Annotation. The study explores theimpact of the COVID-19 crisis on the business activity in the selected municipalities in Georgia. The results of the study show that most of the enterprises in the sample have been severely affected by the crisis. Based on the findings of the study and international experience, a set of policy recommendations that aims to help businesses in selected municipalities to cope with the crisis has been formulated. 

The outbreak of COVID-19 disease along with its impact on public health has caused a severe economic shock for global as well as for Georgian economy. In this context a special interest represents understanding of the consequences of this crisis for Georgian businesses. Specifically, how resilient are local business and how do they adjust to the economic disturbances caused by the crisis? What factors determine the resilience of company to the crisis? Which businesses are disadvantageous, and which of them have got advantage as result of the shock? What are their expectations about the longevity of the crisis and their approaches to cope with its consequences? Understanding of these issues could substantially facilitate elaboration of sound policies and programs focused on supporting sustainability of local businesses and enhancing economic situation in Georgia on the whole.

The enterprise survey conducted[2] by the independent research organization IPM Market Intelligence Caucasus in selected municipalities (Akhalkalaki, Borjomi, Dedoplistskaro, Kazbegi, Keda, Khulo, Lagodekhi and Tetritskaro) was aimed exactly at revealing the impact of COVID-19 crisis on business activity in these selected settlements.

The results of the study show that most of the enterprises in the sample have been severely affected by the crisis. More than half of companies in the sample stopped their operations completely or operated at a significantly reduced mode of operation. The study reveals substantial decrease in revenues and orders. Caused by lowered demand level, the reduced volume of orders led to a subsequent drop in company’s revenues.

There are striking differences in evaluations of the COVID-19 crisis impact on the businesses across municipalities and sectors. Across municipalities, the most severe impact experienced businesses located in Kazbegi, Akhalkalaki and Borjomi municipalities, while the least proportion of entrepreneurs that reported on the serious impact of the crisis are in Dedoplistskaro and Lagodekhi municipalities. Amongst the industries, Accommodation sector experienced the most serious negative influence of the crisis.

The same time the impact of the crisis on the workforce seems to be less severe, as companies show less flexibility in reduction of their workforce. The most frequent approaches applied by companies in dealing with workforce issue were the following: reduced number of temporary workers, followed by laid off permanent workers, reduced working hours, asking workers to take unpaid leave and asking workers to take paid leave. Asking workers to work for reduced pay, stopping working temporarily, and taking no action played a minor role in enterprises’ responses to workforce reduction/maintenance issue.

As for expectations, most entrepreneurs are unaware or have pessimistic expectations about the duration of the impact of COVID-19 crisis on their businesses. Generally, entrepreneurs are more doubtful regarding revenues and orders than about workforce maintenance. Such pessimistic expectations on crisis duration, revenues, and orders along with reduced revenues, diminishes hopes on soon recovery of demand and consumption.

The shrinkage of orders and revenues imposed substantial cash flow restrictions on enterprises. The analysis shows that the shortage of cash flows is the most acute problem due to COVID-19 crisis for the most of businesses in selected municipalities. The shortage of supplies/input materials and problems with shipping of finished goods represent serious problems for a substantially less proportion of firms.

Not surprising that almost two thirds of the sample considers that COVID-19 crisis is a serious threat to their businesses. Only forty percent of entrepreneurs think that they have enough financial resources to cope with the crisis for next 3 months, while substantially lower proportions of businesses think that they will have sufficient financial resources to cope with the crisis if it will last 6 or 12 months.

As for crisis management activities, most of the business (77.8%) report that they have undertaken some measures to cope with the crisis. The most important measures undertaken by companies about COVID-19 crisis are the following: diversification of products (47%), reduction of production (26%), negotiations with workers (14%), diversification of channels (13%), negotiation of payment terms with banks and suppliers (10%) and increasing production due to increase demand (7%). The same time only 17% of companies revised or are revising their strategies and activities for 2020-2021 due to the crisis, while more than half of companies in the sample have neither business continuity nor emergency plans. The study reveals limited capabilities of companies to work on distance. Only for 20.8% of enterprises in the sample, the nature of their business allows to telecommunicate. Out of this twenty percent of businesses only seventy percent or 14.6% of the total sample have the infrastructure and digital means adequate for telecommunicating.

