DUBAI 25 July 2020: As almost all economic sectors across the world are deeply affected by the health crisis brought about by the novel coronavirus (Covid-19), undoubtedly its impact on small and medium enterprises (SMEs) anywhere in the world is huge.
SMEs are known for their resilience in economic slowdown and have ridden the wave of many global challenges in the past, emerging as buffer of national economies to sustain growth. This was evident during the 2009 global financial crisis, especially in emerging economies in the Middle East, particularly the UAE.
The International Trade Centre has assessed that the spread of Covid-19 have varying impacts to SMEs worldwide, in accordance to their sector and the most heavily affected SMEs are those in the travel and hospitality services, sports and recreation, other personal services, and a larger part of the retail sector.
It cited that among the micro-SMEs, accommodation and food services which are usually led by young entrepreneurs, are highly impacted and several countries noted that restaurant bookings have fallen by 80 per cent in mid-March and this scenario is highly visible as well in the Middle East.
Various governments such as the US, UK, Australia, Canada, South Korea, and Singapore are quick to implement emergency economic measures. In the Middle East, the UAE was one of the first to adopt a series of economic stimulus packages and a range of delayed payment plans were put in place to support SMEs and micro-SMEs (MSMEs).
UAE and Saudi Arabia have initially released US$34 billion and US$32 billion of funds respectively to boost the private sector. Across the GCC, government allocations to stimulate the economy have ranged from 2 per cent up to 30 per cent of the GDP, according to business analysts.
New evidences show that a segment of SMEs and startups in the Middle East are already riding the wave of Covid 19 pandemic to provide the essential needs of most people with limited movements in line with increased measures to curb the further spread of the virus. The most common startups that have risen above the situation are e-commerce marketplaces and mobile applications providing food delivery services and other essential items.
Across the region, there has been surge in growth in a matter of two months for e-commerce platforms due to increased demand for basic necessities and other personal items. Supermarkets are coping with these demands and these startups are able to quickly fill the gap. E-grocery startups have won many new customers and are able to provide their needs in less time than major supermarkets.
Companies predict that the new trend will have a positive impact on the consumers’ buying habits as a result of Covid-19 and that the sector will maintain its momentum even after the crisis has settled and the practice of buying and shopping online, among other uses such as paying for utilities and other services.
e-Commerce is one of the most popular startups in the region owing to the digital-savvy culture which is popular among the young population.
Venture capital analysts already predict that investing in tech-enabled businesses can provide new opportunities for startups to grow, considering the conditions of people who are now dependent on online resources – from studying to shopping groceries, and even recreational skills that can be acquired online.
Digitally prepared educational institutions are also able to ride the wave and train their teachers to teach online and have students that easily adopt the trends. Educational technology companies have been reporting surge in orders of EdTech content and applications. Telehealth platforms are also rapidly catching up and startups which have already invested in this field are poised to serve this fast-emerging segment in the healthcare sector to support non-emergency needs of patients.
The Organization for Economic Cooperation and Development (OECD) has launched a study on the impact of Covid-19 to SMEs. Through its OECD Centre for Entrepreneurship, SMEs, Regions and Cities, it published a note titled ‘Covid-19: SME Policy Responses’ which highlights how SMEs are affected both on the demand and supply side. It suggested that setting up various financial facility options would help small companies to go through the financial storm brought about by the outbreak, among several other measures. It further noted that fiscal policy responses such as temporary tax relief and other direct support initiatives to SMEs.
Business advisors in the region view the resilience of Mena entrepreneurs in general compared to their global counterparts to be based on lack of bank lending which remains a major challenge for them, and has become a shield as data shows although 96 per cent of registered companies belong to SMEs, only 7 per cent of them take the share in the total bank lending which reflects that their sourcce of liquidity does not rely on the banking system.
Innovation is also one key characteristic of today’s SMEs and startups. In some parts of the world, some young inventors have come up with using ultra-violet rays instead of chemicals to kill bacteria and viruses, to be installed in public spaces to help promote hygiene and safety.
With the range of cases of booming businesses in some SME sectors, it would only be a matter of time before other industries catch up and find their way to cope with the new realities and thrive to successfully survive another crisis.
Note: The author Nidal Abou Zaki is Managing Director of Orient Planet