CUD | Official Survey Report

PRESENTED BY: INTELIGENCIA ECONÓMICA INC.

June 9 2023

Introduction:

This report aims to provide a comprehensive analysis of the potential economic impact that the upcoming increase in the electricity tariff will have on small and medium-sized enterprises (SMEs) in Puerto Rico. The increase in the tariff is set to address the debt of the Puerto Rico Electric Power Authority (AEE) and the imminent insolvency of AEE pensions, which face an actuarial deficit of $3 billion.

The estimated tariff increase is expected to range between 20% and 30% above the current energy cost, which is currently set at 28 to 30 cents per kilowatt-hour. This rise in energy costs coincides with a challenging period for businesses, as they already confront elevated operational expenses, including a second increase in the hourly wage ($9.50), heightened capital costs, and the highest inflation rates seen in four decades.

The “Centro Unido de Detallistas” (CUD), representing a significant portion of the commercial sector, is deeply concerned about the potential ramifications for SMEs. With approximately 125,000 commercial accounts and 500 industrial accounts under the LUMA energy system, the merchant community constitutes a substantial customer base for the energy sector.

Given the circumstances, it becomes imperative for the government, the Bankruptcy Judge Taylor Swain, and the Financial Oversight and Management Board (FOMB) to proactively address this situation. The objective is to explore feasible options to mitigate the impact of the tariff increase on SMEs, either through the establishment of a mitigation fund or the implementation of renewable energy initiatives.

This report will delve into the specific objectives, providing a detailed analysis of the potential consequences of the energy cost hike on small and medium-sized enterprises. Additionally, it will present recommendations to Bankruptcy Judge Taylor Swain and the Financial Oversight and Management Board (FOMB) on viable strategies to alleviate the burden and minimize adverse effects on the SME sector.

By conducting a thorough examination and offering targeted recommendations, this report aims to contribute to informed decision-making that safeguards the interests of small and mediumsized enterprises in Puerto Rico.

Recent macroeconomic trends

Since 2006, Puerto Rico has been experiencing an economic recession. However, starting in 2014, fiscal events came into the spotlight when Puerto Rico's government bonds were rated "junk," with the first significant impact occurring in 2015. In response to this crisis, in 2016, the United States Congress enacted the PROMESA law (Puerto Rico Oversight, Management, and Economic Stability Act), which established the Fiscal Oversight and Control Board on the island.

Since then, Puerto Rico has faced additional challenges, such as Hurricanes Irma and María in 2017 and the COVID-19 pandemic in 2020. These events have left a significant mark on the island and have required recovery and rebuilding efforts.

Despite these challenges, in the years since the pandemic, Puerto Rico has shown signs of a positive transformation in gradual progress. The island has experienced an economic recovery in certain sectors, and efforts have been made to encourage investment and sustainable development.

This renewed dynamic provides positive hope for the future of Puerto Rico. As it continues to overcome obstacles and take advantage of its resources and potential, the island has an opportunity to strengthen its economy, improve the quality of life for its residents, and move toward greater stability and prosperity for years to come.

Source: Statistical Appendix 2022

Fiscal and natural events have generated the need for the United States Congress to allocate more than $40 billion in the last six years to mitigate the effects of hurricanes and the pandemic in Puerto Rico. These funds have helped stabilize the island's economy and have given rise to the first signs of economic growth in recent years.

In fiscal year 2019, Puerto Rico experienced economic growth of 2.1%, followed by an increase of 0.9% in 2021 and a solid advance of 3.7% in 2022.

However, financial support from the federal government is not just limited to the years immediately following the hurricanes and the pandemic. In fact, it is expected that between 2023 and 2027 an additional $40 billion will be allocated to reconstruction projects in Puerto Rico. These funds, mostly from the Federal Emergency Management Agency (FEMA) and the Community Development Block Grant (CDBG) Program, are specifically targeted at the construction sector.

