Innocent Prince Afli’s thoughts …. Economic effects of COVID-19 on MSMEs’ sustainability


Today, the world is dumbfounded by the emergence of novel coronavirus disease (COVID-19), and every sphere of human life is threatened by the existence COVID-19.  Thousands of lives have been lost to the virus, as well as livelihoods being taken away from people. Nations are still brainstorming on the way forward.

The virus has created two major challenges: namely health and economic challenges to nations of the world. While medical experts are working day and night on finding medical solutions to the pandemic, economists are also finding ways to create economic balance in the world. The health challenge posed by COVID-19 is more far-reaching than what the eyes can see. The virus threatens the human resource capacity of all economies as many lives are being infected on a daily basis.

The economic challenge arises as a result of closure or suspension of businesses due to restrictions on public gathering and overcrowding. This is due to the fact that the virus is said to travel with people, hence movement of people is restricted. Although the virus has affected every facet of human life and nations’ economy, this article analyses the effects of COVID-19 on the sustainability of Micro, Small and Medium Size Enterprises (MSMEs). Also, the writer is not oblivious of the fact that there are some writings in the public domain on the general effect of COVID-19 on businesses, including MSMEs and efforts of Governments all over the world in supporting MSMEs, but rather seeks to contribute to the available literature in a different perspective.


  1. Definition and Nature of MSMEs

Universally, there is no single acceptable standard definition for Micro, Small and Medium Size Enterprises (MSMEs). The definition differs from country to country and central bank to central bank. Mostly, factors such as number of employees, capital investments or assets turnover and sales volume are used in defining MSMEs. For instance, the European Union (2003) defines MSMEs as follows:

  1. The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding €50million, and/or an annual balance sheet total not exceeding €43million.
  2. Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed €10million.
  3. Within the SME category, a microenterprise is defined as an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed €2million


Also, the Ghana Statistical Service (2015) defined MSMEs using number of employees as follows:

  1. Micro-sized establishments employ 1-5 persons
  2. Small-sized enterprises engage 6-30 employees and
  3. Medium-sized enterprises employ 31-100 persons

This article however adopted the definition espoused by the World Bank Group, which defined MSMEs using number of employees and annual sales/total assets. The World Bank Group (2012) defines MSMEs as:

  1. Micro-enterprise: up to 10 employees; total assets/total annual sales of up to US$100,000; turnover must be in excess of US$400,000, and tangible assets in excess of US$200,000;
  2. Small enterprise: between 10 and 50 employees; total assets/total annual sales between US$100,000 and US$3million;
  3. Medium-sized enterprise: between 50 and 300 employees; total assets/total annual sales between US$3million and US$15

Inferring from the definitions, it is obvious that MSMEs are businesses of micro, small and medium nature in terms of number of employees and volume of sales made. This means that MSMEs by nature are limited to some extent in competing on the open market with larger competing firms. It also implies that MSMEs are dominant in the retail and service sector, with few of them operating in the manufacturing sector. This is obviously influenced by the volume of their capital investment.

Prior to the emergence of COVID-19, MSMEs faced unlimited challenges such as unfair practices by larger firms, financing gap and lack of proper governance structure among others. Also, because of their small nature, MSMEs are not able to maintain enough financial reserves and normally depend on day-to-day production and sales for sustainability. However, due to COVID -19 restrictions, MSMEs have had to suspend their operations for a few weeks; which resulted in loss of revenue and in some cases loss of market shares. This definitely has repercussions on the sustainability of these businesses.


  1. Problem Statement

According to an article published by the International Finance Corporation of the World Bank Group, MSMEs are essential for job creation and growth in emerging markets, which is key for economic development of nations (International Finance Corporation (IFC)/World Bank Group, 2011). In spite of their ability to reduce unemployment and contribute to a nation’s Gross Domestic Product (GDP), MSMEs still face peculiar challenges – some of which are mentioned above. That notwithstanding, it is imperative to note that the consequences of COVID-19 have a high probability of negatively influencing the sustainability of MSMEs.

Sustainability is defined as meeting needs of the present without compromising the ability of future generations to meet their own needs (United Nations, 1987). In a more elaborate manner, sustainability of MSMEs can be referred to as the ability of MSMEs to consolidate their financial gains, expand operations, and continue to remain in business for the foreseeable future. This implies that one cannot achieve sustainability without first having sound financial footings, which is the lifeblood of every business. This is so because every activity in a firm revolves around finance. Hence, MSMEs likelihood of facing sustainability problem arising from worsening financial constraints and its related issues due to the COVID-19 pandemic.

