SME relief measures dubbed inefficient and lacking exceptionality

The government’s financial support measures directed at small and medium-sized enterprises (SMEs) have been dubbed inefficient and inconsistent for lacking the exceptionality that the current economic situation demands.
This is an opinion expressed by many among lawmakers, economists and SME administrators and owners, who have been calling on the government to amend the proposed measures as quickly as possible.
Lawmaker José Pereira Coutinho is just one voice who has openly criticizing the measures, first announced in mid-February by the Secretary for Economy and Finance, Lei Wai Nong.
“[The government] should not come with the humbug that they are working to help companies,” Coutinho said.
“[These measures] already existed in the past; they are insufficient responses to overcome the current difficulties. We need extraordinary measures to face this critical situation and the best way is to do it is to be enforcing [new] interest-free loans,” the lawmaker was quoted as saying in Hoje Macau.
Coutinho has supported several sectors to deliver petition letters to the government asking for financial help amid the economic shutdown of the past month.
Coutinho explained to the Times that one petition, representing a total of 2,400 SMEs among beauty salons, gymnasiums, bars, and entertainment facilities, was delivered to the government last week. This week, another petition lists another 400 SMEs, including clothing stores, trinkets shops, butchers and other food products establishments, who will also call for help due to the lack of customers.
The lawmaker also said that he is aware of an upcoming “mass layoff” at renowned brand shops, as well as employees being forced to use not only their 2020 annual leave but also their paid vacation dates from 2021. In the meantime, others face unpaid leave until further notice and there is no indication of when they can go back to earning a wage.

Rental market made of past mistakes
Economist Albano Martins has warned about the worrying impacts of an economic crisis, during and after the Covid-19 outbreak. For the economist, more than the impact to gross domestic product, the government should focus on the economic matters that are more closely felt by society, such as the employment rate.
According to Martins, the major problems faced by companies and individuals today come from “mistakes made in the past.”
Martins told the Times that although all measures designed to help people are positive, those announced by the government to help SMEs do not address the two biggest difficulties – the difficulty in paying the high rents of the city as well as the difficulty affording wages in a scenario of very low or near null economic activity.
Although a general advocate of the free market, Martins noted that there are exceptions. The current situation is very different, he said, and “exceptional times demand exceptional measures.”
“What the government should have done in the past was not to allow rental increases above a defined ceiling, decided by the Chief Executive, to control the market speculation. This [mechanism] existed before the handover,” he said to the Times, noting that the abandonment of this regulatory power only benefited the real estate industry.
“Now the only way to do this is to change the law and we know that with the current composition of the Legislative Assembly, that is unlikely to happen.”
For Martins, the “instability created by the rental market led to the most vulnerable part of the population, including [parts of] the middle-class, heading to Zhuhai to flee from the ‘rent casino,’ a severe mistake and an attack to the competitiveness of Macau.”
The economist warns that if the government does not resolve this imbalance, the oft-touted integration of Macau into the Greater Bay Area project will consist only of mass migration across the border in pursuit of cheaper housing. “We must put an end to the housing bubble,” Martins reaffirmed.
Martins also said that the existing policies announced by the government are somewhat confusing and are not sufficient to address the “emergency of an ecosystem where around 90% of the companies are SMEs.”
As for the support for small businesses, Martins said that the government should offer to cover a percentage of wage costs. “ The government should support in an interest-free manner, a percentage [of these wage costs]. The government knows exactly how much the companies spend on wages as they have the professional tax declarations every year,” he said, adding that it is very easy for the Finance Services Bureau to access such data.
Jenny Lao-Phillips, dean of the School of Business and Law at the University of Saint Joseph also agrees with some of the ideas expressed by Martins and Coutinho. The scholar both noted the relevance of rent control as well as the difficulty of enforcing such a policy.
“Rent control can help SMEs a lot, but it may not be easy to change the law as it affects the whole real estate market,” she said, adding that while it is true that many of the local SMEs are somewhat related to the hotel and casino industry as service providers and suppliers, it is also a fact that, depending on their locations, small shops located in residential areas can equally suffer due to the lack of consumption from local costumers.

