COVID-19 : Impact of Lockdown on SMEs.

COVID-19 : Impact of Lockdown on SMEs.

Publication details

  • Monday | 13 Apr, 2020
  • Sajid Amin Javed, Muhammad Umar Ayaz
  • COVID-19 Policy Review Series
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Introduction: The COVID-19 initially started form Wuhan city of China, which has now become a global pandemic. Till 9th April, 209 countries had been affected. The crisis has caused unprecedented health and economic costs worldwide. Measures to tackle Covid-19 spread, particularly lockdowns, are adversely affecting economic activity across the globe. One of the most vulnerable and severely-hit sectors is Small and Medium Enterprises (SMEs). The SMEs contribute around 55% of GDP in high income countries, 60% of GDP in low income economies and 70% of GDP in middle income economies, (Zafar & Mustafa 2017). A consensus is emerging that not all SMEs will be able to survive Covid-19 in the world. Pakistan is likely to suffer the same fate. SMEs have a vital role in Pakistan’s economy; they contribute around 40% to GDP, 40% to exports, 80% to non-agricultural employment, and 35% in total value additions (Shah 2018). Hit by COVID-19, Pakistan, after one week of social distancing, is now under official lockdown since 23 March, which is extended till1 14th April, 2020. This policy review aims to assess the impact of lockdown on SMEs in Pakistan. Findings from two surveys conducted in China about impact of lockdown on SMEs are used to construct different scenarios for Pakistan. This study projects the ratio of SEMs surviving one-month lockdown based on cashflows, decline in income of SMEs under lockdown, and jobs at risk. Given the poor state of SMEs sector’s- already sluggish growth, and higher costs of production, an impact stronger than China is expected for Pakistan even during lesser strict lockdown. This “higher side scenario” for Pakistan is calculated by multiplying impact of lockdown on SMEs in China by a factor of 1.25 i.e. 25% higher impact than China. Key Messages:

  • Consensus exists that not all SMEs will be able to survive Covid-19, which is likely in Pakistan.
  • 1.14 to 1.42 million SMEs out of 3.8 million may face 50% decline in their income.
  • Based on their existing cashflows, around 0.76-0.95 million SMEs will not be able to survive one-month lockdown
  • 2.43 to 3.04 million SMEs in Pakistan may need assistance with in three months after one-month lockdown to resume business.
  • 4.75 to 9.50 million of non-agricultural jobs will be at risk after one month of lockdown.
  • SMEs need support beyond financial resources, like getting back to supply chains. Planning and policy to support SMEs in Pakistan need to think beyond access to finance. So far, policy makers in Pakistan seems to be assuming that Covid-19 will incur only financial losses.