The COVID-19 pandemic has evolved from a global health crisis into an acute economic crisis. Micro, small and medium enterprises (MSMEs), an industry that contributes one-fourth of Bangladesh’s GDP, are in a particularly vulnerable position. The pandemic has severely affected the economic and psychological wellbeing of workers and owners of micro and small enterprises. This is a big concern for Bangladesh since these enterprises are strategically important for the economic recovery of the country once the pandemic is over. This study looks into the impact of the COVID-19 induced economic crisis on MSMEs, and their coping mechanisms.
Researchers: Dr Asadul Islam; Atiya Rahman; Rafia Nisat
Partners: Monash University
Timeline: Phase I (July 2020), Phase II (January 2021)
Status: Completed
Contact: Atiya Rahman; atiya.rahman@bracu.ac.bd
Publications:
Context
Micro, small and medium enterprises (MSMEs) are the lifeline of the economy of Bangladesh. According to a 2019 World Bank report, 99% of non-farm enterprises in Bangladesh are MSMEs, and they created about 20 million jobs in 2013. Most of them are informal micro and small enterprises, and the majority of these informal enterprises are serving the domestic market and are involved in trading activities. The presence of financial constraints for MSMEs in Bangladesh is widely recognized in academic literature as well as by practitioners in the field.
Micro and small enterprises in general, and particularly those producing and selling non-essential products and services for the domestic market, are experiencing a sudden plunge in sales. Majority of these enterprises do not possess adequate liquid assets, nor do they enjoy necessary access to credit, even in normal times. Many of these enterprises will die if they run out of cash. Even in developed economies like the UK, it is predicted that because of the cash crisis during the shutdown, a fifth of such small businesses may collapse.
The survival of MSMEs is critical to the economic recovery of the country once the pandemic is over. Will the micro and small enterprises in Bangladesh be able to weather the hardship, and if yes, for how long?
Research Questions
This study is relevant to SDG 1 (No Poverty), particularly to ending poverty in all its forms everywhere.
Methodology
Phase I (July 2020)
This research employed a quantitative survey and the sample was drawn from recent surveys conducted by BIGD. We had an aggregate sampling frame of 6,000 surveys with micro and small enterprises from several studies conducted for BRAC’s Skills Development program. A total of 2238 light engineering (LE) firms and 126 other SMEs were approached during the first round, and the survey was conducted with an 84% success rate.
The survey was conducted using mobile phones and the data was collected on a tablet using SurveyCTO, a web-based platform. The questionnaire was approximately 15-20 minutes in length, with short modules such as 1) the nature of business and the number of people employed, 2) the impact of the crisis on their business, 3) the coping mechanisms for their businesses, and 4) support needed for their business to survive.
Phase II (January 2021)
To capture the evolving nature of the vulnerabilities caused by the pandemic in the industry, the survey was repeated in January. The surveys in this round were slightly longer at an approximate half an hour in duration. A total of 2175 light engineering firms and 125 other SMEs, as well as 526 people from BRAC’s Master Craft Persons (MCP), were approached during this round. LE and SMEs were surveyed with a success rate of 92.5%, and MCPs were surveyed with an 83.5% success rate.
The majority of the enterprises surveyed in this round were light engineering firms, with the other 17% being from the service sector. The average age of respondents was 41 years, and 96% were male. Only three percent of the respondents in LE were female, and this number was 15% for the service sector.
Findings and Recommendations
Due to the informal nature of micro and small enterprises, they tend to fall outside the radar of policy support despite their significant contribution to job creation and the economy. Consequently, it is likely that despite the persistently adverse effects of COVID-19 on these enterprises, they may not get adequate support from the government. This is critical because these enterprises play an instrumental role in creating economic resilience: on one hand, their connection to the global economy is relatively weak, and on the other hand, they employ a large share of the workforce, mostly the poor.
Sales in micro and small enterprises have not recovered to pre-COVID levels, despite businesses reopening. Recovery was the lowest in female labor-intensive sectors and in sectors with higher health risks, for example, beauty parlours. Unemployment among male workers decreased to 15% in June 2020 from an extremely high rate during the first lockdown, and it has remained unchanged since. Unemployment among female workers worsened from June 2020 and stood at a whopping 54% in January 2021. Thus, income is down from pre-COVID levels by 24% for men and 56% for women, eight months after the first lockdown was lifted. Consequently, psychological stress during the pandemic has been significantly higher for female workers, particularly for those who are unemployed. Besides, health guidelines compliance has gone down significantly from June 2020, which poses significant risks to workers’ health in the escalating pandemic situation.
Providing adequate support and establishing practical health guidelines are necessary to aid safe reopening of businesses. There is a latent demand for government stimulus, one that is not reflected in the application rate. Simplifying the process and raising awareness of the stimulus package will encourage more people to apply.
The study is part of the Covid Collective initiative. Supported by the UK Foreign Commonwealth and Development Office (FCDO), the Covid Collective is based at the Institute of Development Studies (IDS). The Collective brings together the expertise of UK and Southern-based research partner organizations and offers a rapid social science research response to inform decision-making on some of the most pressing development challenges related to COVID-19.
