The COVID-19 pandemic has halted the operations of nearly one-fifth of business entities, particularly within sectors where social distancing measures have the most negative impact. Therefore, in these sectors, there has been a decline in business activities and revenues of more than 90 percent in a short period, according to the analysis of the Croatian National Bank.
The consequences of the COVID-19 crisis will be felt even after the pandemic ends due to the latent danger of reactivating the same or similar viruses, which will result in the necessary restructuring of business models for companies operating in sectors that require close contact with clients. Many companies have quickly adapted their business models by strengthening digitalization and relying on delivery channels to enable work and the sale of goods and services “remotely.”
In this process, some sectors have additionally profited (IT solution providers, courier services, etc.), and some small entrepreneurs have also fought for their place in the market in the newly created situation through joint appearances and solutions. Support has facilitated survival and adaptation of businesses in the short term. However, the longer-term provision of non-selective support could keep companies with unsustainable business models in the market, thus slowing the shift of resources towards healthy companies that should be the drivers of economic recovery.
Who Applied for HZZ Support for Job Preservation
The crisis caused by the coronavirus has severely impacted the economy, especially sectors sensitive to social distancing measures. Nevertheless, the measures taken by the Government through the Croatian Employment Service (HZZ) support for job preservation in sectors affected by the coronavirus have significantly eased the burden of employee costs for these companies. HZZ data shows that more than 100,000 legal entities received support for March and April (of which more than 82,000 companies received support for both March and April) as part of the Job Preservation Program, with more than 90 percent expected to relate to micro-enterprises (companies with up to ten employees), which generally dominate in number within the business sector.
According to available data for March and April more than 3.8 billion kuna in support has been disbursed, covering more than 590,000 employees. Linking HZZ data on business entities that received support for March and April 2020 with data from the Financial Agency for 2018 shows that two-fifths of all companies from the Fina database utilized support, with this share being 36 percent, 64 percent, 62 percent, and 55 percent for micro, small, medium, and large enterprises.
They Do Not Have Bank Credit
Regarding activities, funds were more utilized in service sectors that require a higher degree of social contact since these sectors have been the most affected by anti-epidemic measures, as well as in the manufacturing sector, whose operations depend on the supply of raw materials and components, as well as uncertainty regarding orders and relatively low possibilities for organizing remote work. Most companies that are support recipients do not have credit obligations with banks since banks are exposed to less than 20 percent of the companies that utilized this measure. However, the exposure of banks to these companies is significant. Companies that utilized support accounted for nearly two-thirds of all corporate clients of banks at the end of March and accounted for about 58 percent of all loans to non-financial enterprises, or 18 percent of total bank loans. The exposure is expected to be dominated by service sectors, manufacturing industry, and business services.
