Shortly after the World Health Organisation (WHO) declared the novel coronavirus disease (COVID-19) a pandemic in March 2020, I had authored a blog piece about the outbreak’s possible impact on micro, small and medium-sized enterprises (MSMEs). I had also posited some options for MSMEs to help weather the COVID-19 storm. On June 23, I had the honour and pleasure of presenting on the topic “COVID-19 and Business: Reflection, Impact and Options” at the 39th Annual Conference of the Institute of Chartered Accountants of the Caribbean (ICAC). It is in this vein, and in recognition of the upcoming United Nations’ MSME Day on June 27th, that this ‘update’ article reflects on the impact of the COVID-19 pandemic on MSMEs two years on. Specifically, it discusses how businesses have pivoted and proposes some further options for weathering these increasingly turbulent economic headwinds.
Setting the context
The first confirmed COVID-19 case in a Caribbean Community (CARICOM) Member State was in Jamaica on March 10, 2020. Since then Caribbean countries, like other countries around the world, have undergone at least four or five waves of infection fueled by the initial virus and subsequently by variants. As of June 21, 2022, there have been over 750,000 confirmed COVID-19 cases and over 13,400 confirmed deaths in CARICOM Member States according to data collected from the WHO’s COVID-19 Dashboard.
Since the start of the pandemic, Governments have had to maintain a delicate balance. This involved implementing measures to flatten the COVID-19 curve to reduce infection and hospitalization rates, but also with the knowledge that these measures would dampen economic activity, especially tourism, the bread and butter of most of our regional economies. At various stages and to varying degrees, governments both regionally and internationally, implemented curfews and stay-at-home orders, lockdowns, mask mandates, travel restrictions and temporary border closures. The most stringent measures were taken particularly in the first wave of the virus when we were still learning about the virus and how to cope with it and prior to the availability of an effective vaccine.
Governments formulated protocols around social distancing requirements, temporarily banning certain ‘close contact’ activities or placing limits on the numbers of patrons for these activities. In 2020 and 2021 many Caribbean Governments also made the difficult decision to cancel their annual festivals or carnivals, which are major money earners and tourist draws, due to the risk of having such a large number of patrons. Save for some exceptions, most Caribbean countries avoided vaccine mandates and took a more persuasive approach to vaccine uptake.
These government public health measures, while necessary for managing the epidemiological impact, negatively affected firms. In a very informative Interamerican Development Bank (IDB) study, Acevedo et al (2021) found a positive correlation between social distancing policies and the proportion of firms surveyed reporting a drop in sales. Though noting that this pattern was viewed across countries worldwide, the correlation, they argued, seemed to be stronger for countries in the Caribbean. Similarly, the International Trade Centre (ITC) in an earlier study found that 76% of surveyed firms providing accommodation and food services stated that full or partial lockdowns had strongly affected their business operations (ITC 2020).
Two years into the pandemic, we now have a pretty useful set of data from the World Bank’s Enterprise Survey and its COVID-19 business pulse survey on how firms have been impacted globally. Based on data from 120,000 firms in over 60 countries, the World Bank found that on average, companies’ sales dropped 27% in October 2020-January 2021 from pre-pandemic levels, after plunging 45% in April to September.
Regionally, using data from the IDB’s “Innovation, Firm Performance and Gender (IFPG)” Survey, Acevedo et al (2021) described as “substantial” the impact of the pandemic on Caribbean firms surveyed. They observed that “more than 90% of Caribbean firms surveyed reported a negative impact and a 33% on average reduction in sales” and that firms in the category of “services and retail” reported the largest decrease in sales and capacity utilization. Similar studies on the business impact of the COVID-19 pandemic have also been conducted in Suriname (Khadan 2020) and Jamaica (Tennant 2021).