While sustainability can be viewed as a process and not an event, if urgent pragmatic steps are not taken to turn around the fortunes of these small businesses, the economy as a whole could suffer a great recession. This is the more reason why cautious efforts must be made in critically analysing the effects of COVID-19 on MSMEs in order to propose best strategies for ensuring their sustainability.


  1. How does COVID-19 affect MSMEs Sustainability?

As indicated in the introduction, the COVID-19 pandemic outbreak had serious economic implications for nations and businesses, including MSMEs. However, this article seeks to understand the specific effects of COVID-19 on the sustainability of MSMEs. Also, MSMEs per their nature were faced with unlimited hurdles affecting their operations prior to COVID-19, which has aggravated their sufferings. This discussion will be premised on only three factors: financing, production and market shares.


  1. Financing Constraint: Generally, financing is regarded as the main constraint affecting the operations of MSMEs. According to the World Bank Group report on MSME finance gap in 2017, there is anabout US$5.2trillion financing gap in the formal MSMEs sector, which is equivalent to 19% of the total gross domestic product (GDP) of nations surveyed, while informal MSMEs sector financing gap is valued at US$2.9trillion(International Finance Corporation, 2017). Similarly, the report also indicated that Ghana’s MSME financing gap stood at approximately US$2.3trillion, representing about 13% of the country’s GDP.

 Based on this report, it is indisputable that MSMEs are really faced with serious financial challenges. This situation can be attributed to difficulty in accessing credits from the financial institutions, the level of inherent risk of their operations and liquidity risk among others. Sometimes, the inability of MSMEs to access financing can also be attributed to high information asymmetry – which could be dealt with by lenders granting short-term debt maturation. While MSMEs are struggling to sail above the sea and remain in business with the limited access to financing, COVID-19 has emerged and deepens the financial woes of MSMEs.

The effects of COVID-19 on the financing of t MSMEs stem from the fact that the already existing financial constraints of MSMEs are worsened as the meagre funds accumulated by them are being depleted by fixed costs. Thus, businesses continue to pay some fixed costs such as utility bills, salaries & wages of employees, office rent, and repayment of loans among others. This cost is constant regardless of volume of output. Since every business is driven by finance, it is therefore common knowledge that the incurrence of fixed cost without the corresponding production and sales has the tendency of driving businesses into liquidation.

The worsening financial challenge will also lead to staff attrition, since the business cannot meet the required salary needs of staffs. Also, most staff are likely to resign while others will be laid-off due to redundancy as consequences from decline in production (point 4(ii)) resulting from lack of money to purchase raw materials. It is relevant to mention, also, that some owners of MSMEs will be tempted to dip their hands into the working capital of the business for personal use, since they have no other source of income. Thus, by the time the virus is over some MSMEs will lose their capital and be totally out of business, and owners will have to start all over again. The long-term implication, therefore, is that the sustainability of MSMEs is threatened by the worsening financial constraints imposed by COVID-19.


  1. Low Production Output: Due to the restrictions on social gathering and fear of employees contracting the virus, most MSMEs have no choice other than to suspend their production or provision of services. MSMEs in the manufacturing sector have difficulty in operating, though government has lifted the lockdown because most of these enterprises do not have the financial capacity to put in place necessary social distancing protocols at their workplaces.

It is important to underscore the fact that due to limited funding for these enterprises, most of their operations are on a manual basis with little or no automation. Thus, inability to acquire relevant plants and machinery for production made MSMEs rely heavily on human labour in carrying out their production. With the emergence of COVID-19, which is deemed to be transferrable by human movements, the least harm MSMEs could do is to endanger their staff by requesting them to report for work.


Although MSMEs have the opportunity to run a shift system for their employees, the question is would they be able to pay them their entire wages or salaries, considering the fact that man hours per person would reduce in addition to decline in output? Also, even if the business is able to meet staff needs, would it be able to purchase the right quantity of raw material for production to meet clients’ demand? Hence, the best option in this regard is to reduce staff strength in order to meet financial needs of the business by reducing staff and its related costs. The resultant effect of this will be decline in output with high probability of low growth.


This would definitely affect the sustainability of MSMEs since they could not produce to meet customers demand, and thereby record low sales. Consequently, the purchasing power of owners and staff of MSMEs and their dependents will reduce drastically or be lost completely. COVID-19 is therefore setting the pace for how businesses should run with less or no human interactions. But the fact is no businessm, including MSMEs, can operate without human capital irrespective of the level of sophisticated technology being used. This is why the restrictions on human contact due to COVID-19 is having serious effects on provision of services and manufacturing of goods, which is a danger to business continuity.


