West Asia Disruption Can Affect SMEs Disproportionately: UN
Trade disruptions affect businesses of all sizes, but their capacity to absorb shocks varies. Larger companies can often spread risks across suppliers, markets and sources of finance. Smaller firms, by contrast, typically have fewer alternatives when energy, transport and financing costs rise
Chennai: Disruptions in the Strait of Hormuz could disproportionately affect small and medium firms, which account for 70% of global employment, finds the UN's trade and development body, UNCTAD.
“When SMEs falter, growth becomes less inclusive and less resilient,” finds the report.
Small and medium-sized enterprises (SMEs) account for around 90% of businesses globally, 70% of employment and 50% of GDP. They are also crucial suppliers of goods and services across value chains, supporting entrepreneurship, innovation and economic diversification.
Trade disruptions affect businesses of all sizes, but their capacity to absorb shocks varies. Larger companies can often spread risks across suppliers, markets and sources of finance. Smaller firms, by contrast, typically have fewer alternatives when energy, transport and financing costs rise.
Apart from the immediate shock, smaller firms can remain at risk of exclusion from value chains even when overall trade volumes recover. This creates a risk of an “exclusion effect”, in which recovery in headline trade figures can mask a more concentrated economy, with fewer smaller firms participating in international markets.
The COVID-19 crisis had shown that smaller firms are more vulnerable to major shocks, with sales declines generally larger among firms in developing countries.
Governments should keep not only trade moving, but also smaller firms connected to markets.
This includes closer monitoring of firms’ participation in trade, including whether they can maintain operations and commercial relationships as conditions change.
Stronger access to trade finance, liquidity and working capital is also critical, particularly when production costs rise and delivery times and payment cycles lengthen.
Public support can further help improve access to reliable and affordable logistics, facilitate trade and expand access to market information and other business services, particularly in developing economies.
Strengthening smaller firms’ productivity and competitiveness can help them maintain and diversify supplier and customer relationships.
Together, these measures can help protect jobs and strengthen resilience to future shocks.