Impact of COVID on Small and Medium Enterprises

Small and medium enterprises (SMEs) are the backbone of the light manufacturing sector of Pakistan, and are particularly vulnerable to economic shocks. In light of COVID-19, it is expected that SMEs will face the brunt of the inevitable contraction in economic activity. With SMEs occupying a key position in local value chains and employing the majority of semi-skilled labour, the impact on SMEs will have multiplier effects on the overall economy. This study will explore the expected impact of COVID-19 across a comprehensive sample of small and medium sized firms throughout Pakistan, with a view to plan for economic resilience and recovery.

The data for the study will be collected through a data partnership with the Small and Medium Enterprise Association (SMEDA), which has already rolled out the first phases of two online surveys, one of which has 920 respondents and the other 1400 respondents. The study survey and analysis will build on these preliminary surveys on the impact of COVID-19 on firm operations and liquidity, adding questions that will help develop a more nuanced policy response.

The data and analysis will help to design flexible but targeted interventions to mitigate the impact of COVID due to the resulting economic slowdown and allow firms to recover quickly to at least pre-pandemic levels. Broadly, the two most immediate concerns for small businesses pertain to demand contractions and value chain disruptions. Fixed costs such as rent and salaries need continued payments, which causes a severe liquidity crunch as revenues plunge due to lockdown restrictions and falling consumer incomes. Even for sectors that faced lockdown relaxations early, such as construction, value chain disruptions have meant that the work cannot be restored to previous levels. The knock-on effect of this is layoffs of already vulnerable workers.

Other shorter- and medium-term concerns will require interventions to minimize economic losses, promote business continuity, and manage a rapidly changing business environment. In the recovery phase, policies to reactivate or stimulate SMEs and safeguard business interests could include managing the work environment under COVID-19, creating affordable financing and other emergency relief options for SMEs, and helping firms retrain to adapt to the digital marketplace.