Presentation by Mark Hart to GS programme Cohort 13.

1. State of the Economy
Small Businesses and the Pandemic
Professor Mark Hart
Deputy Director, Enterprise Research Centre
Academic Lead, Goldman Sachs 10,000 Small Businesses
Programme

2. Overview
• The past months have seen the devastating impact of COVID-
19 on societies across the globe.
• An economic crisis resulting from a public health emergency is
uncharted territory!!
• As a consequence, national economies have severely suffered
in the short term.
• Even if a vaccine will emerge, it is unlikely that economic
activity will be organized in the same way as before.

3. Covid-19 Impact
• Decline in global aggregate demand and international trade leading to a
further decline in national income and output.
• Severe demand shock especially for service sectors like tourism, retail
sales, hospitality and mass transportation.
• Supply shocks which may impact supply chains at the national and global
level - supply chain disruptions and a temporary breakdown of local and
international trade and logistic services.
• All businesses will be impacted by the COVID-19 pandemic, most
negatively, some positively – contingent on size, sector and location.

4. Outlook for Rest of 2020
• OECD June 2020 assessment: http://www.oecd.org/economic-
outlook/june-2020
– Global recession – deeper if second major outbreak and a further
lockdown
– UK:
• Decline in GDP of 11.5% in 2020 – if no second wave – worst in the
world; decline of 14% if further outbreak – marginally behind
Spain, France and Italy
• Unemployment rises sharply – 3.9% to 9.7% (Q4 2020) – 14.8% if
further outbreak
• Slow recovery in 2021 with unemployment remaining high at 9%
• Bounce back in GDP in July by 6.6% but economy still ~12% smaller
than in Q1 2020

5. ONS Business Interruption Survey (BICS)
Wave 12 – published 10th September (n=5,318)
• 95% of firms surveyed still trading – 1% permanently closed and 4%
temporarily closed/paused trading in the 2-week survey period – equates
to around 100,000 businesses.
• 4% of those still trading expect to close business sites in next 3 months.
• 1 in 6 firms – operating costs exceeding turnover – 1 in 4 not sure!!! –
clear risk of insolvency.
• Arts, Entertainment and Recreation – greatest risks of substantial business
closure.
• Of businesses not permanently stopped trading, 36% of the workforce
were working remotely instead of at their normal place of work

6. COVID-19 and Turnover – ONS BICS
Percentage of businesses currently trading, broken down by industry, UK, 10 to 23 August 2020

7. Impact on Self-Employment
• The self-employed accounted for 15% of the UK workforce in
2019– just over 5m individuals.
• Estimated that 22% of self-employed (1.1m) in sectors most at
risk of loss of livelihood in this unprecedented crisis –
especially in older age groups.
• More than 40% of those who were self-employed in
January/February 2020 experienced a 100% drop in demand
of their services and products in the first month of the
lockdown
• SEISS only supporting 2.6m of the self-employed.

8. COVID-19 & Investment in R&D
• ERC Survey of Innovate UK Grant Holders:
– around 1:9 firms stopped all of their R&D activities during the lock-
down period.
– more worrying perhaps is that around 65% of firms reduced the scale
of their R&D activities during the lock-down period
– around a third of firms plan to reduce their investment in R&D by
more than half over the next three months.
• Not unexpected - following the financial crisis of 2008-10 UK
firms sharply reduced levels of R&D and innovation activity,
levels which only recovered fully 4-6 years after the end of the
crisis.

9. Recovery from Covid-19 Recession?
• Any recovery contingent upon a dynamic and innovative
private sector:
– larger firms with more significant financial resources may be better
able to survive shocks than SMEs – but sector specific – global airlines
and hotel chains!!
– SMEs more exposed to existential shocks or extreme events – degree
of resilience critical
– Failure of micro and small businesses will impact the normal
functioning of daily life
– Young small firms drive job creation and crucial to any recovery – but
how many will survive?
– Many businesses have their fastest periods of growth in the depths
of a recession – 1 in 5 in a recent study of the GFC.

10. UK Business Support
• Entrepreneurs need to be able to operate in a context that does not
further increase uncertainty - hence, clarity and consistency in terms of
regulations and incentives is crucial.
• Almost all entrepreneurs had to take some measures in order to cope with
the COVID-19 crisis.
• Relief programmes for business showed how important the initial help has
been for entrepreneurs to stay in business and for employees to keep their
jobs. (CBILS; BBLS; JRS; SEISS etc etc) – estimate of £110b – 50% of total
COVID-19 spend.
• However, public money flows are not without limit and after the summer
of 2020 most countries will have to cope with the new situation in a
different way.
• ….. in the hope that the initial months of direct relief have also allowed
businesses to adapt and innovate given the new context at hand.

11. What lies ahead?
• Having assessed the challenges entrepreneurs are facing across the globe,
their resilience and innovativeness are two features of entrepreneurs that
surface during crises.
• Also in the next months and in 2021, we will see new, or ‘pivoted’
entrepreneurial initiatives that may benefit the economy directly via new
job creation, or indirectly by means of introducing an innovation other
organizations can benefit from.
• It is up to policy makers to create a fertile ground that invites
entrepreneurs to innovate in such way that current societal challenges can
be addressed. – a focus on net zero targets as a condition of support?.

12. Contact us:
If you would like any more information about the ERC and any of its activities
please contact Professor Mark Hart (mark.hart@aston.ac.uk)
More details about the activities of the ERC and our latest events can be
found at:
www.enterpriseresearch.ac.uk