The disbursement of these resources has had a significant impact on the island's economy. In fact, in fiscal year 2022, the highest economic growth was recorded in Puerto Rico compared to previous years. This economic boost is directly attributed to investment and spending on federally funded rebuilding projects

The projection for fiscal year 2023 is also encouraging, as another economic increase is expected thanks to the continued injection of funds into the local economy. These additional resources will

Source: Intelligent Economics

not only contribute to the revitalization of infrastructure but will also generate employment and stimulate growth in various sectors.

Economic Growth Projections Planning Board vs Fiscal Control Board

For fiscal year 2023, there are divergences in growth projections between two government entities: the Planning Board and the Fiscal Control Board, in Puerto Rico. The Planning Board estimates a growth of 1.7%, while the Fiscal Control Board forecasts a more moderate growth of 0.6%. These discrepancies in the projections are also reflected in the outlook for the following years. The Planning Board expects slight and gradual growth in the future, while the Fiscal Control Board forecasts a decline in the island's economy.

The difference in these projections lies in how the allocation of federal funds is administered and in whether Puerto Rico manages to take advantage of the necessary opportunities to establish the essential economic mechanisms to promote growth.

It is essential that the island makes effective use of available federal resources and funds, as well as implement sound strategies to encourage investment, entrepreneurship, and sustainable development. The ability to seize opportunities and establish a solid economic foundation will be decisive for the continued growth of Puerto Rico.

Source: Planning Board, projections; Fiscal Control Board, Certified Plan to January 2022

Labor Market

One of the highly relevant issues for the private sector is the labor market. Since 2020, because of the pandemic, the global labor market has undergone significant changes and has not yet managed to fully recover its pre-pandemic trend. In the specific case of Puerto Rico, the level of employment is at its highest point in the last decade. The total number of people employed exceeds one million, and growth in the self-employed sector stands out.

This increase in self-employment indicates a dynamism in the local economy, as more people are finding opportunities to start and develop their own businesses. It reflects the adaptability and creativity of Puerto Ricans in the face of economic and labor challenges.

The unemployment rate in Puerto Rico is at its lowest point, at 5.8%. However, the labor participation rate, which represents people actively employed or looking for a job, stands at 43.6%. Although these indicators are positive, the labor participation rate in Puerto Rico continues to be considerably lower than that of neighboring countries, such as Colombia (64%), the Dominican Republic and Panama (63%), and the United States (62%).

Despite the encouraging numbers in the labor market, the demand for employment continues to outpace the supply, and this trend is expected to continue in all established industries on the

Source: Department of Labor

island. It is expected that within this growth in the labor market, job roles related to data analysis and technology will be generated, which will add additional value to the economy of Puerto Rico.

Demographic and Economic Changes

The economic recession of the last decade has had a significant impact on the island's demographic trends. Puerto Rico has experienced an aging population, which translates into a greater dependence on federal transfers and retirement benefits. Also, the population is not experiencing an active repopulation of the island. These demographic factors represent additional challenges for the economic recovery and sustainable development of Puerto Rico.

The aging of the population in Puerto Rico is reflected in the significant increase in the number of households that receive social security and retirement benefits. Currently, 47.3% of households on the island are beneficiaries of social security, compared to the average of 31.2% in the United States. This dependence is also observed in the number of households that receive the Nutrition Assistance Program (NAP), where 49.5% of households in Puerto Rico are beneficiaries, while in the United States that number is 12.4%.

Source: Statistical Appendix 2022

The Nutritional Assistance Program (NAP) has played a fundamental role in the food sector within Puerto Rico, especially in times of crisis. Following events such as hurricanes and earthquakes, there has been a significant increase in the transfer of funds earmarked for the program.

These additional funds have been crucial to guarantee the availability of food and cover the basic needs of the population during emergency situations. NAP has provided support to Puerto Rican families, allowing them to access nutritious and essential food, even in times of economic hardship and natural disasters.

