Bubble or go bust: survey says businesses burning through cash

Tuesday 24 November 2020 | Written by Katrina Lintonbon | Published in Economy, National

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Bubble or go bust: survey says businesses burning through cash
(PHOTO: CI NEWS) 18100259

A new Private Sector Taskforce report reveals the stark reality of what the future looks like for many businesses in the Cook Islands if the country’s border remains closed.

Since March this year, the Taskforce has undertaken a number of surveys within the private sector to gauge how the coronavirus pandemic has directly or indirectly affected their businesses.

Forty companies responded to the Taskforce’s latest survey and out of those, 85-90 per cent say they are worse off because of border closure and are continuing to spend large amounts of capital or have taken out loans to continue to operate in a hibernated environment.

A further 45 verbally shared the extent of their continued losses but didn’t commit to participating in the survey because of confidentiality issues.

Some simply cannot borrow anymore and have no way of obtaining the necessary cash. Others have had to cancel their insurance or significantly reduce their cover.

Fletcher Melvin, the chair of Private Sector Taskforce, said the focus has been to canvas the businesses that are receiving assistance and to gauge where they are financially in comparison to the same period last year.

“The fact is that without the subsidies most businesses would not be open or would not have been able to retain their employees,” Melvin said.

“However, some businesses are still unable to maintain their operations due to ongoing debt servicing and have had to make major cutbacks to operations.”

Melvin said there have been so many times where they thought there would be a bubble established and then it hasn’t happened so people have hung on to another date.

“Each time there is even less certainty and the investors who are using their own security are now not willing to further risk their savings and will start to make drastic decisions. Some are now having to make longer term plans due to the fact that nothing has changed.”

As part of their recommendations, the taskforce says that consideration be given to one-off grants, covering up to three month’s cash losses to approved businesses who were known to be profitable and compliant pre-Covid 19. This should be means tested.

While Prime Minister Mark Brown’s recent wage subsidy extension announcement is welcomed news, the Taskforce believes if the borders are opened in the first quarter of 2021, a continuation of the wage subsidy will be necessary as businesses will need to spend what income they’re receiving on stocks and supplies and will need to build up operating capital again.

Fletcher Melvin said the government has been receptive to all of the Taskforce’s “white papers” as they represent the private sector’s concerns and this has informed them and helped in developing the Economic Response Plans.

“We will be meeting with the Secretary of Finance and his team this week to further discuss the content of our paper,” Melvin said.

“We have ensured that all of our reports are fact-based and we also support the health protocols, hence why we have supported and helped roll out the CookSafe programme.”

Tourism Industry Council president Liana Scott said it is important that businesses have an idea of what cash is required to keep a business in hibernation, that is a state where a tourism operator or accommodator is ready to open at a moment’s notice.

  “This information is not only useful to the industry members, but also to government, particularly for its desire to have businesses ready to operate and stimulate the economy,” she said.

“The bottom line is being in a state of hibernation is a costly exercise. Operational costs still exist and need to be met.”

Melvin said he believes that if the Cook Islands can open a bubble with New Zealand then the country will be in a unique position to make the most of its Covid-free status and get travellers from there, who have nowhere else to go in the short term, to come here.

“The issue longer term is whether travel will resume at the scale it was before and there is an indication that Europe and the US will take a long time to recover,” he said.

“However, we may experience a lot more regional tourism, which will start with a bubble and then expand once the vaccine is readily available.

“I am optimistic that we may get back to pre-Covid economic numbers but maybe doing a mix of long and short-stay tourism, plus a range of different businesses outside of tourism.”