By The Star Staff
United Retailers Association (CUD) President Lourdes M. Aponte Rodríguez said this week that the Financial Oversight and Management Board has been open to listening to the complaints of small and midsize businesses (SMEs) about the dire implications that continuous increases in electricity bills would have.
The CUD presented a study, conducted by the firm Inteligencia Económica, of the economic impact on SMEs to the fiscal entity.
The report was presented at a Jan. 16 meeting where economist Gustavo Vélez was present, along with the executive director of the oversight board, Robert Mujica, and certified public accountant Germán Ojeda, director of municipal affairs & legislative review for the oversight board. As part of the discussion, updated data was presented on the current situation that SMEs are going through, with an emphasis on finding solutions and ensuring that they are sustainable in the face of the crisis in the small business commercial sector.
The study includes a survey of SMEs carried out in August and September 2023, in which owners were asked about the general impact on their businesses. The survey measured the profile of SMEs, cost increases, the decisions they have had to make to keep their businesses open and the general sentiment regarding the economy and how an SME now operates, compared to the years before the global coronavirus pandemic.
When asked about operating costs compared to the period from January to July 2022, the majority, about 33.3%, reported an increase in operating costs of between 5% and 10%, compared to the same period in 2022. The majority, 59.5%, indicated that their operational costs in the first half of 2023 increased by up to 10% compared to 2022. The remaining 40% indicated that their costs increased more than 10%. For any small business, this is a significant increase, impacting both profit margins and higher prices for consumers. The increase can be attributed not only to the greater increase in energy, but also to the higher cost of products, the labor force and the increase in interest rates, which in turn was caused by inflation in the global economy.
The survey showed that the average small business owner has between one and seven employees earning minimum wage and generating $0 to $3 million in sales. Labor costs, followed by electricity and other operating expenses, were cited as the most significant financial strains, highlighting the challenge of high costs to business operations.
Additionally, there is widespread distrust and concern among small and midsize businesses about future economic conditions and labor expenses. A notable decline in small businesses since 2019 suggests that these entities are not only struggling to sustain operations, but also that high labor costs may be deterring the establishment of new businesses.
Common concerns include labor and energy costs, consumer confidence, taxes and government policies, with labor and electricity costs being particularly burdensome. According to the CUD, the number of micro and small businesses in Puerto Rico will continue to fall if the situation remains the same.
Mujica, the oversight board executive director, stated that there are challenges at an economic and legal level, but that the board is very aware of what is proposed in the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, the CUD leader noted. The board officials expressed their readiness to work with the commercial sector, for possible proposals that are sustainable, that represent permanent changes, and that enrich the movement of real economic growth and development.
Vélez called on the oversight board and the government of Puerto Rico, including the Legislature, to develop a public policy aimed at improving the competitiveness of SMEs and the climate of doing business. The study data reflects that the profitability levels of small and midsize merchants are at a critical point, and if costs continue to increase, commercial establishment closures will begin. The statistics, meanwhile, demonstrate that for four consecutive months bankruptcies have shown an upward trend.
According to the CUD, the three fundamental issues to address in the short term are energy costs, labor, permits and access to capital at competitive rates. The short-term efforts of any strategy must be focused on addressing those issues.