The continued increase in the transfer of funds to the NAP demonstrates the recognition of its importance and its positive impact on the community. It is essential to continue strengthening and improving this program to ensure the food security of the residents of Puerto Rico, both in crisis situations and daily

Inflation remains challenging

One of the most significant factors that has impacted the economic outlook for 2022 is inflation. Globally, we have witnessed a double-digit increase in the cost of food, which has mainly affected those countries that are dependent on exports from regions such as Ukraine and Russia. Although prices have returned to normal in a global context, stabilizing at high levels that challenge the average income of hundreds of millions of families.

Nutrition Assistance Program (millions of $)

However, a decline has been seen towards the end of 2022 and as we enter 2023, while inflation is still an issue for consumers, it has slowed compared to previous months. This reduction in inflation represents a relief for families, although concerns remain regarding the impact on living costs.

Food Price Index

In both the United States and Puerto Rico, the increase in prices has eroded the disposable income of the population, especially those who depend on fixed income such as pensioners, Social Security beneficiaries, and recipients of the Nutrition Assistance Program.

The increase in prices has generated additional pressure on people's spending, which directly affects their ability to meet their basic needs and maintain an adequate standard of living. For those with fixed incomes, such as pensioners and Social Security recipients, rising prices for goods and services reduce their purchasing power, making it more difficult to cover

Consumer Price Index by Country (y-o-y change)

Source: Food and Agriculture Organization of the United Nations

In July 2022, inflation in the United States reached a 40-year record of 9.1%, while in Puerto Rico it closed the year at 6.1%. However, since then, reductions in inflation levels have been observed, reaching 5.0% in March for both countries.

Globally, according to the International Monetary Fund, inflation in 2022 was 8.8%. Global inflation is also projected to decline to 6.6% in 2023 and 4.3% in 2024. However, there is the possibility of a rise in food prices due to a disagreement over the Black Sea grain transportation initiative, which would put additional pressure on low-income countries already facing food insecurity. In addition, this puts more pressure on the food distribution chain as fewer grain suppliers are available.

In the case of the United States and Puerto Rico, inflation is expected to decrease within a range of 2.8% to 3.5%. However, the cost of food is anticipated to remain high, around 6%. We have already seen the news about the increase in the cost of eggs due to bird flu and the implications this has on other products.

The consumer confidence

Economic Intelligence Inc., in collaboration with Retail Group, conducts a monthly island-wide survey to analyze the perspective of more than 500 people about the economy in general, their personal finances and employment situation, as well as their willingness to spend in the next 3 months. Since the end of 2021, the resulting index has shown a negative trend, reaching its lowest point in November 2022.

However, during the period from Christmas to Easter, a transformation in consumer behavior was observed, showing slightly more optimism. This drop and subsequent recovery are aligned to a certain extent with the impact of inflation experienced by consumers on the island. In the most recent month, April 2023, it was reported that the population is optimistic and willing to spend both now and in the next 3 months, with a score of 14.8 points above the reference point. This represents a significant increase of 8.6 points compared to April 2022.

Consumer Expectations Index

Source: Intelligent Economics and Retail Group

Digging into the details, several important points from the survey stand out:

• 78.3% of men said they felt positive compared to 70.2% of women.

• Additionally, less than 72.8% of the population with an annual income of $35,000 or less is in a positive state. On the other hand, 84.3% of the population with an annual income of $35,000 or more show positivity levels that exceed previous results since the index's creation.

• It was also observed that the southern region of the island is the least optimistic, with only 57.7% of the population expressing positive feelings. In contrast, the central and eastern areas of the island have more than 80% of their population with positive perceptions.

This data reveals significant differences in the way different demographic groups and regions experience the economic situation and their willingness to spend time on the island.

