The outbreak of coronavirus disease (COVID-19) has severely affected the global and Pakistani economy. Major victims of the COVID-19 outbreak are micro, small, and medium-sized enterprises (MSMEs). This article aims to assess the impact of COVID-19 outbreak on these businesses and provide policy recommendations to help MSMEs in reducing business losses and survive through the crisis. We adopted an exploratory methodology with comprehensively reviewing the available literature, including policy documents, research papers, and reports in the relevant field. Further, to add empirical evidence, we collected data from 184 Pakistani MSMEs by administering an online questionnaire. The data were analyzed through descriptive statistics. The results indicate that most of the participating enterprises have been severely affected and they are facing several issues such as financial, supply chain disruption, decrease in demand, reduction in sales and profit, among others. Besides, over 83% of enterprises were neither prepared nor have any plan to handle such a situation. Further, more than two-thirds of participating enterprises reported that they could not survive if the lockdown lasts more than two months. The findings of our study are consistent with previous studies. Based on the results of the research, different policy recommendations were proposed to ease the adverse effects of the outbreak on MSMEs. Although our suggested policy recommendations may not be sufficient to help MSMEs go through the ongoing crisis, these measures will help them weather the storm.
The outbreak of coronavirus disease-20191 (COVID-19) has severely affected national and global economies. Various enterprises are facing different issues with a certain degree of losses. Particularly, enterprises are facing a variety of problems such as a decrease in demand, supply chain disruptions, cancelation of export orders, raw material shortage, and transportation disruptions, among others. Nevertheless, it is quite clear that enterprises around the globe are experiencing the significant impact of COVID-19 outbreak on their businesses. We argue that major victims of COVID-19 outbreak are the micro, small & medium-sized enterprises (MSMEs) because MSMEs, in comparison to large enterprises, usually do not possess sufficient resources, especially financial and managerial, and are not prepared for such disruptions likely to go longer than expected (Bartik et al., 2020; Prasad et al., 2015). Additionally, these firms are highly dependent on their routine business transactions and a small number of customers (Williams & Schaefer, 2013). Hence, many MSMEs are running out of stock, some hardly continue to operate, and some will be running out of stock soon.
MSMEs are the backbone of many economies worldwide that provide income and employment generation to a large number of people around the globe. Similarly, in the case of Pakistan, MSMEs2 are crucial for the economy as they constitute over 90% of the estimated 3.2 million business enterprises and contribute 40% to the GDP with over 40% to export earnings (SBP, 2016; Shah, 2018). These businesses are spread all over Pakistan in rural and urban areas and represent a significant portion of agriculture, manufacturing, retail, wholesale, trade, and service sectors. Due to the COVID-19 outbreak and lockdowns, Pakistani firms are facing unprecedented adverse effects on their businesses.
According to a recent report of the United Nations Conference on Trade and Development (UNCTAD) (UNCTAD, 2020a), Pakistan would be hardest-hit by the global pandemic of COVID-19. Therefore, this justifies the need to examine the impact of the COVID-19 outbreak on MSMEs operating in Pakistan. Additionally, the ongoing pandemic crisis will severely hamper the operations of these businesses because MSMEs are highly dependent on the cash economy, which has been adversely affected by the pandemic (Williams & Schaefer, 2013). Besides, the unavailability of labors, slowdown of productions, shortage of raw materials, and transportation restrictions will have major ramifications on these businesses. This, in turn, will have a significant impact on the national economy as a whole. Hence, a robust policy response is also essential to offset the negative effects of the current outbreak. Till to date, no study has been conducted to examine the global outbreak’s impact on MSMEs operating in Pakistan. Thus, this research aims to investigate the impact of the COVID-19 outbreak on Pakistani MSMEs. Our study also aims to assist policymakers and practitioners in identifying strategies required to respond to the impact of the ongoing pandemic on MSMEs. Mainly, this study emphasizes to pay more attention to the huge risks brought by external environmental uncertainty to MSMEs and help these enterprises in predicting risks in the early stage of business decision-making and planning, and specify countermeasures.
The remaining part of the paper is as follows. Section 2 briefly discusses the impact of the external environmental crisis caused by natural disasters, including floods, earthquakes, and epidemic diseases on commercial enterprises. Section 3 provides a brief overview of the situation of COVID-19 globally and in Pakistan. In Section 4, we discuss the impact of the ongoing outbreak on global and Pakistani economy. Section 5 represents the methodology adopted in this study. Section 6 is dedicated to discussing the findings of the study, followed by policy recommendations in Section 7. Finally, Section 8 discusses the conclusions.
