MSME Day 2020: the COVID -19 pandemic and its impact on small business

On MSME Day 2020, results of an ILO SCORE Programme survey indicate that small and medium-sized enterprises are struggling to survive the effects of COVID-19.

Article | 26 June 2020
The results of an ILO SCORE Programme survey indicate that micro-, small, and medium-sized enterprises (MSMEs) matter more than ever. Representing more than 70% of global employment and 50% of GDP, they cannot be ignored. Unfortunately, small businesses are being hit hardest by the fall-out of the pandemic. Solutions are needed to give them the support they need to survive and continue to contribute to the global economy. To raise public awareness of their contribution to sustainable development and the global economy, the United Nations General Assembly declared June 27 MSME Day.

The May 2020 survey of SMEs trained by the ILO's SCORE programme shows that although SCORE Training has allowed them to improve their productivity and ensure better chances of survival by becoming more competitive, nothing could have prepared them for the hard hit they received from the COVID-19 crisis. The effects on business continuity, labour force, revenues and occupational health and safety have been, and continue to be, devastating. It is for this reason that on MSME Day 2020, that we focus on their needs and how to support them.

Effects on business continuity

Of the 1,000 companies surveyed from eight countries across four continents, 70% have had to shut down operations. Half (50%) have temporarily closed their business by following direct instructions from the authorities, while the other 50% have closed temporarily due to a reduction in orders, cases of staff COVID-19 infection, or more sadly, permanently.

Lower Revenues

More than 75% of SMEs are experiencing or expecting a reduction in revenues through 2020. In some cases, the reductions in revenues are very high. One-third (33%) of businesses anticipate losing more than half of their revenues—and the situation is not expected to improve, according to the entrepreneurs surveyed. In some countries, such as Myanmar, Ghana, Bolivia and Colombia, there is relative optimism about the future, balanced with a healthy dose of uncertainty. However, in other countries such as Indonesia, Peru, Tunisia and Pakistan, significant losses are expected, with a higher proportion of entrepreneurs expecting losses well above -25%.

Reduced demand for orders

The situation is similar for customer orders, with 75% of companies suffering from reduced demand and one-third (33%) experiencing a more than 50% drop in customer orders. Although those surveyed expect demand to recover somewhat through the rest of 2020, the majority still expect a reduction between -25% and -50%. These are the same countries that are the least pessimistic about revenues.

Cash flow shortages

The situation is critical for SMEs and becomes even more so when looking at cash flow. Nearly 9 out of 10 businesses are experiencing a shortage in cash flow. The situation is not expected to improve throughout 2020, according to those surveyed.

Impacts on the labour force

The effects on SMEs are dramatic, and so are the measures concerning the labour force. Seven out of ten firms have reduced production capacity due to a lower number of temporary workers, reduced working hours, or employees taking paid leave. A significant proportion of firms have taken more drastic measures. These include asking workers to take unpaid leave, work for reduced pay (20% of those surveyed), or even by laying off permanent staff (10% of those surveyed). Nearly one-third (30%) of companies report a shortage of workers resulting from containment measures, family care responsibilities, or fear of infection. These are alarming statistics for those concerned about working conditions in MSMEs.

OSH business continuity and call for support

Over 85% of SMEs are taking steps to protect workers from COVID-19 by informing their staff of preventive measures, requiring social distancing, or by providing personal protective equipment.

Responding to the pandemic

Companies are responding to the economic fall-out from COVID-19 in several ways. Half of the SME’s surveyed have reduced their production of goods and services to match demand reductions and constraints on their production. Over one-third (38%) of SME’s are negotiating wage modifications with workers or revised payment terms with banks and suppliers. Less frequently, some SME’s are trying to diversify their sales channels or products to try to reduce the effects of the crisis on their business.

SME responses to the survey are diverse, yet all small businesses are united in asking for support to ensure their sustainability through the pandemic. Their priorities are clear:
• 57% of companies would like advice on infection prevention; and
• 50% would like advice on business continuity.

It is clear from the survey responses that occupational health and safety and business continuity training are essential to helping businesses survive the pandemic. However, these services must be complemented by strong government action.

With cash flow being a key concern, businesses need easy access to short-term liquidity, the deferral of utility payments, and deferral of social security contributions. An ILO blog post recently identified critical policies that can help small businesses withstand COVID-19. These include emergency interest-free loans and cash grants to support wages, training, productivity improvements, and new products.

The right policies are crucial to ensuring SME survival. Despite the significant struggles that SMEs face, the government response to the COVID-19 pandemic can help nurture a positive, resilient, and sustainable future for small businesses around the world.

A presentation of the survey results can be found here, and more information on the impacts of the COVID-19 pandemic on SMEs can be found here.