VoxEU Column COVID-19 Europe's nations and regions

Southern European and emerging market firms are under severe distress

With lockdown measures in place almost worldwide now, cash-flow represents a significant concern for firms across multiple sectors. It remains to be seen exactly which types of business will be able to weather the coming storm. This column estimates the survival time of nearly 7,000 firms in a dozen Southern European and emerging market economies. Under the assumptions that firms have no incoming revenues, the median survival time across industries ranges from 8 to 19 weeks. Once collapsed export demand is taken into account, the median survival time falls to between 8 and 14 weeks.

Businesses are rapidly running out of cash. In the US, firms have cash reserves to last anywhere between three weeks and six months. Restaurants, for example, have less than a month of cash on hand (Didier et al., 2020).

New analysis on twelve high- and middle-income economies across Africa, Central Asia, Europe, Latin America, and the Middle East shows that businesses could rapidly run out of cash during a hypothetical lockdown in response to the Covid-19 health crisis. The analysis uses a sample of 6,345 firms from the World Bank’s Enterprises Surveys in Colombia, Greece, Italy, Jordan, Kazakhstan, Kenya, Morocco, Peru, Portugal, Russia, Turkey, and Ukraine (Bosio et al. 2020).

In this hypothetical scenario (where firms have no revenues, but where the government fully subsidises wages), the median firm has retained earnings and other sources of financing to last eight (in retail) to 19 weeks (in other manufacturing). Once collapsed export demand is taken into account (Baldwin 2020a), the median survival time falls to within eight to 14 weeks.


The calculations use data for 11,759 businesses from the World Bank’s Enterprise Surveys conducted in a dozen economies across Africa, Central Asia, Europe, Latin America, and the Middle East that have had a survey completed in the last three years, and that have a large sample size (of over six hundred firms) in order to construct sectoral breakdowns (Table 1). Exporters account for 7% (Kazakhstan) to 31% (Morocco) of the sample.

Table 1 Sample details

Firms that export are defined as any establishment that has sales through direct or indirect exports. We assign exporter status to companies based on their response to the following questions: “In the last completed fiscal year, what percentage of this establishment’s sales were: (a) National sales, (b) Indirect exports (sold domestically to third party that exports products), (c) Direct exports?” In cases where the respondent answers affirmatively to option (b) or( c), the exporter designation is applied.


To calculate the survival time of firms, we take net retained earnings for the past year as the numerator (assuming that all such earnings have been saved and are liquid and available for businesses to use). We expand the numerator with the availability of firms to ‘tap’ credit. In particular, we keep the ratio of retained earnings to external financing (as reported for the previous year) constant and assume that the same amount of external financing is available throughout periods of economic distress.

Next, we assume that wages and other employee expenses are covered fully by government crisis-response programmes. As a result, the denominator represents only fixed costs such as rent, machinery maintenance, and cost of materials. As profits are given in the data as ‘gross profit margin’, we reduce it by subtracting the statutory corporate income tax rate, 15% dividends, and 10% depreciation expenses.1

The channels through which businesses finance their working capital indicates the reliance on profits. In Ukraine, for example, approximately 88% of the day-to-day operations of an average firm are financed through retained earnings. Firms in Kazakhstan, Greece, and Portugal also finance their operations out of retained earnings. In contrast, firms in Colombia and Peru rely substantially on external financing. On average, retained earnings finance about two-thirds of working capital. We use these data to expand the numerator, by taking the ratio of internal to external financing of working capital as constant over the period of extreme economic distress.


Retailers have the shortest survival time, whereby the median business runs out of savings in about eight weeks of no revenues (Figure 1). Firms in the manufacturing sector have higher survival times on average, between 13 (metals and fabricated metal products) and 19 weeks (other manufacturing). This is because their profit margins (and hence retained earnings) tend to be higher. The median firm in the construction sector has liquidity to last nine weeks, while firms in the manufacturing of chemical, plastics, and mineral products can last up to approximately 16 weeks.