  • Decline in Market Shares: The last factor to consider for the purposes of this article is the effect on market shares of MSMEs. The sustainability of any business, be it large or small, depends largely on the percentage of market share acquired by such business. In other words, the number of clients belonging to a business influences how far the business can go. This is because the volume of customers’ demand determines how much product or services a business can offer, which also influences continuity of the business. It is therefore imperative to note that MSMEs are in keen competition with large companies across all sectors of the economy.

This means that both large and MSMEs are competing for the same customers in the open market; hence, since MSMEs are constrained in producing to meet the demand of their clients, the clients will be left with no alternative than to seek the same products and services from competitors. Thus, MSMEs will be losing significant number of their loyal customers to the competing larger firms.

Although information available shows that MSMEs are considered the backbone of Ghana’s economy because they contribute over 70% to  GDP and represent about 85% of businesses (International Trade Centre (ITC), 2016), not much has been done to jealously protect the survival of these so-called engine of growth for the economy. In spite of government policies and development partners’ efforts tailored at developing the private sector, of which MSMEs are the majority, the sector still struggles to survive. The inability of MSMEs to meet the demands of their clients is a potential threat to their very survival (sustainability). Elaborating further, because MSMEs are not able to produce to meet to satisfy their customers’ needs due to covid-19 restrictions, they will lose significant numbers of their existing clients to the larger firms. This will economically shorten the life-span of MSMEs.


  1. The Way Forward

In view of the above discussion, which clearly show that COVID-19 has economic impacts on the sustainability or going concern of MSMEs, there is a need to consciously implement some pragmatic measures in ensuring that MSMEs bounce back stronger to continue playing their role of being the engine of growth for emerging economies, including Ghana. It is important to state that the measures enumerated here are not exhaustive, but will go a long way in building the economy we desire to see in the face of COVID-19.


  1. Providing Credit Facilities to MSMEs: The first measure that is common and known to everyone is government’s provision of a stimulus package in terms of financing to the MSMEs. Data available show that countries around the globe are providing financial support to their businesses, including the MSMEs, in diverse forms. In Ghana, government is in the process of disbursing about GH¢600million to MSMEs in the country through the National Board for Small Scale Industries (NBSSI) in addition to more incentives for other categories of businesses in the country(NBSSI, 2020).

 Even though this decision is appreciated by industry players, some analysts are concerned about the mode of disbursement and that it will not turn into a political disbursement. For instance, the Former Executive Director of Standard Chartered Bank, Mr. Alex Mould, in a write-up published on (2020) mentioned that disbursement of the funds by NBSSI is inappropriate – since NBSSI is not a financial regulated institution, and does not have credit underwriting standards or credit approval procedures among others.

His fear was corroborated by the CEO of Dalex Finance, Mr. Ken Thompson, who suggested that the money should rather be given to financial institutions to handle and not the NBSSI, because according to him NBSSI is too political to handle the disbursement. He made this statement when he was interviewed on TV3 on May 11, 2020.

However, it is refreshing to add that the Executive Director of NBSSI, Ms. Kosi Yankey-Ayeh, assured that there will be no partisan politics in the disbursement. Whatever the case is, stakeholders must be engaged to ensure that the package reaches the right businesses at the right time. It is also hoped that the processes will be fast-tracked to save the already challenged MSMEs. With the disbursement of this fund, MSMEs should significantly meet their production targets, pay their staff and settle some other costs. The continuity of operations will lead to growth and sustainability.


  1. Effective Supervision: Supervision is very key in the sustainability of every organisation. Supervision can be referred to as the act of directing, guiding and controlling the workforce of an organisation with the view of ensuring they are working according to plan and keeping time schedules. Thus, businesses that succeed are deemed to have effective supervision mechanisms which enhance internal controls of the business. Considering the various constraints faced by MSMEs, there is a need for regulatory bodies like the NBSSI and Private Enterprises Federation (PEF) to devise strategies that will improve the supervision strategy of MSMEs.

 This is critical in safeguarding government’s GH¢600million stimulus package, its judicial use, and guarantee repayment after the moratorium. Lack of a strong governance structure is a recipe for organisational failure; hence, implementable controls must be instituted by the regulators to facilitate the activities of MSMEs and ensures the funds are used to increase production and expand the operations of MSMEs.

Effectively supervising MSMEs in this critical time of the Ghanaian economy is vital for the sustainability of the MSMEs, and growth of the nation’s economy as well. By effective supervision, resource wastage is eliminated or reduced significantly. Thus, only the needed expenditure will be incurred. Failure by the regulators in strengthening the supervision of MSMEs could lead to misappropriation of funds, because there is a tendency for some owners of MSMEs to think ‘this is government money, hence it can be used anyhow’. However, ensuring that appropriate measures are put in place for management of the funds and businesses will go a long way to stimulate growth and expansion.

