How SMEs can build resilience to crisis like Covid-19


SMEs will need to re-think their productivity strategies to optimize their human capital resources. FILE PHOTO | NMG

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 Organisation estimates that small and medium enterprises (SMEs) represent over 90 percent of the business population, 60-70 percent of employment and at least 50 percent of GDP in many countries.

Available data shows that SMEs constitute majority of businesses in Kenya, providing 30 percent of jobs and contributing one-third of GDP. This underscores the pivotal role of SMEs in both formal and informal sectors of the economy.

Covid-19 is directly impacting SMEs in many ways. Lockdowns and movement restrictions to contain the disease have resulted in supply-side constraints affecting labour 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 mobilize financial resources thus undermining their long-term competitiveness.

A recent survey by the Organisation for Economic Cooperation and Development reveals that Covid-19 economic impact 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.

In addressing these challenges, it is important to recognize that 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.

For instance, lowering of the turnover tax threshold to Sh1 million brought immense financial relief to many small businesses. Reduction of VAT from 16 to 14 percent will make goods and services more affordable. Also, 100 percent 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 small businesses in the wake of financial instability occasioned by depressed economic activity as a result of Covid-19.

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.

All these stakeholders have a role to play in ensuring the sustainability of a business. More importantly, they are crucial in building resilience to crises like Covid-19. Ignoring them will be costly in the long-run.

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. For example, 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 productivity strategies to optimize their human capital resources. This does not necessarily mean laying off employees. They should instead explore new employee engagement models such as short-term contracts and remote working to streamline costs while investing in technology to enhance productivity.

Managing the expectations of creditors, debtors and shareholders is critical to the continued financial viability of the business. SMEs should take advantage of existing goodwill among financial stakeholders to ensure the business has sufficient 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 keeping physical 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.

The writer is Managing Director, Faulu Microfinance Bank Limited.