01 April 2020

Essential industries and key business during the COVID-19 outbreak

The outbreak of the COVID-19 virus has now spread to more than 200 countries all over the world and harsh measures taken to combat this even harsher nemesis are now leaving their mark on the economic sector.

Many countries have opted to close all non-vital industries and sectors due to concern that workers that cannot switch to remote working are at increased risk of catching the coronavirus.

This gave rise to two major issues. Firstly, those still working constantly run the risk of infection and reduction in their numbers, while those not working are at risk of running out of cash due to the fall-off in business and the shift in customer focus from services to goods.

As governments issue orders directing residents to remain at home for all but essential trips, businesses — especially small local businesses, travel agencies, airlines, hotels and many others are facing tough decisions. These businesses are crucial to any nation’s economy, employing a large part of the population.

Essential business by any other name is just as sweet

While many countries have varying levels of dependency on certain key industries and their relationship with those industries varies, there are some common key industries/sectors which must remain in operation and are a key to weathering this crisis. Those key industries are as follows:

Healthcare (medical centers, hospitals, pharmacies etc.)
State administration (State officials, police, army etc.)
Food and agriculture (supermarkets and grocery stores, bakeries, farms, food production factories, pet shops, etc.)
Critical services (electricity supply, water supply/management, garbage collection/waste management)
Banking (banks, post offices)
Logistics (logistics/trucking/shipping companies, warehouses, storage units, distribution centers, etc.)
Necessary services (Gas stations, Car repair shops, Hardware shops, Sewing stores, production which can be repurposed for production of medical equipment etc.)
Education (educational institutions designed for distance/e-learning)

All of these are services the dedicated and undisrupted delivery of which is vital for a state to weather this crisis and come out with minimal damages.

Situation in Serbia

In Serbia, a very large part of Serbia’s 3 million-strong workforce (2019 estimates from the Statistical Office of the Republic of Serbia), nearly 600,000, directly fall into the non-essential businesses category, but many non-essential businesses are defined together with essential ones, so a closer estimate would be that approx. 1 million people are employed in non-essential sectors i.e. roughly 1/3 of the workforce.

This means that around 1/3 of the workforce is likely to suffer losses owing to the state of emergency and the ensuing measures, and we are yet to see how this will impact the Serbian economy.

Serbia’s response

Serbia has announced a string of measures to counter this economic problem. These measures are meant to give breathing space to those businesses that have already suffered and continue to suffer losses.

The Serbian program has four broad categories:

Fiscal measures. They are applicable to all companies and include (i) suspension of payments of employment taxes and social contributions for the private sector during the Covid-19 state of emergency (with repayments by Q1 of 2021 if not later); (ii) suspension of payment of corporate taxes but only as of April 1, 2020 and only for Q2 (this excludes the previous fiscal year, Q1 and the rest of FY2020); (iii) exemption from VAT but only for donations. The aim of the measures is to shore up much needed liquidity.
Direct aid to the private sector (presumably notifiable State aid). We assume said aid will be reviewed under the announced State aid scheme to be adopted within the next 10 days. It consists of (i) direct aid to entrepreneurs, small and medium enterprises (SMEs) to cover minimum employee wages (during the Covid-19 state of emergency, at least three months’ worth of minimal wages). Another set of aid (ii) is reserved for large enterprises in the amount of 50% of minimal wages during the state of emergency, for employee regimes under the Arts. 116 and 117 Labor Act. This aid is selective for the private sector and affirmatively discriminates between SMEs and large enterprises. An interesting feature of both aid measures is that they should be paid directly to employees, while companies would be a kind of indirect aid beneficiaries.
Liquidity measures for the private sector (presumably notifiable State aid). We assume the aid will be reviewed under the announced State aid scheme to be adopted within the next 10 days. The aim of these measures is to meet acute liquidity needs and support companies facing bankruptcy due to the COVID-19 outbreak. This includes two measures (i) loan programs to maintain liquidity and cashflow for SMEs registered with Serbia’s Development Fund and (ii) a State aid scheme for bank loans supported by State guarantees for SMEs in order to ensure liquidity and cashlow.
€100 direct cash grant to every individual Serbian national above 18 years of age. This measure is apparently not selective and should not constitute State aid, although certain elements and criteria for defining the group of beneficiaries may potentially raise State aid issues.

It is important to see such steps being taken because the COVID-19 crisis is a true test for the Serbian economy since nothing similar has been seen in closer past.

Economic measures introduced by the Serbian Government are key for economic survival. However, unlike any recession or crisis we have seen so far, those businesses suffering the most now, will still be needed when the crisis ends, so the question remains, how long will the crisis last, will businesses survive, and will the measures be enough to maintain a stable economy?

For more information, please contact us via covid19@geciclaw.com