  • Merger of MSMEs: A merger in the business context is an agreement between two or more companies to become one new entity. In other words, it is a process of combining two or more businesses into one new business. Mergers can be classified into four basic types:
  1. Horizontal Merger: This is a type of merger that occurs between companies with similar products/services
  2. Vertical Merger: This is a merger that consolidate the supply line of a product
  3. Concentric Merger: This is a merger that combines businesses which have similar customers with different products/services
  4. Conglomerate Merger: This merger is between companies which offer diverse products/services


Hence, MSMEs should be encouraged to undertake horizontal mergers whereby those producing the same goods or services can put their resources together to expand their operations and grow bigger. Apart from government providing incentives to MSMEs, the option of mergers should be considered to create a greater economy for development. For instance, two or three small enterprises can be merged into one medium enterprises; or medium and small or micro enterprises merging to form a large firm.

Although there may be some resistance and challenges arising from individual owners, with a well-thought-through strategic plan, success will be achieved.  The merger will definitely lead to synergy in the company because the effect from the merging entities will be greater than their individual efforts. By merging, the new company stands a chance of experiencing benefits such as:


  1. Economies of scale: The merged firm will become efficient in its operations since there will be a proportionate saving of cost due to increased production. For instance, there will be bulk purchasing of raw materials which lower average costs, availability of large machines, and investment increasing productivity among others.
  2. Increase in financial resources: The merging MSMEs will give the new company a strong balance sheet that will result in easy access to credit. By accessing financing, the new company can expand its operations which will lead to growth.
  3. Access to global markets: The merged firm will have an opportunity to access the international market due to improved and high quality production and increase in outputs. By accessing the global market, the merged firms will not only increase their revenue; the country also stands to benefit from the forex inflow, thereby increasing its forex reserve.
  4. Growth and expansion of business: By combining human, financial and other resources together, the new company is in good standing to expand its operations and grow the company beyond the MSMEs state. This growth will surely lead to sustainability of the new firm.
  5. Ability to face competition: The new company will be able to produce the required quality goods and services in the quantity that meets the demand of customers. The merged firm will be in position to compete with other large firms in the industry.
  6. Increase in market share: By producing to meet customers’ demand, the merged firm can increase its market share. This therefore creates the needed incentives for the firm to expand its operations and continue to be in business.
  7. Investment in research and development: The new firm will have the required resources to invest in research for new product development and improvement on existing products or services. This will aid the new firm to meet the right preference of customers and be able to satisfy their needs. Thus, as the customers are satisfied, they will continue to demand the firm’s product or services – which will enable the firm to continue operating for a long period.


  1. Automation of Operations: It is important to underscore the need for conscious efforts to be made in ensuring that MSMEs introduce automation into their operations. In this technological age, the MSMEs cannot be left behind, especially if the country is to continue benefitting from their operations. This is one lesson COVID-19 has brought – for businesses to start considering eliminating too much human contact. Businesses that rely hugely on manual procedures lack growth due to low production and some pertinent errors. Although automation cannot be deemed an overnight solution, it will to a large extent enhance the growth of MSMEs.


However, due to the capital intensiveness of acquiring technological infrastructure, it will be difficult for MSMEs to undertake such development without external financial support. Hence, government and other stakeholders should adopt strategies to roll-out technological infrastructure for MSMEs. This infrastructure cannot be rolled out without talking about accessible and affordable Internet facilities. Players in the telecommunication sector must begin a conversation on how to make cost of Internet affordable to MSMEs, in order to reduce their cost of operations. One factor that leads to high pricing of products in the country is increased cost of production.


It is evident that MSMEs will be the most-hit businesses during this COVID-19 pandemic that has redefined the way things are done. As mentioned, the COVID-19 pandemic has worsened the financial condition of MSMEs, and led to job losses and collapse of the very businesses which are the bedrock of economic development. That notwithstanding, it is stated that apart from the government stimulus package, there must be effective supervision from regulatory bodies to ensure that funds are put into proper uses.

Also, MSMEs should be encouraged to merge and provide stronger firm that can continue to compete on the open market. Introducing technology in the operations of MSMEs should also be considered critically, in order to keep them in operation. The various stakeholders in the MSMEs sector are encouraged to put in measures that will ensure the sustainability of MSMEs. Apart from the immediate efforts government and other industry players are putting in place to restore the operations of MSMEs, more pragmatic steps should be taken to deal with the multiplying effects of COVID-19 on MSMEs.

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