Among the needs for economical reactivation of business, the most frequently entrepreneurs mentioned: advice with business continuity planning (35% totally and 16% as the first priority); advice on how to prevent infections while maintaining business operations (34% totally and 15% as the first priority); business advice on diversification of products and sales channels (31% totally and 10% as the first priority); advice on exports and logistics restrictions and requirements (21% totally and 4% as the first priority); online business management training (17% totally and 3% as the first priority); legal advice on application of labor regulations during crisis (17% totally and 4% as the first priority); and online worker training (13% totally and 1% as the first priority). Other needs for economical reactivation of business received a minor priority among entrepreneurs.

The most important support mechanisms for entrepreneurs are the following: tax discounts (62%); financial support to entrepreneurs (50%); postponement of payment of taxes (44%); postponement of repayment of loans, commercial debts (17%); and medical and protective equipment support (8%).

The key factors that influence companies’ business performance are their planning patterns, implemented crisis management measures, difficulties with logistics, spatial and sectoral factors. Specifically, we found that availability of emergency and/or continuity planning allow companies to mitigate the negative impact of the crisis on their revenues and orders. The same time we found no significant impact of the planning patterns on the changes in companies’ workforce. Among the crisis management tools, diversification of products and diversification sales channels allow companies to copy with the negative consequences of the crisis for their business performance indicators.

On the other hand, we see that the negotiations of the payment terms with bank and suppliers and negotiations with workers are negatively associated with the ability of companies to secure own business performance indicators. We think that such a negative is a result of reciprocal causation. Specifically, the worsening of business performance indicators makes companies to negotiate with creditors to postpone payments and with workers. The effects of other crisis management measures on business performance are found to be not statistically significant.

Among other factors that can facilitate for companies their effort to cope with the consequences of the crisis are smooth performance of distribution channels and availability of information about the COVID-19 crisis that is sufficient to make plans and to carry out crisis management. Further, when companies solve their logistic problems in terms of supplying input materials and distribution of finished goods, they have better chances to secure their business performance indicators. Expectedly, businesses in Accommodation perform worse in terms of revenues and orders compared to companies from other sectors. The results of the analysis reveal that spatial locations of companies also matter for their capabilities to cope with consequences of the crisis.

Based on the findings of the study and international experience, a set of policy recommendations that aims to help businesses in selected municipalities to cope with the crisis can be formulated as follows.

First, companies must ensure health and safety of employees working during the crisis, by following national guidelines and implementing relevant protective measures.

Second, to support companies to secure their sustainability under the crisis, the government should provide economic stimulus to businesses, which can take the following forms: postponement of payment of taxes, tax discounts, financial support to entrepreneurs, and postponement of repayment of loans/commercial debts. The measures must be targeted at the most disadvantageous companies (first of all at companies in Accommodation sector) as well as at vulnerable companies that retain their workforce while facing significant drops in their orders and revenues. In this regard, one should mention that the Georgian Government has already implemented a set of policies focused on supporting local businesses in coping with the consequences of the crisis.  Specifically, the following measures were implemented to the moment[3]:

• for Tourism industry - postponement of property and income taxes, as well as 80% subsidy of the interest payments for a 6 month period.
• for infrastructural projects – provision of insurance for price differences;
• for car importing sector- postponement of custom taxes;
• wage subsidy for persons who secured their jobs and companies that retain their workforce;
• The automatic VAT refund mechanism has been activated and etc.

Third, companies must be encouraged to enhance their planning and resilience capabilities. Specifically, companies must introduce emergency and business continuity planning patterns; diversify their productive and distribution activities; adopt new digital and telecommunicating technologies; improve their customer relationship management activities.

Fourth, special efforts must be implemented to ensure reliable and uninterrupted functioning of logistic systems.

Fifth, the government must ensure availability of the information about Covid-19 crisis that will be sufficient for businesses to make plans and to carry out crisis management.