Pearl Nkrumah’s thoughts: Adjusting to the new normal: …impact of COVID 19 MSMEs

The writer is the Head Enterprise Banking ,Stanbic Bank Ghana

Like many people around the world, Ghanaians considered the initial outbreak of COVID-19 in December 2019 as a distant worry. Economies and healthcare systems did not envisage the impact we are experiencing and it wasn’t until the first case was reported that the reality dawned on the whole nation. With the cases came stricter measures such as the partial lockdown of Accra and Kumasi to protect the population. At this point, the government had to introduce economic policies to mitigate the damage to the economy.

To fully appreciate the impact of the lockdown on the economy, however, it is significant to note the nature of the Ghanaian economy and its predominantly informal sector. According to reports from the Registrar General’s Department and the National Board of Small-Scale Industries (NBSSI), Micro, Small and Medium-Scale Enterprises (MSMEs) contribute about 70% of Ghana’s GDP and account for an estimated 92% of businesses in the country. A greater part of the economy’s growth and expansion is therefore driven by the work of these small businesses.

This further indicates that the growth of the economy rests heavily on the success of MSMEs. The imposition of restrictions on movement by the Government put severe strain on these businesses; even more so for petty traders who rely on wages from daily work done. The directive for everyone to stay home caused an abrupt halt in their inflows to sustain their livelihood. In effect, the lockdown further slowed down the economy.

The government found it necessary to intervene to ensure the survival of MSMEs, first with a pledge to implement a GHS 600 million soft loan scheme for MSMEs in collaboration with NBSSI.  The planned scheme is expected to have a two-year repayment period and a one-year moratorium.  In addition, the Ministry of Finance has developed a Coronavirus Alleviation Programme to address the disruption in economic activities, hardship on citizens and to rescue and revitalize industries.

The programme was approved by Parliament and a sum of GHS 1.2 billion was approved for its implementation. Part of this fund will be immediately available to MSMEs. Furthermore, the Bank of Ghana has reduced its policy rate by 1.5% and the reserve requirement by 2% in a bid to get Commercial banks to lend at a lower rate to support and sustain the sector.

These measures have made available to MSMEs, lines of credit that should not only aid in managing the impact of COVID-19, but also form a springboard that will enable innovative MSMEs to grow exponentially. Investors and banks, particularly Stanbic Bank, are ready to support MSMEs with packages. In injecting capital, however, they would want to know that the products of these MSMEs are still relevant and still have a ready market.

The lockdown permitted the operations of only those recognized as essential service providers. A significant impact of COVID-19, which ought to be highlighted is the re-orientation it has brought about; we are now able to distinguish more clearly between what is essential and non-essential. This clarity inevitably brings about a change in consumer behaviour as people would alter their expenditure patterns; to prioritize what they need over what they want and eliminate expenses on luxury goods.

Cash is still king. Consumers have been conscientized to understand the essence of disposable income, and liquidity for businesses. Initially, businesses could operate and thrive on credit and repay their creditors later. Currently, however, business operations are running mostly on cash basis. COVID-19 has changed our lives and to ensure survival following this change, it is key that MSMEs also undergo a shift to deliver to their consumers.

The business continuity of MSMEs post COVID-19 will not only rely on capital injections but also on the ability to undergo restructuring to acclimatize to the new normal. They would also need to adopt business cost saving mechanisms that will help them efficiently cater for the changed consumer. The consumers themselves have had to adjust to the new way of life, and this is illustrated through the increased uptake of digital and online platforms.

In The Fourth Industrial Revolution, written by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, it is made clearer how the world is embarking on a revolution that would essentially bring about a transformation in the way we relate to one another, work and live. He indicated that this fourth industrial revolution, which is characterized by different forms of automation is not present in every country. According to him there are still some nations where access to a constant and stable supply of electricity and other basic amenities which should help them take advantage of the fourth revolution is still a challenge.

Despite their advantages for business, automation and digitization, have generally been a culture that Ghanaian MSMEs don’t eagerly adopt. However, COVID-19 and its associated health protocols are forcing MSMEs to think of ingenious and innovative ways, predominantly through digital means to survive and either reduce or eliminate the need for human interventions.

COVID-19 has brought about a global change that has impacted everybody, either directly or indirectly. No one has been left unaffected by the global change brought by Covid-19. It can be said to be a revolution – a sudden, complete and marked change in human behaviour all over the world, which has forced MSMEs to jump into the fourth industrial revolution to ensure survival.

Survival is not only about financial support, but how nimble and fast MSME change and adapt to suit new consumer behaviour and choices. COVID-19 has accelerated the adoption of digitization and automation, as well as multiple sources of searching and has shown us the best bargain. Within the context of the prevailing circumstances, certain structures would have to be put in place to further facilitate the survival of MSMEs. To start with, there is the need to create online market place portals that are open to all: from basic groceries, to plumbing services to electrical services, etc.

There is also the need to create a global supply chain portal. This is because it is now the responsibility of MSMEs to negotiate with multiple suppliers who can provide their goods to them in multiple places without relying on one source, where businesses are exposed to a wide and diversified range of suppliers across the world.

Also, creating a website is no longer a luxury for businesses. Branding, along with online payment and collection of goods will now be a necessity for businesses if they want to experience visibility and continuity. The transformed consumer will now opt for online shopping and delivery services as opposed to the traditional and physical walk-ins. It will thus be the duty of the MSMEs to ensure that they are properly prepared for these changes. Additionally, employing Intelligence Automation (IA) and Robotic Process Automation (RPA) would better improve long term and recurring costs.

As part of the reliefs planned for the sector, it would help if government/investors/banks institutionalise digitization in micro and small businesses, introduce and digitize market places to create our own Alibaba and Amazon. The survival of an MSME post COVID-19 is reliant on change in trade behaviour, change in delivery model, change in global sourcing and change in their unstructured nature. The consumer is now constantly processing what is and what is not essential at any point in time. The MSME that is able to identify and understand the dynamics of this paradigm is the one that would survive and thrive.

In essence, life post COVID-19 would be dramatically different. The underlying principle for the survival of the MSMEs is for there to be holistic transformation to match the corresponding change in consumer behaviour. As we rapidly transit into the fourth revolution, the mantra for MSMEs is digitalize or die.

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