COVID-19 has had a very differentiated impact on businesses, that is, not all businesses were impacted negatively or in the same way. Globally, those businesses in so-called ‘high or close contact’ sectors– such as the tourism, hospitality, entertainment and retail sectors – were among the most impacted, especially due to the tourism shortfall and social distancing requirements (ITC 2020; Bartik et al 2020). Women and youth-led/owned firms appeared to be more significantly affected (ITC 2020). This is not because of their quality of leadership but because of the structural barriers many women and youth-led/owned firms usually face, including greater difficulty in accessing finance.
An interesting Financial Times article on winners and losers from the pandemic showed that at January 2022 several large companies like Apple, Alphabet and Microsoft had seen significant increases in their market valuations since the start of the crisis. However, other large firms also saw non-negligible reductions. That being said, MSMEs were more significantly impacted than larger firms. In its COVID Business Impact Survey, the ITC found 55% of SMEs indicated that that the pandemic had “strongly affected” their business operations and that one out of four (26%) micro firms risked shutting down permanently within three months, whereas less than one in ten (9%) large firms were in a similar position.
Many MSMEs at the start of the pandemic lacked functional websites or e-commerce capability or even delivery which meant they were often at a disadvantage to pivot to online shopping and service delivery. Indeed, the COVID-19 pandemic exacerbated some of the issues facing businesses, especially small businesses, such as cashflow difficulties and access to finance. Other impacts included reduced sales or loss of access to local/international markets, while also incurring increased costs, such as the need to purchase personal protective equipment (PPE) and pay for more frequent sanitization of work spaces.
Many MSMEs were affected and continue to be impacted by supply chain disruptions. Many faced price increases from suppliers and tighter supplier payment terms, as well as longer waiting times for supplies as suppliers prioritized orders from larger purchasers. Some businesses also faced increased costs of inputs, especially due to global supply chain disruptions and higher commodity prices. Some businesses faced productivity losses due to staff layoffs, reduced hours and in some cases there were unfortunately business closures.
How have businesses pivoted?
Businesses have had to do lots of soul-searching, hunkering down and in many cases, belt-tightening. The fundamentals of sound leadership, teamwork, evidence-based business planning were key, and those which were in the fortunate position to quickly adapt through the use of technology were among those who weathered the best so far.
Businesses implemented firm-specific COVID-19 protocols informed by national guidelines. They also looked for new clients/markets for their products. JAMPRO (the Jamaican export and investment promotion agency) was able to find new markets for Jamaican mango exporters. In some cases, businesses had to source from newer suppliers either due to supply chain disruptions or because of more favourable payment terms offered by other suppliers.
Some new businesses sprung up to cater to new areas of demand, such as pickup and delivery. Many retailers and restaurant businesses added online shopping or booking and delivery service, which were particularly useful during the lockdowns and have been continued. Regional rum manufacturers started manufacturing and also donating rubbing alcohol and hand sanitizers when there was a shortage of these products. One of my favourite restaurants no longer gives patrons physical menus. Patrons instead use the QR scanner on their phone to scan the QR code the restaurant provides to access the menu online using the restaurant’s wifi.
Other business responses included implementing work from home policies and adopting technology to facilitate this remote working. This led to some firms engaging in downsizing their physical space.
While CARICOM governments lack the fiscal largesse to offer the extensive stimulus packages which larger countries were able to finance, they however provided various forms of support to businesses. These included in some cases special grants, deferral of taxes and social security contributions, tax debt forgiveness, concessional loans and grants, temporary loan moratoria, ‘compensation’ for lockdowns, and training opportunities. However, businesses in the informal sector did not qualify for many of these support measures as eligibility often required that the applicant should be a registered business or incorporated and be able to show financial statements for a defined period. A key lesson coming out of this is that governments must make it easier for businesses to formalize. Behind every business are people with families to feed and support and where a business fails, that is at least one person who has lost an income and the ability to support herself/himself and family.