About 62.3% of the population has reduced the consumption of food outside the home, and in general, they are cutting expenses in all types of food services. Other areas where consumers are saving are:

1. Food outside the home such as restaurants and fast food (62.3%)

2. Food for the home (52.1%)

3. Clothes and shoes (51.9%)

4. Furniture (35.4%)

5. Other (31.6%)

Food outside the home such as restaurants and fast food

Food for the home

Clothes and shoes

Furniture

Other

Reducing electricity and water consumption

Out-of-home entertainment

Electronic equipment

Entertainment (Cable, Netflix, Hulu, Disney+)

On the other hand, these consumers show an outstanding educational level. Their concerns cover issues such as crime, education, health, and the economy. Throughout the survey, crime and COVID-19 were the main concerns of respondents, but in recent months there has been a shift towards income and job security becoming the focus of discussion. Other reported concerns are:

1. The economy (63.2%)

2. Income security (50.6%)

3. Job security (49.2%)

4. Increase in prices – inflation (48.3%)

5. Increase in electricity and water costs (41.2%)

In which areas are they spending less?

What is the main concern for the next 3 months?

Increase

Puerto Rico’s energy crisis

In the context of Puerto Rico, the island's electrical transmission has historically been managed by the Electric Power Authority since 1926, initially called the Fluvial Sources Utilization Agency, and managed the entirety of Puerto Rico’s electrical network in 1981 after consolidating all the independent systems. In 2017 the Electric Power Authority faced 2 challenges that it could not overcome

Firstly, the island was hit by Hurricane Maria causing massive damage to the island along with its electrical grid and leaving large parts of the island without service for several months and even years, and second, the authority had to declare bankruptcy while in debt of 9 billion dollars. From that moment on, there were continuous mentions of its replacement until in June 2020 Luma Energy was selected by the Fiscal Control Board and Public-Private Partnerships Authority to be the new entity that would supervise the operation and functionality of the electrical network

However, regardless of the entity responsible for the transmission, it is commonly perceived that the island's power transmission is in a vulnerable state and even more so after 2017, with frequent blackouts and other interruptions in service transpiring commonly. Interruptions in electrical services such as these blackouts cause multiple burdens, particularly for businesses. For businesses, these interruptions in electric service are particularly detrimental to their condition,

negatively affecting business activity or, alternatively, resorting to supplying their own electricity at a generally higher cost to the business.

consumption (mkWh)

Those who could be categorized as those most affected by service interruptions or changes in costs would be the ones that consume it the most. As for the consumption of energy, since 2015 the highest proportion of electricity consumption corresponds to the 1.5 million commercial customers who consume around 46.21% of the total consumption, this is followed closely by the 16.1 million residential customers who consume approximately 39.05%. In monetary terms the $3.5 billion dollars collected annually since 2015 is funded primarily by the same two components, commercial clients end up contributing approximately $1.7 billion dollars annually or 48% while residential clients contribute approximately $1.3 billion dollars or 38%.

Source: LUMA

PREPA's Gross Income

Source: LUMA

Small and medium Businesses (SMBs)

Small and medium businesses (SMBs) are the most common type of business, representing 95% of the total establishments in Puerto Rico, comprised of the average restaurant, construction business, and professional services office to name a few. SMBs while they do refer to what could be categorized as small businesses or medium businesses, don’t have a fixed categorization and these are set by each country to set their standard in accordance with their situation, for Puerto Rico these set standards are:

• Micro-business. Business or company that generates a gross income of less than five hundred thousand dollars ($500,000.00) each year and has seven (7) employees or less.

• Small Merchants. Business or company that generates a gross income of less than three million dollars ($3,000,000.00) each year, and that has twenty-five (25) employees or less.

• Medium Merchants. Business or company that generates a gross income of less than ten million dollars ($10,000,000.00) each year and has fifty (50) employees or less.

SMBs by their very nature have small up-front investments and employees required to operate but can also emerge relatively quickly to untended demand and particularly for new types of products or services leading them to be increasingly innovative compared to larger businesses. SMBs due to their prevalence typically contribute significantly to a country’s GDP, additionally,

when considering the relatively smaller size of these types of businesses they also exhibit a great amount of competitiveness providing another variety of benefits to the economy by reinforcing innovative behavior, competitive efficiency, and adding a reducing effect on the prices seen by customers.

