percent of small businesses and 11 percent of larger enterprises said they would drop.
Lastly, when asked if they would expand their operations in the six months after the survey, 72.7 percent of all participants said no, 25.3 percent said yes and 2 percent are unsure or did not respond.