While the detail and scale of the consequences of the Covid-19 containment measures are not yet clear, it is useful to consider, using available data, how the Western Region might be impacted. There are many unknowns including in relation to the duration of the public health emergency and the speed and extent to which jobs will return once restrictions are lifted.
In this short series of blog posts I look at some of the WDC’s previous analyses[1] of our regional economy and society from the perspective of the potential impacts of Covid 19, so that we can begin to consider areas of priority for support and stimulation when opportunities again become available. The first post in the series examined sectoral employment data from the perspective of the current economic shock, highlighted key areas of employment in the region and some potential implications of the crisis.
In this post, business demography data on enterprises, and those engaged in these in the Western Region, is examined from the perspective of the current economic shock, highlighting areas of potential vulnerability in relation to enterprises and the people they employ. The data is from the CSO’s 2017 Business Demography report published last year[2]. This is the most recently available data.
Potential economic consequences of the containment measures.
As the Central Bank [3] and others have noted, the economic shock triggered by responses to Covid 19 has resulted in the widespread shutdown of businesses, mainly in the market services sectors of the economy with labour-intensive sectors, such as retail trade, food and beverage activities and accommodation, tourism and travel particularly affected. These, as is discussed below, are key business and employment sectors in the Western Region.
The widespread restrictions on travel and mobility, along with financial market turmoil, have led to an erosion of confidence and heighted uncertainty[4] which in turn has led to a sharp contractions in the level of output, household spending, corporate investment and international trade. The OECD notes that within service sectors, activities involving travel, including tourism, and direct contact between consumers and service providers, such as hairdressers or house purchases, are clearly adversely affected by restrictions on movement and social distancing. Similarly, most retailers, restaurants and cinemas have also closed, although takeaway sales and on-line sales may prevent a full cessation of activity in some businesses. Non-essential construction work is also being adversely affected. The OECD assessment estimated that, taken together, the affected sectors account for between 30-40 per cent of total output in most economies. They estimated that the potential initial impact on activity of partial or complete shutdowns on activity in Ireland would be just over 15% (over a number of years), which is the the least affected of the selected advanced and emerging market economies analysed.
More recently the Stability Programme Update prepared by the Department of Finance outlines that as the economic landscape has fundamentally changed in Ireland and across the globe, Irish GDP could fall by 10.5 per cent this year and Modified Domestic Demand, perhaps the best indicator of domestic economic conditions, is projected to fall by 15 per cent this year. The labour market will the brunt of the economic shock, going from full employment to a peak unemployment rate of 22% in the current quarter, with annual unemployment rate in 2020 projected to be in the region of 14%. If recovery in second half of year gains momentum, next year with economic growth is projected to be 6 per cent, and numbers out of work to fall below 10 per cent. The Update notes that recovery over the second half of 2020 rests on successful virus containment and stresses that the level of uncertainly is such that the projections in the should be considered a scenario rather than a forecast as such.
What are key business areas in the Western Region?
Against the background of these economic projections it is useful to examine the type and scale of enterprises in the Western Region, those engaged in these in the Western Region and the sectors the businesses operate in.
The latest CSO Business Demography data on enterprises in the Western Region (2017) shows there were 57,951 enterprises[5] registered in the seven-county Western Region (location of an enterprise is based on its address as registered with Revenue[6]). In total, more than a quarter of a million people were working for enterprises registered in the region (255,261).
Of all enterprises registered in the Western Region 92.9% were micro-businesses employing fewer than 10 people. This was a slightly higher share than nationally (92.1%). As each micro-enterprise is small in scale however, despite their accounting for 92.9% of enterprises, only 35.8% of those who work for an enterprise, works for a micro-enterprise. Of course, direct employment is just one of the economic and social impacts of micro-enterprises and they play a particularly vital role in smaller centres and more rural areas, as well as in particular sectors e.g. Construction, Professional Services.
By their nature, larger firms (employing 10 or more people) play a more significant employment role, accounting for 64.2% of everyone who works for an enterprise, despite only accounting for 7.1% of firms.