Given the important role small and medium businesses have on the economy, the government continually provides multiple aids to ensure the well-being of the Country's economy by providing the appropriate and necessary mechanisms to maintain or develop them. A long-running example of government aid to SMBs is the ‘Law of Incentives for the Generation and Retention of Jobs in SMBs’ which encourages “the creation and retention of jobs by small and medium-sized businesses (“SMBs”) through incentives, exemptions, subsidies, and other measures”.

Other more temporary aids emerge over time as new methods or situations arrive, however sometimes as with the currently ongoing such as the ‘Impulse Program’ from the Department of Economic Development and Commerce’ limit the availability of these aids to only a portion of the legally established range for SMBs.

In 2017, SMBs generated total sales of $9,715,736,563, with small size stores accounting for $5,062,908,494 and medium size stores contributing $4,652,828,069. Non-chain large size stores recorded sales of $3,164,476,673, while large chain stores (foreign and local) had the highest sales of $16,577,886,985. The proportion of SMB sales to total sales was 33.00% during this year.

The following year, in 2018, SMB sales saw an increase to $12,572,453,798. Medium size stores led the way with sales of $8,594,335,281, followed by small size stores at $3,978,118,517. Nonchain large size stores contributed $3,650,231,303 in sales, while large chain stores had the highest sales at $17,242,235,334. The proportion of SMB sales rose to 37.60% in 2018.

Moving to 2019, total SMB sales amounted to $10,958,955,572. Medium size stores remained the top contributors with sales of $7,557,204,206, while small size stores accounted for $3,401,751,366. Non-chain large size stores generated $3,642,734,460 in sales, and large chain stores topped the list with $16,019,100,512 in sales. The proportion of SMB sales decreased slightly to 35.80%.

However, in 2020, SMB sales experienced a decline, totaling $8,805,489,214. Small size stores had the lowest sales at $1,579,312,348, while medium size stores contributed $7,226,176,866. Non-chain large size stores recorded $3,959,921,906 in sales, while large chain stores continued to have the highest sales at $17,440,188,360. The proportion of SMB sales dropped to 29.20%.

In subsequent years, namely 2021 and 2022, SMB sales remained relatively stable with minor fluctuations. In 2021, SMB sales reached $10,465,239,613, with small size stores generating $1,498,672,079 and medium size stores contributing $8,966,567,534.

Non-chain large size stores recorded sales of $6,538,827,560, while large chain stores had the highest sales at $21,232,159,932. The proportion of SMB sales decreased to 28.50%. A similar trend continued in 2022, with the proportion of SMB sales at 28.40%.

Looking at the first quarter of 2023, SMB sales totaled $2,434,199,716. Small size stores accounted for $311,926,098, while medium size stores led with $2,122,273,618. Non-chain large size stores generated $1,173,117,860 in sales, and large chain stores maintained the highest sales at $4,798,089,069. The proportion of SMB sales experienced a slight increase to 29.00%.

Overall, the data reveals fluctuations in SMB sales over the years, with medium-sized stores consistently contributing the highest sales. Large chain stores consistently outperformed other categories. The proportion of SMB sales varied between 28.40% and 37.60% throughout the analyzed period. Small size stores have seen a reduction over the years.

Total Retail Sales

Source: Department of Economic Development and Commerce

Survey results

A comprehensive survey was planned to be conducted on the island, targeting a range of 220 to 400 Small and Medium-sized Businesses (SMBs). The primary objective of this survey is to gain a holistic understanding of the SMB sector, including their classification as micro, small, or medium-sized businesses. By collecting this information, the survey aims to provide estimates regarding the status of SMBs, particularly focusing on the impact of energy consumption on operational expenses and its potential implications in the event of an increase in the price of kilowatt-hour in the commercial sector.

Additionally, the study intends to explore the level of encouragement among SMBs to invest in renewable energies as a cost-saving alternative. Furthermore, the survey will analyze the strategies implemented by SMBs to reduce expenses in their commercial operations.

