How SMEs can build resilience to crises like Covid-19 pandemic

By APOLLO NJOROGE

The Covid-19 pandemic is devastating many small businesses globally since they are vulnerable to economic shocks linked to supply chain disruptions, declining consumer demand, reduced access to credit, among other constraints, which if not addressed will trigger massive job losses and destroy millions of livelihoods.

The World Trade Organization estimates that small and medium enterprises (SMEs) represent over 90 per cent of the business population, 60-70 per cent of employment and at least half of GDP in many countries. They constitute majority of businesses in Kenya, providing 30 per cent of jobs and contributing a third of GDP. This underscores the pivotal role of SMEs in the formal and informal economic sectors.

Covid-19 is impacting SMEs in many ways. Lockdowns and movement restrictions to contain the disease have resulted in supply-side constraints affecting labor supply, transport and logistics. On the demand-side, social distancing has dampened consumption as customers stay at home and spend less due to the prevailing financial uncertainties. Most affected are SMEs in tourism, transport and hospitality.

The pandemic has also dented investor confidence and access to credit. Since SMEs generally have a higher risk profile, many will find it harder to mobilise financial resources, undermining their long-term competitiveness.

A recent survey by the Organization for Economic Cooperation and Development shows the economic impact of Covid-19 on SMEs varies among countries but the main concerns revolve around supply chain logistics, inadequate working capital, decline in revenue, ability to retain employees, and above all, uncertainty over the pandemic’s duration.

SMEs are not just businesses but also sources of livelihoods for many Kenyans. Ensuring they survive the pandemic is, therefore, key to protecting many vulnerable households from ‘livelihood shock’ if they collapsed. This calls for innovative strategies to boost SME resilience in the face of the economic upheaval unleashed by Covid-19, more so, ensuring their sustainability.

Fortunately, SMEs are beneficiaries of stimulus measures by the government to cushion businesses and individuals from the economic ravages of Covid-19.

Lowering of the turnover tax threshold to Sh1 million brought immense financial relief to many small businesses. Reduction of VAT from 16 to 14 per cent will make goods and services more affordable. Also, 100 per cent tax relief for low income earners is geared to putting money in the pockets of consumers thus sustaining demand for goods and services. In addition, the Central Bank decision allowing commercial banks to restructure non-performing loans was timely for many SMEs in the wake of financial instability occasioned by depressed economic activity. However, beyond these financial interventions, small businesses will need to work hard to safeguard key relationships with important stakeholders such as customers, employees, financial partners, investors, communities and government.

These stakeholders have a role to play in ensuring the sustainability of a business. They are crucial in building resilience to crises like Covid-19. Ignoring them is costly.

Customers are the oxygen of a business. But even with the increasingly challenging operating environment, this is an opportune time for small enterprises to re-define and re-align their business models. We have seen many firms venture into new areas like manufacture of personal protective equipment.

With Covid-19 disrupting the workplace, SMEs will need to re-think their strategies to optimise their human capital resources, not necessarily mean laying off workers. They can explore new employee engagement models such as short-term contracts and remote working to streamline costs while investing in technology for productivity.

Managing the expectations of creditors, debtors and shareholders is critical to the financial viability of the business. SMEs should take advantage of goodwill among financial stakeholders to ensure the business has enough cash to ride the crisis.

Compliance with government directives on preventing the spread of the coronavirus is imperative. Requiring employees and customers to adhere to health measures like maintaining hygiene and social distance while in the premises ensures everyone remains healthy and safe from the coronavirus. No business can survive on sick employees and customers.

In times like this of social distress, helping those in need is good citizenship. SMEs should identify and assist vulnerable groups in the communities in which they do business. The goodwill and social licence thus acquired is vital for surviving Covid-19 and future crises.

Mr Njoroge is the managing director, Faulu Microfinance Bank. [email protected]