Adapting to the new normal
The term “new normal” has become ubiquitous in our parlance in recognition that while the worst of the pandemic appears to have passed us, COVID-19 will remain with us for quite some time. With an increase in the vaccinated population and lower infection numbers, most governments have now rolled back or even eliminated completely their Covid restrictions to kickstart economic recovery. However, the COVID-19 impact on the economy has been compounded by the Russia/Ukraine war and the sanctions imposed by the international community in response to Russia’s actions. This has further disrupted global supply chains, and led to spiralling inflation globally, higher commodity prices and product shortages and growing workers’ demands for higher wages to offset the soaring cost of living. The war has prompted the International Monetary Fund (IMF) to slash its global growth forecasts for 2022 and 2023 in its April World Economic Outlook. How can businesses continue to adapt in these increasingly turbulent times?
First, innovation, as cliché as it sounds, is pivotal for businesses to build competitiveness. This involves prioritising research and development and market research and leveraging technology to improve day-to-day operations and customer experience. Companies worldwide are also relooking working modalities. In the UK, for example, over seventy businesses spanning a variety of industries are participating in a pilot study on a four-day working week with no cut in workers’ pay for the reduced hours.
Second, many business support programmes appear to be under-used for a variety of reasons, including businesses’ lack of awareness of their existence or perception of their usefulness in some cases. Where possible, businesses should be on the look out for available business support and assistance offered by export promotion agencies and other business support organisations.
Third, businesses should continue to explore new product offerings to meet new and growing areas of demand. For example, given the growing food security issues intensified by the Russia-Ukraine conflict, there are opportunities, such as, of expanding the availability of wheat flour substitutes, such as breadfruit and sweet potato flour.
Fourth, businesses should continue to expand their markets. CARICOM businesses have preferential access to several markets thanks to the trade agreements the Community has concluded with Colombia, Costa Rica, the Dominican Republic, the European Union, the United Kingdom and Venezuela. They also have access to the United States and Canadian markets for most goods under unilateral trade preference regimes offered by those governments. Businesses which are not yet exporting and are looking to do so should take advantage of the export support programmes, such as training, workshops and other technical assistance and capacity-building programmes offered by regional export development agency Caribbean Export and national export promotion agencies and business support organisations. Additionally, sourcing locally and regionally where possible, through making use of our trade arrangements with Latin American countries, will help with building supply chain resilience.
Fifth, cyber-security is one area on which businesses often skimp to their detriment. With more of their operations being conducted through digital means, businesses are now more exposed to hacking, malware and data breaches which, when they occur, result in a very embarrassing and dangerous situation for a business and reduces client confidence and trust.
Sixth, if there is one thing that COVID-19 has made clear is that MSMEs need to manage risks, ensuring they have updated business continuity plans and appropriate insurance coverage.
Seventh, COVID-19 will be with us for some time. We know that business must go on and we must live with COVID-19, but protecting the health of employees and customers must be paramount and never sacrificed for profit.
Lastly, while survey fatigue is indeed a real problem, it is imperative that businesses are more open to sharing information with governments as evidence-based policy making can only be successful if there is up-to-date data. Governments cannot offer suitable business support without timely and accurate data on which to base their measures. There is also the need for continued and greater business-academia linkages such as greater internships, mentorship programmes, data-sharing and partnerships to ensure graduates are workforce ready and to assist businesses with research.
In closing, as I had predicted in my previous article, COVID-19 has been a significant challenge for businesses, both regionally and globally. Not all businesses have been impacted the same way but MSMES have generally been more negatively impacted than larger firms. Businesses have been finding ways to adapt. Those which had the greatest capacity to incorporate technology into their daily operations and to serve customers appeared to be the ones which were better able to manage. Although we appear to be nearing (hopefully) the tail end of the pandemic, we are not yet out of the woods. Moreover, several storm clouds still loom ahead. MSMEs must continue to pivot in order to not only survive but thrive in this ‘new normal’.
Alicia Nicholls, B.Sc., M.Sc., LL.B is an international trade specialist and founder of the Caribbean Trade Law & Development Blog. These remarks were part of an address at the 39th Annual Institute of Chartered Accountants of the Caribbean (ICAC) Virtual Conference. The author takes this opportunity to thank all frontline healthcare workers for their yeoman’s service and expresses condolences to all persons who have lost a loved one to this virus.