It should be noted that the final sample size for this study, which encompasses 235 SMBs, may introduce a margin of error of approximately 5.4%. However, despite this inherent variability, the sample is highly representative of the overall universe under study. By ensuring the inclusion of a diverse range of SMBs and considering their classification as micro, small, or medium-sized businesses, valuable insights can be obtained regarding energy consumption patterns and the potential impact of price increases on the commercial sector. Although the margin of error is

acknowledged, the findings from this sample will provide valuable information and serve as a reliable foundation for making informed decisions on the topic.

Analyzing the data, it was observed that 31 SMBs fall under the "Metro Area" category, representing those located within the metropolitan area. On the other hand, the "Outside of Metro Area" category comprises 203 SMBs located outside the metropolitan area. This discrepancy in numbers suggests potential variations in factors such as the business environment, market conditions, or economic dynamics between the two areas.

Another noteworthy finding is that a significant portion, specifically 77% of SMBs, have been operating on the island for seven years or more. This indicates their resilience and persistence despite facing challenges such as pandemics, natural disasters, and economic collapses. Many

of these resilient businesses operate in the Professional Services Industry or Retail Services sector.

Regarding the distribution of SMBs, the majority are classified as micro-businesses. This implies that economic activity primarily consists of companies owned by sole proprietors or having a team of fewer than or equal to seven employees, with earnings below $500,000.

When discussing compensation, in terms of the median wage per hour both Micro and Small businesses exhibited a median wage of $10.00 per hour, while medium businesses offer a slightly higher median wage of $10.50 per hour. Comparing these values reveals that medium businesses have a marginally higher median wage compared to Micro and Small businesses.

However, when examining the average wage per hour, we find that Micro businesses have the highest average wage at $14.58 per hour, followed by small businesses with an average wage of $13.13 per hour. On the other hand, medium businesses have the lowest average wage among the three categories, with an average of $10.57 per hour.

Considering the overall data for all types of businesses combined the median wage per hour remains consistent at $10.00. However, the average wage per hour increases to $13.91,

indicating that the overall average wage is slightly higher due to the inclusion of businesses with higher average wages (i.e., Professional Services).

It's essential to note that these statistics provide a snapshot of the wage distribution among different types of businesses. To gain a comprehensive understanding of the observed wage patterns, further analysis and context are necessary, such as exploring industry variations, regional differences, or specific considerations that may contribute to these wage disparities.

It is important to acknowledge that the implementation of a minimum wage hike will have an impact on certain businesses. According to survey results, it is evident that only a fraction of small and medium-sized businesses (SMBs) will be affected by this increase in wages, specifically 25.5%. It is worth highlighting that most of this increase will predominantly affect micro businesses, accounting for a substantial 66.7% of the affected businesses. Following closely behind are small businesses, comprising 25.0% of those influenced by the wage hike, while medium businesses represent a smaller portion at 8.3%.

These findings shed light on the distribution of the impact across different business sizes, providing insights into which sectors may experience the most significant effects from the minimum wage increase. It is important to note that a minimum wage hike can have both positive and negative economic effects.

On one hand, it can enhance the income and purchasing power of low-wage workers, potentially stimulating consumer spending and economic growth. On the other hand, businesses, especially smaller ones, may face challenges in adjusting to the increased labor costs, which could lead to reduced profits, workforce reductions, or even business closures. Therefore, while the minimum wage increase may benefit some workers, it is crucial to carefully consider its potential effects on the overall economy and the viability of different businesses.

An increase in electricity costs can also have significant economic effects on businesses. The allocation of general expenses to electricity costs varies across different types of businesses. Micro and Small businesses currently dedicate 13% of their general expenses to electricity, while medium businesses allocate a slightly higher percentage of 15.3%. These percentages highlight the significance of electricity as a cost component in the operations of these businesses.

