Businesses across the globe have been under duress during the pandemic; the SME sector in the developing countries has been particularly grappling with the impact of Covid-19 pandemic. From contraction in demand, employment shocks, financial instability and disruptions across supply chains; 2020 was a testing time for small and medium enterprises in Pakistan as well largely due to the countrywide lockdown associated with COVID.
While the impact has been colossal and well - acknowledged; a recent survey by conducted online by Small and Medium Enterprises Development Authority (SMEDA), Asian Development Bank Institute (ADBI) and Asian Productivity Organization (APO) has put Pakistan among the top three countries in the region in terms of government support provided to SMEs to mitigate the impact of Covid-19 – standing at number 3 to be exact.
The survey results show that the top three changes in business environment for SMEs between Feb-Apr 2020, versus pre-COVID-19 for Pakistan were increased price of materials; cash flow shortage; and significant drop in domestic demand in that order. Pakistan had the least percentage of enterprises (respondents) that reported a significant decrease in domestic demand within the region. By implication, the survey shows that most SMEs in Pakistan were able to sustain their domestic demand despite Covid-19.
Key actions taken to maintain business during Covid-19 by SMEs in Pakistan were temporarily close down, reduced production; reduced working hours; layoffs and salary cuts in the same order. Meanwhile, actions taken to address cash shortage by SMEs (82 percent) included negotiation with lenders to avoid withdrawing loans, cut down on non-permanent employment, layoff of permanent employees. Pakistan had the highest percentage in the region in terms of laying off permanent employees to address cash flow shortage. A significant portion of respondents delayed bill payments to deal with cash flow shortages, while a small percentage around 13 percent SMEs reported that they reached out for loans from commercial banks, and a little over 11 percent tried to deal with their cash flow issues through loans by microfinance companies or private individuals.
Though 50 percent SMEs in Pakistan reported that they were aware of the government’s aid packages for SMEs made available during COVID-19 pandemic, it was one the lowest in the region. It was highest in Bangladesh, Malaysia and Vietnam. Government support to SMEs in Pakistan were concentrated in three categories: payment of utilities (electricity, water, gas etc.) internet connection, and deferred payments of bank loans. However, close to 43 percent SMEs in Pakistan reported that they did not receive any support from government; and only 7 percent respondent SMEs received support to restructure loans or defer payments of bank loans, which was also lowest in the region.
The survey also offers insights for the overall development of the SME sector such as the need for creating more opportunities for women. In Pakistan, SME respondent’s female employment stood at one of the lowest at 6.7 percent. Also, compared to its regional peers, payment methods by SMEs in Pakistan least rest with digital/mobile payments, which also offers an opportunity for the mobile service providers as well as the digitization of the SMEs. As per the survey, 72 enterprises in Pakistan reported cash as the major payment method, and only 4.3 percent use mobile payment methods.
While the survey shows positive development by the government as well as the resilience of the sector that helped it survive the pandemic, what is needed is continued and increased facilitation in 2021 and beyond. Countries have moved to the recovery stage, but the SME sector continues to face drop in demand and revenue. Though employment has somewhat returned to normal, wage cut hampers future growth. Serious cash conditions have been averted, but short-term working capital constraints have mounted. Loan and taxes remain the sector’s key concerns. The strategy going forward for SMEs in general should be a balance of relief and stimulus measures with a focus to move towards digitization.
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