Figure 1 Median Survival Time based on Fixed Costs by Sector

Note: Data is extracted from the World Bank Enterprise Surveys. Number of Observations: 6,345

Figure 2 shows the median survival time by country, which ranges between seven (Ukraine) and 16 weeks (Peru). Kazakh and Kenyan firms are as cash-constrained as Ukrainian firms (also at seven weeks) and have a survival time that is less than half that of the median Colombian firm (15 weeks). The median business in Italy, Jordan, and the Russian Federation can last ten weeks, one week longer than the median business in Portugal and Turkey (nine weeks).

Figure 2 Median Survival Time based on Fixed Costs by Country

Note: Data is extracted from the World Bank Enterprise Surveys. Number of Observations: 6,345

The median survival time has significant variation across countries within a given sector. For example, the median Portuguese firm in the manufacturing of food and beverages has a survival time of 7.6 weeks, whereas the median firm in the same sector in Colombia can last 26.3 weeks. Variation is even larger in the manufacturing of metals and fabricated metal products. The median Ukrainian firm can survive for just a little over eight weeks, while the median Turkish firm has sufficient liquidity for more than ten months (44.1 weeks). Substantial variation is also present across sectors within a given country. For example, in Kenya the median firm in the manufacturing of chemical, plastic, and mineral products cannot even last a week, while a firm in the manufacturing of food and beverages can last for 16.8 weeks.

Finally, we redo the analysis shown in Figures 1 and 2, this time assuming that exporters lose access to their external financing. Such financing is likely to be related to receipts in foreign currency or is in the form of letters of trade credit (Javorcik 2020). Figure 3 shows that manufacturers of metals and metal products and manufacturers of machinery and computing products are most adversely affected by the collapse of export demand, with survival times reduced from 19 to 14 weeks. Conversely, retailers and the provision of other services are unaffected and remain the two sectors where firms are estimated to run out of working capital the fastest.

Figure 3 Median Survival Time (adjusted for exporters)  based on Fixed Costs by Sector

Note: Data is extracted from the World Bank Enterprise Surveys. Number of Observations: 6,395

Firms in Colombia and Peru are the most negatively affected by the hypothetical loss in external financing. Both countries see a reduction of their median survival time by over one month, going from approximately four months (16 and 15 weeks respectively), down to 11 and 12 weeks (Figure 4). Kazakhstan, which has the lowest trade exposure of about 7% (and has among the highest proportion of working capital financed through retained earnings, at 85%) maintains a median survival time of seven weeks under this scenario. Italy, Russia, and Jordan each see a reduction of their median survival time by about one week relative to the baseline scenario in Figure 3.

Figure 4 Median Survival Time (adjusted for exporters) based on Fixed Costs by Country

Note: Data is extracted from the World Bank Enterprise Surveys. Number of Observations: 6,395

Previous analyses have shown that exporters are among the most productive firms in any economy (Wagner 2007). As exports are among the most affected sectors of the economy during economic distress periods that involve health concerns, productive firms are, in effect, subjected to financial strain beyond that of the median firm. The Schumpeter (1934) theory of creative destruction no longer holds. Government policies for retaining jobs and rescuing firms are needed (Baldwin 2020b).


Baldwin, R (2020a), “The Greater Trade Collapse of 2020: Learnings from the 2008-09 Great Trade Collapse”,, 07 April.

Baldwin, R (2020b), “Remobilizing the workforce: A two-imperatives approach”,, 13 April.

Bosio, E, S Djankov, F Jolevski and R Ramalho (2020), “Survival of Firms during Economic Crisis”, LSE Discussion Paper No. 797.

Didier, T, F Huneeus, M Larrain, and S L Schmukler (2020), “Hibernation: Keeping firms afloat during the COVID-19 crisis,”, 24 April.

Javorcik, B (2020), “Global Supply Chains will not be the same in the Post-COVID-19 World”, in Baldwin, R and S J Evenett (eds) COVID-19 and Trade Policy: Why Turning Inward Won’t Work, eBook.

Schumpeter, J (1934), The Theory of Economic Development, Cambridge, MA: Harvard University Press.

Wagner, J (2007), “Exports and Productivity: A Survey of the Evidence from Firm‐level Data,” World Economy, 30(1): 60-82.


1 The data on the statutory corporate income tax rate is taken from the PWC’s Worldwide Tax Summaries.

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