When comparing the estimated values to the actual values, it becomes evident that the estimations for electricity costs in general expenses were slightly higher across all types of businesses. The estimates of 17.0% for Micro businesses and 17.1% for small businesses suggest that these businesses were already allocating a substantial portion of their expenses to electricity. Therefore, an increase in electricity costs would further amplify the financial burden on these businesses, potentially resulting in reduced profits or the need to pass on the cost to consumers through higher prices.

Medium businesses, with an estimated electricity cost of 19.9%, face an even greater impact on their operational costs. If electricity costs were to rise, these businesses would experience a significant increase in their expenditure, putting additional pressure on their profitability. The overall estimate of 17.2% for SMBs further emphasizes the vulnerability of businesses in this category to fluctuations in electricity prices.

According to the survey data, SMBs can expect to pay an average of $680.93 per month for electricity. However, as the company size increases, the corresponding payment obligations also increase. This can pose challenges for businesses, particularly in terms of profit margins and hindering their expansion plans.

In summary, a hike in electricity costs would have economic implications for businesses across all categories. The proportion of general expenses dedicated to electricity signifies the importance of this cost element in business operations. Any increase in electricity costs would directly affect the financial health and competitiveness of businesses, potentially leading to reduced profitability

and increased consumer prices. It is crucial for businesses to carefully manage their electricity usage, explore energy-efficient alternatives, and monitor market trends to mitigate the potential negative effects of rising electricity costs.

These estimates provide an approximation of the expected electricity costs within the general expenses for each business type. It's worth noting that these estimations may rely on certain assumptions or predictive models used to derive them. To gain a deeper understanding of the implications and impact of these electricity costs, further analysis is necessary, considering factors such as specific energy consumption patterns, the potential influence of price fluctuations, and the overall financial sustainability of businesses concerning their general expenses. This additional analysis will shed light on the significance of electricity costs and their potential effects on the financial performance of different types of businesses.

For micro businesses, approximately 44.1% of the responses indicate a worsened performance, 47.4% indicate no change, and 8.6% indicate an improved performance. Similarly, for small businesses, around 44.1% report a decline, 48.5% report stability, and 7.4% report improvement. Medium businesses show approximately 40.0% with worsened performance, 33.3% with unchanged performance, and 26.7% with improved performance. Notably, the percentage of improved performances in the medium category is relatively higher compared to the other two.

Considering all types of businesses combined (SMBs), approximately 43.8% indicate a decline, 46.8% report no change, and 9.4% indicate improvement in performance. These percentages offer valuable insights into the perceived changes in performance across different business types. However, it's important to note that without further context or specific criteria for assessing performance, it is challenging to determine the underlying reasons behind these reported changes. It is worth mentioning that these results follow similar trends when comparing it with retail sales by size their respective size in company.

In addition to the performance data, the provided information includes the measures implemented by SMBs to reduce costs, along with the corresponding distribution percentages for each measure.

Measures Taken by SMBs to Mitigate Costs

Upon examining the data, several key distributions emerge, offering valuable insights into the cost-cutting measures employed by SMBs. Notably, the category labeled as “Other” constitutes 31.5% of the responses, indicating a significant portion of SMBs implementing diverse, uncategorized cost-saving strategies tailored to their specific circumstances. Other cost-saving strategies implemented by SMB are by reducing purchases in inventory, consolidating operations, or remote working. Furthermore, 36.6% of SMBs have focused on reducing material purchases, aiming to optimize resource utilization and lower expenses.

Workforce reduction measures, including layoffs, hiring freezes, or reduced work hours, have been adopted by 37.4% of SMBs, while 42.1% have opted to decrease operating hours to save on staffing, utilities, and operational costs. However, the most prevalent strategy is the delay of investment plans, with a staggering 60.9% of SMBs choosing to conserve financial resources by deferring investments. It is important to note that these distributions may vary based on industry and individual circumstances. To gain a comprehensive understanding, further analysis and contextual information are necessary.

Additionally, the provided data presents the distribution of responses regarding government contributions or mitigation loans received by different types of businesses to support their economic activities.

Have you received any government contributions or mitigation loans?

