We look at three aspects of the COVID-19 crisis that impact SMEs.
The first from a recent global survey perspective, the second from research on the region, and the third from governmental efforts to rescue the sector.
Salesforce recently published the fourth edition of its Small & Medium Business Trends Report conducted between March and August 2020, providing insights from SMB owners and leaders in the US, South America, Europe, and Asia Pacific.
These SMBs are defined as companies with 2-200 employees and annual revenue of less than $1 billion.
Growing SMBs, those having 1% or more revenue increase over the last 6 months have likely enacted easier customer return policies and payment plans and prioritized developing stronger client relationships over one-time transactions.
Public health mandates ranked in the top 3 challenges constraining SMBs.
22%-50% of SMBs say they are very or somewhat optimistic about the future of their business.
At least 1 in 5 SMB leaders reported implementing at least 1 technology solution, including email marketing software, customer service software, project task collaboration tools, or e-commerce software.
GCC SMEs impact
How the future of entrepreneurship could look like in the region after COVID-19:
- New fields of play for SMEs and startups will be in health and wellbeing, agritech, in-home entertainment, cybersecurity, virtual reality, food, and online delivery
- VC appetite for traditional technologies and service platforms will be further diminished
- Many SMEs will disappear, especially those lacking solid digital capabilities or the ability to digitize parts of their business model
Areas of growth
- The 4th industrial revolution sector is expected to be 20% of GDP in 2030
- United Arab Emirates and Saudi Arabia account for 70% of technology spending in the region, will encourage business around the internet of things (IoT), robotics, health, and biotech
- Global supply chains decentralization and 3D-printing will grow
In the MENA region, the self-employed and micro enterprises (of 2-9 persons employed) account for 70% of total employment.
Pakiza Abdulrahman, manager of Startup Business Development, Bahrain Economic Development Board said Saudi is where SMEs constitute a staggering 99% of businesses and provide 64% of total employment in the Kingdom. Under Saudi Vision 2030, the Kingdom plans to raise the contribution of SMEs from the current 20% of GDP to 35% by facilitating their access to funding and encouraging financial institutions to allocate up to 20% of overall loans to them.
In the UAE, SMEs represent more than 98% of the total number of companies operating in the country, contributing towards 52% of non-oil GDP, a figure the ministry wants to increase to 60% by 2021.
GCC stimulus packages
The Saudi Arabian Monetary Authority (SAMA) instructed banks to defer loan payments until December 2020, increase lending to the private sector, and restructure loans. This was supported by an overall package of 100 billion Saudi Riyals ($27.2 bn).
The Saudi government also unveiled an $18.7 bn economic package to support the private sector, especially SMEs consisting of exemptions and deferrals of various government dues, including tax payments, and temporary electricity subsidies to companies in key sectors.
In addition, $2.4 bn were unlocked to compensate 60% of salaries for a period of 3 months, and prevent companies from laying off employees, under a scheme covering up to 70% of Saudi workers in the most affected companies, and 50% of those in the least affected companies. As of July, over 90,000 firms and 480,000 Saudi citizens had benefited from financial support.
The UAE Central Bank lowered its main policy rate twice since the outset of the crisis and disclosed a $27.2 bn stimulus package to facilitate banks’ lending to the economy. This includes allowing loan repayment deferrals, lowering banks’ reserve requirements, and providing zero-interest-rate collateralized loans to banks to support SMEs.
To date, the loan deferment scheme has supported more than 10,000 SMEs and 1,500 private sector companies.
The UAE government has announced $7.2 bn in various fiscal measures to mitigate the effects of the crisis such as lowering the cost of doing businesses, namely by cutting labor charges and other fees of the Ministry of Economy, suspending collection of administrative fines, extending the deadline for tax payments and reducing work permit and other services fees for companies.
The Central Bank of Bahrain increased its loan facilities to $9.8 bn, reduced its key policy interest rates to 1.7%, and lowered cash reserve ratios for commercial banks to 3%.
Bahrain unveiled a $1.49 bn (4.2% of the GDP) stimulus package including several initiatives targeted at both households and companies for payment of wages and utility bills, exemption of various fees for affected companies, and doubling the liquidity support fund for SMEs.
Bahrain announced plans to subsidize electricity bills for SMEs to the tune of $63.7 million to help bolster national economic growth. The Bahrain Tender Board in August announced that it had awarded in the first half of the year a record 47 public tenders worth a combined $21.8 mn to SMEs in the Kingdom.
The Central Bank of Kuwait’s measures to mitigate the impact of the outbreak include cutting the main policy rates and instructing commercial banks to postpone loan repayments to clients impacted by the crisis. A stimulus package made $16.5 bn available for additional lending from local banks.
The government also introduced a $1.63 bn package aimed at deferring social contribution payments, canceling government fees on certain sectors, providing full unemployment benefits to Kuwaiti citizens, and providing long-term loans to SMEs.
The Central Bank of Oman unveiled a comprehensive package of $20.78 bn in the form of additional liquidity for banks to facilitate lending to sectors severely hit by the economic fallout, including lowering capital conservation buffers by 50%, increasing the lending/financing ratio by 5%, and reducing its main policy rates.
The government also implemented a number of tax relief measures for businesses, including a 3-months deferral in tax payments, the introduction of flexible tax payment mechanisms, and exemption from several taxes and fees for companies in the most affected sectors.
COVID-19 cases update
The UAE comprises 15% of all cases in the Gulf and has confirmed over 150,000 infections and 530 deaths to date.
Around 24% of all MENA cases are in Iran, which has confirmed over 760,000 infections and 41,500 deaths to date.
The number of Covid-19 cases in the MENA crossed 3,116,202 on November 15, according to Worldometers data collated by MEED.