COVID -19 impact and solution for Micro, Small, Medium Entrepreneurs

Ahmed Zubair Adam and Ibrahim Ali Jaleel SME Entrepreneurs Federation of Maldives

This article is part of Covid 19: Stimuli and Beyond edition of the Journal of the Maldives Economic Review, Volume 1, Issue 3, March 2020

In this report we highlight the impact of Covid-19 on MSME sector and preferred fiscal incentive packages and solutions on socioeconomic issues to lessen the impact. Actions required to mitigate the immediate impact and long term plans required for SMEs are discussed in the report The government’s GDP growth target for this year is 7.5%, which is primarily based on the confidence in the tourism sector. Tourist arrivals grew at the rate of 6% per annum in the past 6 years. Tourism provides nearly 75% of income to Maldives. Hence, 25% comprises of fishing, construction and trade but then again largely driven by multiplier effect from tourism. COVID-19 has hit hard on tourism and as a result all guest houses and over 50% of the resorts have been temporarily shut down for 3 months and almost all the resorts are to follow. Construction, fisheries and SMEs who run the corner shops or the guest houses and speedboat services to café and restaurant owners are all impacted adversely since COVID-19 began. As a mitigation plan, we need to borrow and pump funds to the economy quickly, as with COVID-19, the businesses have lost more than 55% of their sales when tourists stopped initially from China, followed by Italy, Germany and created chaos in the micro, small and medium businesses. It's seen that most of the businesses, including the big resort chains, are being operated/managed with daily cash flows. The big brands too have announced that they cannot maintain the staff pay for even 3 months, and have announced financial package with maximum caps and reducing different percentages for different salary bands. Hence an urgent intervention from the government is needed to lessen the impacts on SMEs. Urgent solutions are needed to address financial and socioeconomic issues on SMEs, due to COVID-19 impact. Following are needed actions on a timely manner. Mitigation package for survival from immediate impact of the outbreak We have seen our supply chains disrupted as the country’s economy’s 75% depends both direct and indirectly on tourism as the whole tourism industry is on halt for at least 3 months. For survival of businesses, we need special packages like 1. rescheduling/restructuring the existing loans for at least 6 months 2. deferment tax payments (BPT, which falls in June) 3. deferment of projected BPT 4. special short term loans to cover operational expenses, as it looks like businesses will take at least 6 months to reach a manageable level 5. deferment of utility bills and special discount on bills for 3months 6. Care and support package for public, as businesses are among the public and need to increase the customer’s buying power 7. Almost all the resorts are temporarily closed and it seems like many staff will get redundant. Many resorts and guest houses have undocumented expats in their work force and many of them will get redundant, and may choose to do odd jobs directly, causing a huge impact on SMEs. And this issue needs to be sorted for survival of SMEs. Stabilisation and support package for economic growth Following are some steps that would sustain and grow the businesses 1. Special low interest loan with 6 months grace period with loan duration 3 years, based on past performance (annual turnover) 2. Import duty exemption for 6 months 3. Continue discounted utility bills for 6 months 4. Facilitate foreign currency for the TT, through banks 5. Promote tourism sector via promotional packages as all SMEs are directly related on tourism industry 6. Documentation and legalization of undocumented foreign expats 7. Facilitate more government contracts for SMEs 8. Expedite payments from government for invoices from SMEs 9. Banking regulations need flexibility as banks now with many red tapes, tighten domestic credit which obstructs the growth of the economy, especially the construction sector which is the second contributor to GDP. Construction sector contributes to many SMEs, namely midrange construction companies, architect firms, hardware shops, logistics companies. 10. Loan interest rates need to be reduced as the current real estate loans at 13% interest causes high rental rates which increase the operational cost of most of the SMEs and high housing rental reduces the customer’s buying power Long term Plan It is essential to have a long term plan to minimise impact and protect SMEs from such epidemics. One major issue currently is the vulnerability of economy, due to solely depending on tourism and any epidemic/pandemic affects the economy badly. From the past history it’s seen that an epidemic hits every 10 years. Hence need to have a master plan to reduce the impact of such crises on economy Following are some plans that could be implemented in an organized way 1. Diversifying and growing other sectors namely agriculture - hydroponics, poultry, farming and aquaculture, by simply bringing technology into farming process. 2. Bring back the Maldives shipping line, which proved the capacity and capability of Maldivian seamen and the management. 3. Solar power diversification to minimize the funds on fuel, which will help to recover faster in such crises, as huge amount of state fund gets blocked for reasonable fuel stock 4. Develop fisheries industry and market directly with value added products 5. Develop locals into skilled and high paid jobs, to retain forex within the country 6. Improve the monetary policy to roll the revenues in the economy, to be operated through proper monetary networks, to ensure proper recordings and real benefit to the economy 7. Change the Banking guidelines to maintain their spread income at reasonable rate and in favor of business sector. 8. Regulate the foreign labour policies and maintain the foreign expats in a regulated process 9. Introduce an Emergency Support Fund for staff which is very essential now, as job security is NOT assured in such a crisis, and a solution is necessary. One way is to go for a contributed method like the Pension Fund, for instance a 3% contribution by each to give a 6%. As the infrastructure is there to run a similar fund (Pension Fund), such a fund could be established and maintained easily through the Pension Fund. Pension Fund is with over 12 billion in 10 years. COVID-19 is nothing similar to 2001 September attack and aftermath, or the 2009 financial crisis. This is more an epidemic impact and with the help of government’s stimulus packages, the people will move on with their life. Travel and tourism will begin as the stimulus packages across the world will keep their economies functioning soon. Similarly, the Maldives businesses will be maintained with the stimulus packages from the government, and expects Maldives tourism to be back to norm by Q4-2020/Q1-2021 and SME businesses will follow the trend then. NB: SME Entrepreneurs Federation of Maldives (SEFM) is a legal entity registered under law no: 1/2003 in the Republic of Maldives on 3rd December 2018. SEFM is geared towards building a robust SME engagement and providing SEFM members with more opportunities to explore various economic windows, including financial and technical support in order to build the capacity. SEFM is led by a dynamic team who has immense knowledge and experience in Maldives and international business arena. Our founding members and team members are qualified and dedicated to provide comprehensive solutions to SEFM members and other businesses. SEFM will seek to develop partnerships with local and international partners to provide the best solutions and share knowledge, support the growth of SMEs and entrepreneurs as a whole in the Maldives.