Old measures dressed in new clothes
There is also some measure of debate about just how novel the raft of financial measures announced by the government actually are.
For example, one measure announced by the government is an interest-free loan of up to 600,000 patacas for SMEs, which is to be paid back within eight years. Such measure has been part of the SME Aid Scheme from the Economic Bureau (DSE) since 2003, being consecutively continued in 2006, 2009, 2012 and most recently 2017.
The newly-announced Credit Guarantee Plan is identical to a measure that came into force in 2014 under the name of SME Credit Guarantee Scheme, while the percentages and total amounts of the plan and scheme are also identical.
The only novelties among the measures presented by Secretary Lei were those that aimed to support the economic situation of individuals, including a slight reduction in professional taxes, a measure that several local economists expect will have a low impact as it accounts for about 2,000 patacas for the average person on an average income.
In addition to the tax reduction, the secretary has also announced the creation of the Electronic Consumption Voucher in the amount of 3,000 patacas for every resident of the SAR. The measure has already proved popular with the public, but some economists warn that it may not produce immediate effects.

No way but the lawmaker way
Economics aside, one reason the spending boost to the economy might not produce immediate effects is because the policies will still require approval at Macau’s Legislative Assembly. The implementation of the government’s financial support measures might fall short in the people’s expectations as the legal procedures for their approval and enforcement are inevitable, legal expert, Sérgio de Almeida Correia explained to the Times.
Correia explained that by law, “all measures that involve the changing of the [annual] budget or the taxation regime into force need to be approved by the Legislative Assembly. There is no way to go around this.”
More troublesome perhaps was the fact that Chief Executive Ho Iat Seng’s government has only recently been formed and has not yet been presented and granted approval by the Legislative Assembly for this year’s policies, creating even larger limitations for Macau’s top official.
“The only actions that the Chief Executive can take [under the competencies given by the Basic Law] is to issue independent administrative regulations and executive orders. Even so, the issuing of administrative regulations needs to correspond with the implementation and execution of the government’s policies previously approved [by the Legislative Assembly], and at this moment we still don’t have the policy address [for 2020 approved] because it was only programmed to be presented in March or April.”
In Correia’s opinion, there is only one technical possibility to accelerate the process – aside from the normal and expected procedure of approving the measures via a bill at the AL. This would be an amendment to the annual budget already approved, justified by “extraordinary expenses that have not been considered or foreseeable.”
However, the amendment would not be permitted to add to the budget, only to transfer funding from items already approved in the budget.
The legal expert told the Times he regards this solution as unfeasibly because the measures the government needs to take “far exceed all that has been budgeted.”
Instead, to accelerate the process at the Legislative Assembly, the government could present the measures as a matter of urgency and call on the legislative body to schedule its discussion and approval at the earliest possible date.
“We are in a situation of calamity and such requests by the government would be perfectly understandable,” Correia said, referring to the economic shutdown that has affected almost the entire business environment of the special administrative region.

SME credit limit shrinks one-quarter as recession kicks in

CREDIT limit extended to new small and medium-sized enterprises (SMEs) shrank by over a quarter during the second half of last year, as banks adjusted to the onset of a technical recession in the city. In the second half of 2019, the credit limit for new SMEs dropped 26.8% from the same period a year earlier, and 41.1% from the first half of 2019, according to the Monetary Authority of Macao. This comes as the city officially entered into recession in the second quarter after posting the second consecutive quarter of negative growth. Also at the end of last year, the outstanding balance of total SME loans decreased by 0.5% from the end of June 2019, but rose by 4.2% from a year
earlier to 94.5 billion patacas (about $11.8 billion). By the end of the year, the outstanding balance of delinquent SME loans dropped by 11.1% from six months ago or 7.9% from a year earlier to 424.8 million patacas. As much as 90% of Macau’s businesses are classified as SMEs. According to data provided last month by the Statistics and Census Service, more than 2,800 new companies were incorporated during the second half of last year and just 5% of them were registered with capital of 1 million patacas or more. The data release comes as the government prepares a raft of economic policies designed to reduce the impact of the coronavirus-induced economic shutdown of the past month. Tax breaks and interest-free loans for SMEs are among the measures expected to be rolled out soon. DANIEL BEITLER