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Economic opportunities from a crisis

The novel coronavirus pandemic has severely impacted micro, small and medium-sized enterprises (MSMEs) globally, with many facing an unprecedented crisis.

Over the years, MSMEs have rebounded from recessions, natural disasters and other challenges that have hampered their growth. However, nothing has prepared them for the scourge of COVID-19, which has left many teetering on the brink of collapse.

To understand the scope of devastation, one needs to only look at the effect it has had in other developing economies and our own. In India, for example, MSME’s suffered a drop in earnings of between 20 and 50 per cent. MSMEs, which account for as much as 29 per cent of gross domestic product, buckled under the pressure of lockdowns. The impact was similar in countries across Africa and Latin America. In Latin America, some 34 million jobs were lost as a result of the pandemic.

Here in Jamaica, the situation has been just as dire. When the restrictions began in March, many MSMEs received a serious blow to their operations. In tourism, with flights and cruises halting, due to the pandemic, many small hotels had to close their doors. Data from the Ministry of Tourism indicate that a minimum of 50,000 employees directly employed in the tourism sector have been laid off, and the World Bank notes that this figure could be even higher when considering indirect impact and the informal sector.

The Jamaica Manufacturers and Exporters Association (JMEA) reports that some 22 per cent of micro, small and medium manufacturers were forced to reduce staff or implement pay cuts. This number represents just its members and does not include other companies. The impact was also felt in agriculture, as the Government was forced to buy produce from farmers to help them cope with the fallout due to the pandemic.

In the beauty sector, many barbers and hairdressers were forced to limit the number of persons in their salons, ultimately affecting the number of clients they were able to serve and revenues earned. It was the same for some retailers who saw their revenues fall as a result of job losses, the restrictions in movement and the imposed curfew hours.

The impact of COVID on MSMEs has had a ripple effect throughout the economy. MSMEs account for up to 80 per cent of the jobs in the economy across several sectors, according to the Ministry of Industry, Investment Commerce and Agriculture (now the Ministry of Industry and Commerce).

Owing to the challenges of the pandemic, many MSME’s were forced to either cut staff or close their operations altogether.

This action severely impacted the labour force, as unemployment up to July last year, stood at 12.6 per cent an increase of 4.8 per cent over the same period in 2019, the Statistical Institute of Jamaica (STATIN) reported.

Prior to the pandemic, access to capital and liquidity were sometimes challenging for MSMEs. The economic slowdown further impacted many MSMEs, with some facing difficulty accessing capital to clear short-term debt and meet their obligations. This has presented an opportunity for those of us in the financial sector to work with MSMEs to help them rebound and emerge even stronger than prior to the pandemic.

At JN Small Business Loans, our COVID Lifeline product, for instance, provided much-needed assistance for many entrepreneurs who were struggling with access to funds. We also granted moratoria to many to assist them to stay afloat. This has had a positive effect on most who have since demonstrated their resilience by adapting to their situation and reinventing themselves by offering new products.

Agriculture has also presented itself as an opportunity for us, in terms of cold storage and more agro-processing facilities, as well as producing healthier foods and beverages. There have also been opportunities to take advantage of home delivery services, virtual meetings and also other services, such as pharmaceuticals, supplements, medical devices, personal protective equipment (PPE), telemedicine, smart hospitals and online consultations; digital medical assistants, apps and mini-apps, as well as self-diagnosing medical devices.

Additionally, pharmaceuticals, retailers of food and other essential services have managed to stay relevant because of their offerings. Many have also embraced technology by using social media and messaging apps to provide their customers with information about their prices and opportunities for delivery.

Large businesses should support smaller businesses

The pandemic also represents a window of opportunity for larger businesses to ensure that MSMEs remain viable. MSMEs, although individually small in size, as a mass, they represent the mitochondria of the economy and employ the majority of the labour force. Therefore, it’s important for larger businesses to ensure our MSMEs are sustained, as we are all part of one ecosystem and, therefore, large businesses thrive when our MSMEs thrive. There is a need for larger companies to understand that MSMEs bring value to the economy whether they are contract manufacturers for larger companies, competitors, or offer new services. Their role in the economic ecosystem is one that needs to be protected.

To support in these times, large companies can mentor smaller companies by helping them to refocus products and services that meet new areas of demand, enabling them to generate fresh sources of revenue and to re-assign workers to other jobs. They can also provide valuable advice on how to manage their accounts, marketing and distribution. With COVID-19 already affecting many, the input of larger players will help many weather this storm.

Additionally, more must be done from a policy standpoint to bring entrepreneurs into the formal economy. Numerous studies by various agencies, such as the Inter-American Development Bank and the International Labour Organisation have measured the informal economy as representing more than 40 per cent of the Jamaican economy. While the reasons for informality vary, the longer this situation exists, the greater the chance that our poverty numbers will remain high. COVID-19 has brought home this reality, as many taxi operators, barbers, cookshop owners, etc, whose operations were not formally registered or did not possess the requisite licensing, were unable to take advantage of the assistance being offered by government and other entities.

Therefore, the time has come to fully explore how more people can be brought into the formal economy. They need to be educated on the benefits of formality. It enables MSMEs to access funding; protects them in times of disasters or crises by providing access to insurance; and presents greater opportunities for them to take advantage of contract services all year round. Until this is done, the current situations that COVID-19 has exposed will remain with us and hamper our growth.

With the roll-out of the vaccination programme announced, I am confident that the projections made by the Bank of Jamaica that the economy will rebound later this year will certainly begin to be realised. As the tourism sector positions to welcome more than 1.6 million visitors this year. We must embrace the new opportunities to increase the potential for even more visitors by capitalising on areas such as health and wellness tourism, nutraceuticals tourism, spiritual tourism and even the cultural experiences that make Brand Jamaica unique.

There are also benefits to be derived from mounting virtual events given our proximity to North America and the fact that we speak English. This represents an opportunity for more MSMEs to explore business services, such as virtual hosting and other technological solutions.

As we prepare to emerge from COVID-19, the aggressive roll-out of infrastructure to bridge the digital divide in order to ensure far more Jamaicans have access to the service is critical. This would improve our education, health and many services. MSMEs would also benefit from this, whether by offering value-added services, e-commerce services or access to increased opportunity for exchanging knowledge and ideas in the digital space.

Also, COVID-19 has brought home the need for MSMEs to be prepared, in terms of cyber security threats; and how to look after their financial wellbeing by improving their financial literacy. As we anticipate the post-pandemic era, let’s drive knowledge and focus on the opportunities for digital, while mastering our financial resilience, as this will enable our MSMEs to be better equipped to deal with challenges the new and more advanced future will bring.

The author Gillian Hyde is the general manager at JN Small Business Loans Ltd.