Dr. Bandar Hajjar
Nearly four months after the detection and announcement of the first COVID-19 case, the coronavirus pandemic is considered one of the worst global crises in modern age. It has topped the list of events that led to the most violent economic shocks since the beginning of the 20th century. Indeed, the economic impact of this pandemic outweighs the impact of other events that were considered turning points in the course of human history like the Great Depression, World War II, and the global financial crisis which took place more than decade ago. The economic harm caused by the COVID-19 pandemic in a few weeks is greater than that caused by the global financial crisis in 2008 over the course of three years, indicating that the effects will be long-term and likely to outlast the pandemic itself. The world will need years to recover.
The COVID-19 pandemic so far has been general, comprehensive, intercontinental, and inter-sectoral. It has spared neither country nor sector and caused tremendous loss. However, there is consensus that the micro-, small and medium- sized enterprises (MSMEs) sector will experience the greatest loss and is now in the eye of the storm.
Everyone is aware of the strategic importance of MSME enterprises for economies. They account for more than 90% of economic activities and more than 50% of the jobs around the world, as well as contribute more than 40% of GDP in developing countries. These figures may increase significantly if the informal sector is added. In Muslim countries, MSMEs have an even greater importance with a rate of 53.2 enterprises per 1000 population, which is more than twice the global rate of 25.2 enterprises per 1000 population.
MSMEs sector at the heart of the crisis
The damage incurred by MSMEs is mainly due to the great economic downturn, the drop of global and local demand due to travel and movement restrictions, as well as the large scale confinement imposed by law in most countries. This has led a to total or partial halt of many MSMEs’ activities and was exacerbated by the violent waves that hit global supply chains that are essential to any production, manufacturing, or transformation process. Therefore, MSMEs are fighting for survival. Despite shrinking economic activities, they are required to find resources to cover their constant and changing operating expenses, such as salaries, rent, and other expenses. They are obligated to fulfil their undertakings toward lending financial institutions, not to mention taxes that they must pay. Therefore, the best solution for many enterprises will be to cut expenses by letting go of workers. This then may transform the economic crisis into a severe social crisis, with economists warning that 25 million jobs could be lost worldwide – a number that may even increase if the pandemic persists.
A poll conducted by a group of researchers from the prestigious Tsinghua University in China on a diverse sample of MSMEs during the peak of the pandemic revealed that a third of respondents admitted that they cannot carry on for more than one month amid the shrinking economic activity, while a third of the sample admitted that they cannot go on for more than two months. According to the poll, only 10% of respondents can resist for six months or more. In light of these findings, we can imagine the disastrous consequences in developing countries with limited resources and weak economic activity compared to the Chinese economy, and we can imagine the socio-economic pressure resulting from this kind of situation. We can also wonder how governments will deal with this situation with scarce resources and limited options.
Global awareness of importance of supporting MSMEs
It did not take long before most governments around the world acknowledges the threat to the MSME sector, and launched economic stimulation programmes. Such programmes were strengthened by various packages of revenue incentives and financial aid to protect the sector, preserve it, and allow it to play its usual role in strengthening and energising the economic cycle. Without this, reconstruction may take a long and difficult period of time in order to overcome the ensuing impacts of large-scale bankruptcy and unemployment.
The main measures that have been introduced range between exemptions and delay of taxes and payments, programmes to delay payment of dues to the financial sector for a renewable period of three to six months, programmes of concessionary lending financing to support business continuity and jobs sustainability, and programmes of financing guaranties to encourage the financial sector to expand financing during the crisis.
The most compelling evidence that this sector has a strategic importance and that it is at the centre of the global battle against the socio-economic impact of the COVID-19 pandemic was the discussion of the sector at the extraordinary virtual summit of the G20 Heads of State. The meeting clearly mentioned the importance of protecting the MSMEs sector within a package of immediate and strong measures, shouldered by the bold and strong financial support of $5 trillion to support the global economy.
Role of IsDB amid int’l efforts to support MSMEs
The IsDB Group instantly responded to the consequences of the COVID-19 pandemic and started preparing a comprehensive $2 billion package, dedicating a significant portion of it to support and empower the MSMEs sector in member countries. The aim of the programme prepared by the IsDB Group is to provide part of the necessary liquidity with preferential modes for member countries through their financial sectors. It is expected to be supported by a lending guaranty programme and capacity building grants for MCs in the preparation of support programmes and incentive packages for such enterprises.(Courtesy: isdb.org)
—The author is President of Islamic Development Bank Group
