SMEs Struggle for their Existence

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SMEs Struggle for their Existence

With the lockdown imposed by the government going longer than anticipated, many owners of small and medium enterprises (SMEs) have made up their mind to exit from their business. Floriculture businesspersons say that the daily business loss in the floriculture sector is Rs 10 million currently. Similarly, the prolonged lockdown has put jobs of 20,000 people engaged in production and import of electrical items into risk, according to the Federation of Electrical Entrepreneurs of Nepal (FEEN). Likewise, Federation of Handicraft Association of Nepal (FHAN) has informed that local business of handicraft has fallen to zero since March 24 when the lockdown started and export of metalcraft, felt and pashmina has also begun to decline. It is estimated that SME sector contribute 22 percent to Nepal’s gross domestic product (GDP) and provide employment to 1.7 million people.

“SMEs are the hardest hit businesses by the Covid-19 pandemic. Among them, businesses that are related to tourism and exports have been affected the most. With travel and tourism taking a big hit, businesses such as restaurants and handicraft are at risk,” said Shabda Gyawali, investment director at Dolma Impact Fund.

Siddhant Raj Pandey, chairman and CEO of Business Oxyzen (BO2), a SME-focused private equity fund, said that the nature of problems for BO2 funded businesses are different. “Many are facing lack of raw materials for production. Those who have raw materials are facing shortage of workers due to which manufacturing industries are in even more difficulties,” he shared. Similaly, lack of coordination among government agencies have added to the problems of food business entrepreneurs. “While their operation has been permitted by the government, they face problems in transportation to deliver the food items to their customers,” he said.  Pandey suggested the government to change the modality of the lockdown to ease the difficulties of SMEs.

Retail businesses are also among the badly affected by the lockdown. Those operating stores at shopping malls say that the current situation has forced them to exit the business. “With no business for a prolonged time, we are pressurised by bank loans, store rents and staff salary. This will ultimately lead to our exit from business,” said Sushma Mahara, president of Kathmandu Mall Byapar Sangh.  Sujit Tandukar, vice president of Civil Mall Byapar Sangh expressed views similar to Mahara. “Most businesspersons have given up their hopes. Many are planning to venture into agribusiness,” he said. Data published by Nepal Rastra Bank (NRB) shows that 50 percent of SMEs are dependent on loans from banks and financial institutions (BFIs).  According to Rajendra Serchan, president of Kathmandu Chamber of Commerce and Industry, high rent levels at places such as New Road, Khichapokhari and adjacent areas have added to the mounting problems of business owners.  

According to economist Dr Govinda Nepal, limited scope of business and income of SMEs make it difficult for such businesses to survive during the time of crisis. “Big businesspersons have multiple sources of income. But SME owners have limited resources making them vulnerable to difficult situation like present,” he mentioned, adding, “The government, business associations and house owners should come together to provide subsidy on bank interest rate and rent to SME owners to help them survive.”