Home Articles Revival of Small Business sector amid corona Virus Epidemic

Revival of Small Business sector amid corona Virus Epidemic

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The lockdown in most parts of the country, amidst addressing the challenges of corona virus pandemic, has largely impacted industrial activities, and, resultantly, economic regression. The situation demands that, besides handling the other issues related to the deadly virus, government embarks on the plans to revive industrial activities as soon as practical.
60% population of Pakistan population is already below poverty line (I.e. earning of Rs 300 per day with six family members). Rapid growth in population is one of the major reasons. This is occurring due to lack of family planning education, lack of women empowerment, poverty, preference to have more sons along with other constraints. Currently the total unemployed persons in Pakistan are 3.79 million out of the total labor force of 65.5 million, depicting an unemployment rate of 5.79%. On its increase to 8% or further unemployment figure would add further 2 million people?
SMEs (Manufacturing) employ more than 1.2 million persons, whereas the total labor force in the manufacturing sector is around 1.8 million persons. Hence they account for approximately 70% of total labor force in the manufacturing sector.
Seemingly, the government has prepared a roadmap for revival of major industries. As a first phase, the construction industry has been given incentivized package, and a Construction Industry Development Board is being constituted to spur the construction activities. Also, the Chinese team in Pakistan is conducting due diligence for the Pakistan Steel Mills at Karachi, which has been closed since long and now is offered for disinvestment.
The emergence of Pakistan had witnessed a very few small and medium industries set up in diversified sectors, such as food, paper and paperboard, chemical and petrochemical, cement, sugar, steel and engineering, including the Karachi Shipyard and Engineering Works.
In the late 1960s there was a shift from consumer to capital goods industry such as machine tools, heavy industry and iron and steel. Pakistan Machine Tool Factory (PMTF) was established in Karachi. China extended technical and economic assistance for setting up Heavy Mechanical Complex (HMC) and Heavy Electrical Complex (HEC) near Rawalpindi.
Pakistan is now facing the brunt of Corona virus outbreak as the country is in a partial lock down. This has had a negative impact on businesses. Initial estimates show that the economy will witness sluggish growth in services, manufacturing and agriculture sectors, increase in unemployment, decrease in government revenue, decline in exports and disruption in supply chains. Lockdown across the country is expected to make the situation dire for the estimated 5.2 million enterprises in the country.
We take here example of SMEDA survey considering 920 businesses estimating total annual sales turnover of PKR 29 Billion and with employment of 19,641 employees. Moreover, these businesses also employed an estimated 8,950 daily wagers. Most of the businesses are small in size. 33% of respondents have an annual sales turnover of up to PKR 1 million and 34% employ 1 to 5 employees.
Survey Report highlights the issues being faced by SMEs during lockdown and its impact on employment and production. 95% of respondents/ businesses have reported that COVID-19 and the subsequent lock down have caused a reduction in their operations. Similarly, 92% of respondents have reported a disruption in their supply chain and 23% have reported up to 100% loss in their export orders. Increasing unemployment has been a major issue during the lock down and 46% of surveyed businesses have laid off some of their employees. However, 26% report that they will rehire their employees in one month, after the end of lock down. Nonetheless, 89% of SMEs are facing financial issues while 60% have reported issues in selling their product/service and have thus identified areas for public sector support to sustain their businesses and mitigate the impact of COVID-19. These areas include; SME-specific support measures including financial packages, tax relief, guarantees and grants, relaxation in payments of utility bills, support in paying salaries and easing conditions for loan repayments.
The importance of providing SMEs with access to finance has been a recurring and unanimous concern of the Government and SME development platforms. Credit Guarantee Scheme for SMEs sector may be prioritized and synchronized with priority sectors through initial government seed money.
Equity participation fund identify, facilitate and finance high growth potential of small and medium enterprises through easy availability of equity financing. Equity participation funds, as international best practices, function through government funding of seed capital followed by investments mobilized through the private sector. Women businesses are also crucial to the economic success of a country as they can generate substantial economic impact given the availability of right regulatory support. Coordinated linkage between industry and academia is the critical bridge in solving business related production, technology and management problems. Development of competitive human capital is also very important for growth and competitiveness of SMEs.
The State Bank has since now allowed finance up to 100% of wages and salaries of businesses with an average three-month wage bill of up to Rs500 million. This can be used for onward payment of wages and salaries for April, May and June 2020. Earlier, 100% financing was available for wage bill of up to Rs200 million only.
Such steps are critical for the SMEs working and to defuse unemployment right now.

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