In terms of the number of enterprises, Construction is the largest sector in the Western Region accounting for 20.4% of active enterprises registered in the region. Wholesale & Retail (15%) and Professional, Scientific & Technical activities (9.4%) are next largest (see Fig 1 below). They are also the four sectors (including Accommodation and Food Service (7.8%)) nationally with the most enterprises but greater concentration in the Western Region is evident with the top three enterprise sectors accounting for 52.6% of enterprises in the Western Region and 49.8% in the State as a whole. These top sectors, in terms of business numbers include many sole traders and micro-enterprises e.g. construction trades, solicitors, architects, small shops, B&Bs and restaurants and cafes.
Figure 1: Percentage of enterprises in each sector in 2017, in the Western Region and State
Source: CSO, Business Demography 2017,Business Demography / BRA18 / Published 2019
The picture is different when we look at the number of people engaged in enterprises (Fig. 2)[7], and this is key to understanding the consequences of the current crisis. Wholesale & Retail is the largest enterprise sector in employment terms (17.8% of all people working in enterprises in the Western Region) followed by Industry (17.2%) which is mainly Manufacturing, and Accommodation & Food Service (13.4%). These three sectors include many larger businesses e.g. factories, hotels, large retail stores, so account for a greater share of employment than of enterprises.
The Western Region is more reliant on more vulnerable sectors for employment than the rest of the state although there is variation within sectors. For example, the extent to which the ‘Industry’ sector will be affected is not clear. The strong med tech sector in parts of the Region may provide some stability in this area. Likewise, parts of wholesale and retail (food supply) are performing well while other retail trade has ceased. Nonetheless, as the ESRI noted, many outlets particularly in the retail and hospitality sectors have simply stopped trading, while the fall in consumption and restrictions on international and domestic travel also mean that tourism (Accommodation and Food Service) is likely to collapse over the quarter[8].
The fourth most important sector in terms of employment both in the Western Region and nationally is Health and Social care which will also provide some stability.
Figure 2: Percentage of people engaged in enterprises in each sector in 2017, in the Western Region and State
Source: CSO, Business Demography 2017,Business Demography / BRA18 / Published 2019
Concentration is more evident in relation to employment with the top four sectors nationally employing just over 50% of those working in enterprises, but they account for more than 60% of employment in the Western Region (and just over 66% in Sligo and almost 64% in Mayo).
Enterprise and employment in enterprise in Western Region counties
There will be variations in the impact of the response to Covid 19 across the Western Region counties, reflecting differences in the composition of enterprise, employment and output. For example, where tourism or non food retail is relatively important these areas will potentially be affected more severely by shutdowns and limitations on travel. In contrast, counties with strong med tech industry, greater reliance on agriculture (not covered by this data) or significant food retail may experience smaller initial effects from containment measures.
Looking at the key sectors in terms of enterprise numbers (Fig 3) in the Western Region counties shows Construction, Wholesale and Retail and Professional and Technical services have most enterprises in all Western Region counties and nationally. As mentioned before, this is in part because of the prevalence of sole traders and very small business in these sectors. As only essential construction is currently allowed to continue, and most retail (aside from food) is also closed, these businesses are experiencing the immediate shock of the restrictions from the pandemic, and are also likely to suffer from a fall in demand which will follow rising unemployment. There is also likely to be a fall in demand for many Profession and Technical services in future, but at present a significant proportion of these jobs may be done remotely from home.
Figure 3: Percentage of enterprises in key sectors in 2017, in Western Region counties and State
Source: CSO, Business Demography 2017,Business Demography / BRA18 / Published 2019
Looking at top sectors for those engaged in enterprises, the importance of the most vulnerable sectors (Wholesale and Retail and Accommodation and Food Service) is clear. They are in the top four (see Fig 4) in all Western Region counties (and nationally). While for most western counties Wholesale & Retail, Industry and Accommodation & Food Service are the three largest enterprise sectors for employment, for Galway and Roscommon, Health & Care is in the third biggest employer in the enterprises being examined.
Figure 4: Percentage engaged in enterprises in key sectors in 2017, in Western Region counties and State
Source: CSO, Business Demography 2017,Business Demography / BRA18 / Published 2019
Industry is the most important sector for employment in Sligo (28.3%) and Clare (18.8%), with Wholesale and Retail particularly important in Mayo (22%) and Roscommon (22%). Accommodation and Food service is particularly important in Donegal (15.9%) and Leitrim (14.3%). The Health and Social Care sector may provide some stability especially in counties where it is relatively important (Roscommon (15%) and Galway (13.7%).
