Pakistan Ranks 3rd in Govt. Support to SMEs: ADBI Survey

Pakistan ranks 3rd in Govt. support provided to SMEs to mitigate the impact of COVID-19, according to a recently launched “Impact of COVID-19 on SMEs” Survey Report conducted on-line by SMEDA, Asian Development Bank Institute (ADBI), and Asian Productivity Organization (APO). The survey was conducted by ADBI and APO in other countries from the region including; Indonesia, India, Bangladesh, Malaysia, Vietnam, Mongolia, and Lao PDR. The online survey was administered in August 2020 and lasted till September 2020, in which, 236 SMEs from Pakistan participated.

Findings of the survey reveal that the majority of enterprises in Pakistan were facing cash flow (82%) and raw material (65%) shortage. However, 11.44% of SMEs in Pakistan expect their sales revenue to increase as compared to 2019, while 12.29% of respondent enterprises expect their sales revenue to remain the same.

Among the changes reported in the business environment between February and April 2020, Pakistan was the best performer in the region (in terms of the percentage of enterprises) with only 36.44% of respondents reporting a significant decline in domestic demand. In comparison, 72.29% of enterprises in Bangladesh, 50% in India, 42.52% in Indonesia, and 63.5% in Malaysia reported a significant drop in domestic demand.

In terms of Govt. support provided, the Government of Pakistan’s Electricity Support Package played a role in supporting SMEs directly during these trying times with 27% of respondents in Pakistan reporting that they received support through payment of utility bills. Respondents in other countries however reported different areas of support received, such as; new bank loans or deferred payment of bank loans. Businesses being impacted by the economic crunch due to the debilitating pandemic; reported that they require support in payment of utilities, tax exemptions, or lower tax rates and rent payment to deal with the impact of COVID-19.

Contextual Background of this Survey

COVID-19 has impacted all countries around the world. The economies worldwide experienced a contraction in GDP growth and a decline in exports and unemployment. Pakistan’s economy contracted by 0.4% in 2019-20. The majority of an estimated 5.2 million small and medium enterprises (SMEs) in Pakistan have been struggling since the start of COVID-19., especially when a lockdown was enforced, during the first wave.

Small and Medium Enterprises Development Authority (SMEDA) conducted an online survey in April 2020; to assess the impact of COVID-19 on SMEs and found that a large number of daily wagers were laid off during the first wave of COVID-19, thus increasing unemployment in the country. Moreover, SMEs experienced supply chain disruptions which led to irregularities in production, eventually leading to loss of revenue for businesses. Results of SMEDA’s survey showed that SMEs operating in Pakistan were not prepared to deal with such a pandemic/ lockdown.

In order to assess the adaptability and evolution of SMEs in the current situation, SMEDA collaborated with the Asian Development Bank Institute (ADBI) and Asian Productivity Organization (APO) to conduct an online survey in Pakistan*, in which, 236 SMEs participated. ADBI-APO also conducted a similar survey in other countries including; Bangladesh, India, Indonesia, Malaysia, Lao PDR, Mongolia, and Vietnam.

The regional survey was conducted in Vietnam and Malaysia from May to June 2020 and in other regional countries, including Pakistan from August to September 2020. In total, 2,344 SMEs participated in the regional survey. Results of the survey highlight the issues being faced by SMEs in the region and the support they require to recuperate during COVID-19.

Major Issues of SMEs

The survey report highlighted the four major issues faced by SMEs during COVID 19 pandemic.

Cash flow shortage
Raw material shortage
Labor issues
Difficulty fulfilling contracts

Successful Government Interventions to Improve SMEs Performance During Covid-19

According to the survey report; Pakistan is ranked 3rd in terms of successful government interventions to improve the SME performance; during the COVID19 and providing Govt support to SMEs. The top 3 ranked countries with their respective government steps are mentioned here

1. Mongolia
I. Tax exemptions or lower tax rate
II. Tax payment deferrals
III. Lump sum support/ Deferred payments of bank loans
2. Bangladesh
I. Deferred payments of bank loans (or loans restructuring)
II. Education and Information
III. Tax payment defer
3. Pakistan
I. Payment of utilities
II. Internet Connection
III. Public Procurement

Key Findings: Pakistan vis-à-vis Regional Countries

Change in the business environment:

Survey respondents in Pakistan reported an ‘increase in the price of material’ as the major change in the business environment during COVID-19. This may be due to lockdown and disrupted supply of imported material. However, other countries in the region reported a cash flow shortage and a significant drop in domestic demand as the major changes in their business environment.

Raw material Shortage and ways of dealing with it

To deal with raw material shortage, the majority of respondents in Pakistan delayed the delivery of their products. However, most of the other regional countries reported that they sought new procurement channels to deal with the raw material shortage. Thus, Pakistan’s response was different in comparison to the regional response.

Cash Flow Shortage and ways of dealing with it

The majority of respondents in Pakistan reported that they were facing cash flow shortage and dealing with it by ‘Collecting debts from customers/ not selling on credit / asking for advance payments,’ while most of the other countries reported that they were dealing with cash flow shortage by obtaining loans from commercial banks.

Actions Taken by Enterprises to Maintain Business

Among options for maintaining the business, half of the respondents in Pakistan reported that they had to temporarily close-down their business. However, respondents in Bangladesh, India, and Indonesia reported ‘reduction in production’ as a major step to maintain their business.

Govt. support  Provided

Surveyed enterprises in Pakistan reported that the major support they received during COVID-19 was in the form of Payment of Utilities (electricity, water, gas, etc.). Bangladesh & Indonesia reported deferred payments of bank loans (or loans restructuring) as the major support, while India reported that they received new bank loans.

Awareness Regarding Govt. support Available

Slightly over half of Pakistan’s survey respondents reported that they are aware of government support available during COVID-19. Govt. support programs awareness was highest in Bangladesh and it ranked receiving government support at the highest, save Mongolia.

Best in Different Categories

According to the  survey report, some countries performed best in some categories:

Sales Revenue Expectation 2020:SMEs in Indonesia had the highest expectation in terms of total sales revenue to increase.
Share of Online Sales: SMEs in Vietnam have the highest percentage of online sales.
Awareness of Government Support Offered: SMEs in Bangladesh had the highest level of Awareness regarding Government Support Programmes.

Raw Material Shortage: SMEs in Malaysia reported the least shortage of raw material.

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