Upon analyzing the data, several key distributions regarding government support and incentivization for renewable energy investments among different types of businesses have been observed.

Starting with government support, the data reveals that a significant portion of businesses across all categories have received contributions or mitigation loans from the government. In the case of Micro businesses, 52.3% of the responses indicate receiving such support, while 47.7% did not. For Small businesses, the figures stand at 61.8% receiving support and 38.2% not receiving it. Medium businesses show a slightly higher percentage, with 66.5% indicating government support and 33.5% stating otherwise.

When considering all types of businesses combined (SMBs), most responses (58.6%) indicate receiving government contributions or mitigation loans, while 41.4% did not. These distributions provide valuable insights into the prevalence of government support, indicating that a significant number of businesses have received assistance. However, further analysis would be necessary to understand the specific programs or initiatives involved and the extent of the support provided.

Have those government contributions or mitigation loans been sufficient to mitigate the impact on your operational costs?

Yes No

Shifting focus to the incentivization for renewable energy investments, the data demonstrates a positive attitude among businesses across all categories. For micro businesses, approximately 71.1% of the responses state that they would be incentivized to invest in renewable energy systems, while 28.9% indicate otherwise. Similarly, for small businesses, 79.4% express an inclination towards renewable energy investments, with 20.6% stating they would not be incentivized.

Medium businesses show a slightly lower percentage, with 73.3% indicating they would be incentivized and 26.7% stating the opposite. Considering all types of businesses combined (SMBs), approximately 73.6% of the responses show an interest in investing in renewable energy systems, while 26.4% do not. These percentages highlight the positive reception of businesses towards renewable energy adoption and indicate that the expected increase in electricity costs serves as a motivating factor for them to explore and invest in sustainable energy alternatives.

Micro Small Medium SMB

With the expected increase in electricity prices, would you encourage them to invest in renewable energy systems?

The survey data suggests that the rising costs of electricity may lead businesses to consider investing in renewable energy systems. While this aligns with the global trend of businesses embracing sustainable energy solutions, SMBs face challenging macroeconomic circumstances in the present and near future, making it difficult for them to adopt such technologies.

However, the survey emphasizes the importance of supportive policies, financial incentives, and accessible resources to facilitate and expedite the adoption of renewable energy by SMBs. By implementing these measures, governments and organizations can promote sustainable practices, reduce carbon emissions, foster a resilient and environmentally friendly business landscape, and alleviate the financial burden that SMBs may encounter during this transition.

In conclusion, the macroeconomic conditions on the Island appear to be favorable for the overall economy. However, it is important to acknowledge that there are various economic forces that may pose challenges for small and medium-sized businesses (SMBs) in general.

The growth in employment and economic activity presents a positive outlook for SMBs soon, as consumers are willing to spend on their goods and services. However, persistent inflation may have a counter-effect on consumer spending, potentially diverting purchases from SMBs to other companies.

Furthermore, while the impact of minimum wage changes on SMBs is expected to be relatively minor, microenterprises, which form a significant portion of SMBs, may be particularly vulnerable

to such changes as they are likely to experience the greatest challenges in their business operations.

Moreover, if an increase of 30% in commercial electric costs per kilowatt-hour is approved in the coming weeks, it will have a negative effect on businesses. According to survey data and estimates, the distribution of electric costs as a portion of total operating expenses will rise from 13.2% to 17.2%. This additional burden will force companies to take measures such as reducing business hours, implementing layoffs, or even closing their operations.

Furthermore, based on our analysis, survey data already indicates that SMBs have faced difficulties, with 90.6% reporting no change or a decrease in sales compared to the previous year. It can be inferred that these companies may face even greater challenges if sudden and abrupt implementations, such as the ones mentioned above, take place.

In summary, while macroeconomic conditions appear favorable for the Island's economy, SMBs may encounter significant obstacles due to various economic forces. It is crucial to consider the potential negative effects of inflation, minimum wage changes, rising electric costs, and the already challenging business environment for SMBs.