COVID-19 and SMEs: Early Evidence on Impact and Coping Strategies

In the initial stage of the COVID-19-induced pandemic, most governments in the world, particularly in developing countries, are faced with the challenges of informed policymaking because the evidence is short in supply. Early evidence on the pandemic helps inform policymakers to set priorities and respond quickly and efficiently. To this end, we generate early micro-evidence of the impact of COVID-19 on SMEs and their workers, given the importance of the SME sector in Bangladesh. Using a pre-COVID survey of BIDS as a benchmark, we interviewed 375 enterprises and 360 workers during the lockdown in April-May 2020. Our results show that the owners predicted a two-third reduction in revenue in 2020 compared to 2019. This predicted reduction is lower for the larger sectors. The immediate loss of the SMEs stemmed from a number of sources: i) loss of sales due to shutdown of production, ii) unsold products in inventory, iii) unpaid payments, iv) running operating costs (wages, utilities, etc.), and v) perishable and un-storable raw materials. Due to disruptions in the supply chain, owners worry that they will not be able to resume full production even a month after the shutdown is lifted. Almost 90 per cent of owners fear that if the shutdown continues for three months at a stretch, they might have to either wind up their business or survive with huge losses. About 98 per cent of the workers got paid in March 2020, either partially or fully. A large proportion of workers – about two-thirds – do not think they will be paid in May 2020. About three-fourths of the SMEs were aware of the incentive package announced by the government. The survival of this sector critically hinges on how effectively the government's incentive packages reach the most affected SMEs.