Developing economies particularly in sub-Saharan Africa are walking a tightrope of trying to save lives and livelihoods with SMEs at the heart of the COVID-19 crisis, reports IMA-ABASI PIUS.
The past few months have seen the global economy crumble at an unprecedented rate as a result of the COVID-19 pandemic. The world’s topmost economies such as the United States, the United Kingdom, China, and Germany, took a massive hit as major industries were ground to a halt, in an attempt to stem the viral spread of the pandemic.
Other industries whose services were integral to daily survival, like the health, telecommunication, and manufacturing industries (responsible for the production of essential items), were forced to operate under intense conditions.
So far, small and medium-sized enterprises appears to be the biggest losers amidst the global crisis as the OECD’s most recent survey suggests that a large number of the businesses are on the brink of going bankrupt as a result of long weeks of inactivity caused by the lockdown imposed on major cities across the globe.
With financial experts raising concerns about undesirable economic repercussions that might arise in the wake of COVID-19, there are calls for an urgent need to re-assess the health crisis’ impact on SMEs and how governments’ policies can significantly influence their ability to thrive in the post-COVID-19 era.
According to the World Bank’s estimate, SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide, indicating that an imminent threat to SMEs will portend great danger to the economy of most first-world nations. However, as undesirable as this situation might seem, developing countries are at graver risk.
Currently, formal SMEs contribute up to 40 per cent of national income in emerging economies. A perfect example is Africa’s most populated nation, Nigeria, where SMEs contribute 48 per cent to its total GDP, and also accounts for 84 per cent of employment.
For a country whose unemployment rate appears to be off the chart, an impending threat to the existence of most SMEs will likely lead to an economic catastrophe.
Now more than ever, SMEs are concerned about their finances as most run on shoe-strings budgets and with an uncertain market, taking the best decision is no longer considered as a choice, but a necessity.
Liquidity remains a key factor for most SMEs today, as several of them have taken drastic measures to ensure that their businesses stay afloat until the worst of the crisis is over.
So far, SMEs have resorted to the use of business-impacting response measures like laying off staff, cutting operational costs, and seeking loans, in an attempt to keep their businesses afloat. For some, leveraging modern technology to enable their employees to work from home and also maintain a high level of productivity has been the best move so far. While businesses ill-equipped to take advantage of technology or require employees to be on site are having the last kick of a dying horse.
COVID-19-induced layoffs are top among a growing list of problems associated with SMEs, as studies show that 42 per cent of pandemic-induced layoffs might result in permanent job loss, due to the inability of a large number of SMEs to stay afloat during this crisis.
Fortunately, governments of most developed countries have noticed the imminent surge in the rate of unemployment and for this reason, have rolled out several intervention plans to help keep as many SMEs as possible running until normalcy returns. No country was prepared for a disaster of the COVID-19 magnitude. But be that as it may, some countries have found ways to survive and are already looking to re-open a new chapter which could spell good fortune in the nearest future.
However, it is a different tale for developing economies, especially sub-Saharan Africa as governments in that region are having a hard time grappling with the pandemic that seems to be gaining momentum in the region. For most of these countries, the fight to save a large number of SMEs from going extinct seems like a lost cause.
Amidst the growing tension and uncertainty regarding the long-term economic impact the coronavirus pandemic might have on small and medium-scale businesses across the globe, various governments have taken the risk of reopening the economy.
Health experts believe reopening the economy might prove too soon and even disastrous making the world feel between a rock and a hard place. With this, the only thing certain at this point is that the nearest future holds all the answers to many pending questions.