Neil McLaughlin is the group head, personal and commercial banking, RBC.
In a matter of months, our economy has been transformed by the global pandemic.
In some cases, it has accelerated trends that have been years in the making. Online shopping has become the norm, with almost one-third of Canadians now purchasing items they would’ve normally bought in-store.
New trends are also emerging. Economic nationalism is on the rise, as are buy-local campaigns. Both will have far-ranging consequences on what we buy and for how much.
Finding ways to compete and win in a more virtual and fragmented economy will require all Canadian businesses to adapt. Many of Canada’s million-plus small businesses will be challenged to do so.
For one, the COVID-19 recession has hit this sector especially hard. Small firms have recorded almost double the rate of job losses as mid-sized and large firms.
Companies with higher fixed costs and debt loads, and that must operate in close proximity to their customers, find themselves in particularly precarious positions since the lockdown. Combined, they employ more than 1.2 million Canadians.
For another, many small businesses have not kept pace with the new business models and technological innovations that are fundamentally transforming our economy. In 2017, Statistics Canada noted a significant number of small firms are without a website or the ability to facilitate online payments.
A weakened small-business sector would spell trouble for our country’s long-term prospects. Up until the crisis, it generated more than 40 per cent of Canadian GDP, and close to 60 per cent of new jobs. Thousands of communities have long relied on the steady stream of tax revenues from their local entrepreneurs and business owners. And many women, youth and minorities, including Indigenous Canadians, are disproportionately employed in the most disrupted parts of the small-business sector.
Ottawa’s mix of wage subsidies, interest-free loans, tax breaks and outright grants have helped buffer the blow of the recession. But some of the programs may be too dependent on repayable loans for business owners, particularly those in hard-hit sectors such as accommodation and food services; arts and entertainment; and certain retail operations. Three-quarters of the Canada Emergency Business Account loan is repayable. By contrast, the U.K. has offered cash grants to small businesses in the most affected industries.
The government should refresh and streamline its relief efforts as we enter the next phase of recovery. This could include a topped-up Canada Emergency Business Account program to continue assistance to small businesses through summer, with an additional forgivable loan component if applied to rehired staff or commercial rent. A sales-tax holiday for Canadian small businesses to stimulate the recovery of local shopping and tourism would also support sectors that can drive employment growth.
But it’s not enough to help them stay solvent; we need to help our small businesses make a big pivot to a very different economy.
In a new RBC report, we outline a number of policy options Canada should consider. For instance, the pandemic has further fuelled the data revolution under way, as consumers search, share and shop from a distance.
A digital strategy to help small businesses adapt to this virtual reality is vital. It could include tax credits for small firms to invest in Canadian-designed software and hardware to enable digital growth, as well as investment in regional tech accelerators and provincial chambers of commerce to train and develop digital small businesses.
Small businesses will face an increasingly challenged competitive landscape, including the digital-platform players that wield unprecedented scale. Government and large enterprises could play a key role in supporting small businesses to compete on their proximity to the domestic market, improving digital experiences and creating alliances for procurement as measures to protect domestic supply and shop local have come to the foreground during the pandemic. Efforts to designate our small businesses as preferred suppliers of PPE, testing and tracking technologies would be a good step. Reducing provincial trade barriers for small business would increase markets for these businesses and boost GDP.
And, in a world that is likely to be more fragmented, and perhaps less welcoming to foreign firms, Canada will need a more focused approach to trade. To this end, a coalition of governments, banks and other institutions could be formed to develop a Brand Canada platform for small firms. A special focus on strategic sectors that can drive a higher level of employment growth would also create growth opportunities for small businesses.
All Canadians have a vested interest in our small businesses exiting stronger from the crisis. The shared economic benefits are obvious. But their contributions extend beyond our standard of living. This sector perpetuates the optimistic and resilient spirit of our nation. It acts, in a sense, as a bellwether of our outlook. The future feels much brighter when the local businesses on our Main Streets thrive and prosper. It’s the kind of confidence we need to manage through these trying times.
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