Conclusion
As the Central Bank noted, when it emerges the pace of recovery is likely to depend on factors such as the extent to which households and firms have been scarred by the downturn, the degree to which precautionary behaviour unwinds, the recovery in employment and incomes and, possibly also, the degree of stimulus in place to provide some impetus to recovery.
Clearly micro-enterprises, which play a very significant role in the Western Region’s enterprise base, are likely to have fewer reserves making them more vulnerable to the cessation of trading. While enterprises in the Region were hit very hard during the previous recession, there had been recovery, accelerating in recent years. It is to be hoped that recovery in the Region following this crisis will be quicker than that which followed the financial crash.
While there will be some variation in the impact of the Covid 19 restrictions in Western Region counties, the consequences for the Region will be significant. As the ESRI noted, there has been an almost total decline in certain types of economic activity from mid-March onwards. Many outlets particularly in the retail, food and hospitality sectors have simply stopped trading and in these key sectors remote working is generally not an option. It is not clear how many of these will be in a position to resume trading when the shutdown period has ended but it is likely that some of these enterprises will not reopen.
Enterprises form the backbone of the local and regional economy. Supporting the establishment and growth of sustainable enterprises across the Western Region is a key priority for the WDC and we hope that this analysis of enterprise data will help to inform ourselves and other organisations, individuals and policy makers about enterprise patterns in the Region.
This series of posts brings together previous WDC analyses and examines them from the perspective of the possible impacts of the Covid 19 pandemic on the economy. In the next post on the topic I will look at what we know about regional sectoral output and how it might be affected. The posts aim to develop our understanding of what may be happening at a regional level and what will need to be done after the public health emergency, but they are early interpretations and should be viewed as a work in progress rather than a definitive commentary.
Helen McHenry
The views expressed here are those of the author and do not necessarily represent or reflect the views of the WDC.
If you are interested in more detailed analysis of the Business Demography data (carried out in 2019), a comprehensive ‘Profile of Enterprise in …’ document is also available for each Western Region county. Each 12-page Profile includes data on:
- Enterprise Trends 2008-2017: Active Enterprises and Persons Engaged
- Employees as a % of Persons Engaged 2008-2017
- Enterprises, Persons Engaged and Employees by Enterprise Size 2017
- Change in Enterprises and Persons Engaged by Enterprise Size 2008-2017
- Active Enterprises by Sector in 2017 and Change 2015-2017
- Persons Engaged by Sector in 2017 and Change 2015-2017
- Employees as a % of Persons Engaged by Sector 2017
Download the ‘Profile of Enterprise in …’ CLARE, DONEGAL, GALWAY, LEITRIM, MAYO, ROSCOMMON and SLIGO. Key Statistics’ for each Western Region county (one page) is also available for download from the WDC.
If you are interested in reading more about the economic impacts of Covid 19 and government responses the ESRI scenario for the rest of the year is here. The OECD has updated their report Covid-19: SME Policy Responses and has published an Evaluation of the initial impact of COVID-19 containment measures on economic activity. The Department of Finance published its projections for key indicators in the Stability Programme Update.
[1] Thanks to my former colleague Pauline White for her original data analysis.
[2] https://www.cso.ie/en/releasesandpublications/er/bd/businessdemography2017/
[3] https://www.centralbank.ie/docs/default-source/publications/quarterly-bulletins/qb-archive/2020/quarterly-bulletin—q2-2020.pdf
[4] https://read.oecd-ilibrary.org/view/?ref=126_126496-evgsi2gmqj&title=Evaluating_the_initial_impact_of_COVID-19_containment_measures_on_economic_activity
[5] ‘Total Enterprises’ includes all economic sectors except Agriculture, Forestry & Fishing, Public Administration & Defence, Households as Employers and Extraterritorial Organisations(that is NACE Rev 2 sectors B to N(-642) and P-S). in the discussion and the charts some of the sector titles have been abbreviated.
[6] The geographical breakdown for enterprises is an approximation. The county breakdown is based on the address at which an enterprise is registered for Revenue purposes, rather than where the business actually operates from. In particular, where an enterprise has local units in several counties (e.g. a supermarket chain), but one head office where all employment is registered, all its employees are counted against the county where the head office is located.
[7] People ‘engaged’ in enterprises which included both those owning and operating the business as well as those employed by it. In this post the term employed covers all those engaged in the enterprise.
[8] Quarterly Economic Commentary Spring 2020
WDC Insights 