Restaurants are on the economic frontline – they will indeed need help

Today it’s the restaurant lobby – and tomorrow and the day after it will be other sectors. The shutdown is biting hard for many businesses, none more so than the restaurants, pubs, leisure centres, non-essential retail stores and so on who are completely closed – or in the case of restaurants, at best doing take-aways.

Pressure is building on the Government to introduce further supports to try to get companies through the crisis – as evident from the nine demands from the Restaurant Association of Ireland – but how exactly to organise this is difficult and costly. Ultimately, though, it will happen, even if businesses may not get everything they are looking for.

The Government has already introduced a major scheme of wage and income supports and this will have helped some SMEs to keep staff on their books, for now at least.

But businesses have a lot of other outgoings, including rent, rates, tax, insurance, trade credits, debt repayments and utilities. Some relief has been provided by Revenue, by banks and by local authorities and some landlords, but these temporary measures will only paper over the cracks for so long.

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We do not know when restaurants will be allowed reopen, whether all premises will do so at the same time and what level of risk there is after that of further closures and openings depending on the path of the virus.

Crucially, we also don’t know how consumers will react. Even if restaurants are open, will they want to visit? Right now, how we will all feel about “going out” in a few months is just hard to judge. Owners will have to gauge whether they can make money by reopening.

So while the claim that 90 per cent of restaurants may close is hard to assess, there is no question but that this sector is in the frontline of the economic battle and under huge pressure, particularly as the inward tourism season has effectively been cancelled. Even after reopening, the need to have fewer people on a premises and the uncertainty of consumer preferences means that some restaurants may just stay shuttered.

Need for cash

The goal of policy must be to ensure that as many potentially viable premises as possible can reopen. Here the potential measures put forward by the association are similar to what other customer-facing businesses have looked for – longer-term relief on local authority rates, some mechanism to deal with the rent bill, State support in dealing with banks, insurers and utilities and, crucially, access to cash.

The last bit – the need for cash – is the tricky one. For many SMEs, little or no cash is now coming in the door. Access to funds is needed if they are to reopen, and the terms must be generous if they are not to do so while being saddled by debt.

A recent Central Bank analysis suggests that €2.4 billion or more in liquidity supports will be needed. The limited nature of the relationship between many SMEs and a bank and their lack of collateral will curb the amount available through this channel. So the State will need to step in.The three ways of doing this would be via credit guarantees, cheap loans or direct financial grants.

Some schemes are already in place, but a lot more has been done in most other European countries. The Government has said it is looking at what more it needs to do here.

The goal is to help as many viable businesses as possible – but to avoid paying cash to ones that will not reopen anyway, or ones that do not need it. The challenge is that there are tens of thousands of SMEs, in a range of different sectors. Many have no established links with State agencies, the traditional route for assistance.

The economic case for acting is clear. SMEs employ about one million people and significant sectors are facing real and imminent threats. The Central Bank also points to the risk of wider economic damage as SMEs become unable to pay suppliers and problems “cascade through the supply chain”. It found that €40 billion in annual sales of suppliers are to SMEs in the most vulnerable sectors.

Government action is likely, though the inability to pass new legislation could be a problem in the short term. But, with talk that the next administration may not be in place until mid-June – and that assumes the ongoing government formation talks are successful – the current administration is likely to push ahead and try to do what it can.