“The Coivd-19 pandemic has had a major impact on SMEs and the entire value chain.”

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What is your assessment of the impact of Covid-19 pandemic on small and medium enterprise (SMEs)? What challenges are SMEs currently facing to survive?
The Coivd-19 pandemic has had a major impact on SMEs and the entire value chain. SMEs in Nepal use traditional management practices and do not have proper processes and financial framework to withstand situations such as the ongoing pandemic. If lack of finance is not an issue, then they suffer from lack of supply of raw materials and parts from the supply chain that eventually affects their businesses. Furthermore, the pandemic has put heavy pressure on the availability of human resource.

The government in the current fiscal year’s budget and central bank in the monetary policy have announced SME financing for certain sectors including tourism and agriculture. Are SMEs actually benefitting from the government-initiated financing?
Government support at this stage is moot. Nothing of substance has come forth and when it is announced it is either too little or very complicated to avail through the banking channel.  If the government was serious then working capital to the businesses should be available, and not only to the existing borrowers. There are thousands of SMEs that never took a loan to operate and they are out of the banking radar. This missing middle is enormously impacted by the pandemic. The government should address their needs.

Many SMEs report the loss of market as the biggest challenge they are facing at the moment. What can the government do and what can SMEs themselves should do to revive the market?
This is a very complicated question at this juncture. The international and local economies have never faced all three shocks all at once: 1) Supply side shock 2) demand side shock and then 3) the financial shock.  Governments around the developed world have injected liquidity and availed cheap capital or even free money to help the economy. This may not be possible for countries like Nepal with limited resources, but it does not prevent the government from being proactive. The government can start by deferring tax collection for, at least, those who have in the past shown their commitment to paying taxes; provide alternative to farmers by buying their produce, prevent cheaper imports from abroad that displace our local produce.  Also important is expediting FDI processes for PE investors who have to wait months for clearance to invest in SMEs. All this does not require money; it is the political will to bring forth policies that can provide an enabling environment to do business.

Businesses need to think out of the box to survive. Many have diversified from their traditional business practices and have embraced e-commerce as a medium to reach their customer base. Others have downsized and managed their expenses and are waiting for this pandemic to blow away.  The ones who can adapt and be innovative will survive and thrive in the future. An example of diversification during the pandemic is restaurants have resorted to home delivery of not only their menu items, but also of frozen food stuffs. The e-commerce business has taken off during this pandemic.

What should the strategy be on the road to recovery for SMEs?
Business continuity plan is essential for SMEs. This involves lowering the cost of funds and overheads. Estimate a transition period and determine the working capital requirements to stay afloat. Negotiate with vendors, customers, landlords, shareholders and banks.  They should be prudent to decide the capital mix (debt/equity) rather than get into a debt trap by further soliciting loans. Private Equity is an alternative that is available in the market to hedge financing risks. Maintaining financial discipline (working capital management, recovery, capex, fair transaction with related parties etc.) should be a priority. Furthermore is to adapt to new technologies.

Low level of digital literacy seems to be one of the major hurdles for SMEs to get along post-Covid. What should be done to make SMEs digitally literate so that they can make good use of the web platform?
Lack of awareness is one of the major reasons behind this for SMEs.  It is essential for Nepali SMEs to be aware of the benefits and value addition of digital platforms in their businesses. Therefore, PE investors such as BO2 not only inject capital in the SMEs, but provide knowledge transfer and technical assistance for these businesses to scale.  Covid-19 has shown us that doing business traditionally will not provide the returns as the entrepreneurs were used to. Businesses need to adapt to technology and be digitally literate to succeed. This cost of digital literacy should be a part of the business strategy and the costs incurred should be considered as investment.

What is BO2 doing to help SMEs get back on their feet?
Bo2 has been assisting and is engaged with all of its businesses along the lines of helping them through the pandemic.  Right from the outset of the pandemic, we had a business continuity plan for each of our investee companies. In a time like this surviving is the most important. Majority of our SMEs have had to change their business strategy, which we have assisted.  We have signed commitments to invest in half a dozen businesses in the time of the pandemic to help the economy.

How do you think the current challenges could be translated into opportunities? What type of ecosystem is needed to broaden the horizon to capitalise on the available business opportunities?
History has shown us that every crisis has its opportunities.  This is no different. The e-commerce based businesses have thrived internationally and have shown that it has enormous potential in Nepal. Healthcare is another area that has done very well.  For any business environment to thrive businesspersons, entrepreneurs and the government need to work together. The government has to provide the enabling environment and the businesses need to be sincere and transparent. Capital needs to be injected and if locally not available it should be sought from international investors. However, in Nepal the minimum investment threshold for FDI is Rs 50 million. This threshold is very limiting to investors who can come with technology know how and share that technology. Therefore, policy changes are needed to develop this ecosystem.

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