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Many external environmental crises had occurred in the past that have severely affected MSMEs globally such as 1953 great floods in Holland, 2005 Hurricane Katrina, 2011 floods in Thailand, 2011 Great East Japan Earthquake, 2011 Japan Tsunami, and Hurricane Harvey 2017 among others. Further, besides COVID-19, many epidemic outbreaks had occurred globally such as SARS, MERS, Swine flu pandemic (2009 H1N1), 2014 Ebola outbreak, Avian influenza, Salmonella Infantis outbreak, ZIKA outbreak among others (Auzzir et al., 2018; Eggers, 2020; Kim et al., 2020). These crises have a significant impact on the society, economy and MSMEs; moreover, these events not only cause economic losses but also create a severe threat to business continuity. Further, Prasad et al. (2015) argue that due to natural disasters, the disruption of supply chain occurs globally, and in case of significant disruptions, the MSMEs enterprises are adversely affected even if they are not directly affected by a disaster.
External environmental crisis such as earthquake, flood, epidemic diseases and other issues adversely affects business activities and their survival (Asgary et al., 2020; Eggers, 2020; Prasad et al., 2015; Samantha, 2018). Moreover, since MSMEs are financially fragile, smaller in size and resources, they are more vulnerable to the environmental crisis than their counterparts, i.e. large enterprises (Asgary et al., 2020; Bartik et al., 2020; Eggers, 2020; Prasad et al., 2015; Samantha, 2018; Williams & Schaefer, 2013). The external environmental crisis can affect MSMEs directly or indirectly. The direct impact includes fatalities, supply chain disruptions, property damage, and loss of inventories. In contrast, the indirect effect includes damage to public infrastructure such as electricity supply, communication and transportation system, and roads leading to increase in production cost and even business discontinuity (Asgary et al., 2020; Eggers, 2020; Hallegatte, 2015; Samantha, 2018; World Trade Organization, 2019). According to the World Trade Organization (2019), since 1998 to 2017, the number of natural disasters has increased tremendously. During the above period, a total of $2.9 trillion direct economic losses have been reported by disaster-hit countries. Further, concerning disaster loss statistics from 1998 to 2017, the U.S. is the most affected ($945 billion) followed by China, Japan, the European Union, India (World Trade Organization, 2019) and Pakistan (Ahmad & Afzal, 2020; Ahmad & Ma, 2020; Hussain et al., 2019).
Several studies have reported devastating effects of such events on MSMEs. For instance, the 1999 earthquake in Turkey severely affected MSMEs with damages estimated $1.1–4.5 billion (Asgary et al., 2020). Similarly, the 2011 flooding in Thailand affected at least 557,637 enterprises, along with 2.5 million job losses, and 90% of these firms were MSMEs (Auzzir et al., 2018). Likewise, in Malaysia, due to unprecedented flooding at the end of 2014, more than 13,000 SMEs were affected (Auzzir et al., 2018). Further, Samantha (2018) reported that in May 2016, a tropical storm severely hit western parts of Sri Lanka, which causes huge damage to society, public property and MSMEs. Many developed countries have also experienced similar disastrous effects on MSMEs. For instance, SMEs in the U.K. during the 2001 Foot and Mouth Disease (FMD) outbreak, suffered from huge losses, particularly, the non-farming losses were estimated to be 5 billion pounds (for further details, see Bennett & Phillipson, 2004).
In a similar vein, Pakistan has also experienced such a devastating crisis caused by external environmental disasters. For instance, floods in 2010 affected not only public and private property but also crops with a loss of $4.5 billion (World Trade Organization, 2019). Pakistan has also witnessed several similar crises in past such as climate change, 2005 and 2008 earthquakes, droughts in 1998 and 2004, etc. (Ahmad & Afzal, 2020; Ahmad & Ma, 2020; Hussain et al., 2019). Moreover, recently in 2015, nearly all main types of natural disasters such as earthquake, drought, flood, heatwave, and cyclone, were faced by Pakistan (Hussain et al., 2019) that severely affected many businesses.
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At the end of December 2019, an outbreak of pneumonia of unknown etiology was reported, later the cases were proved to be caused by a novel coronavirus disease (COVID-19) which spread very rapidly (WHO, 2020b). World Health Organization (WHO) soon realized the severity of the situation and declared a “public health emergency of international concern” on 30 January 2020 (WHO, 2020d). Within a short period, the reported cases grew exponentially all over the world; as a result, the WHO declared COVID-19 a “pandemic” on March 11, 2020 (WHO, 2020c). Still, after more than six months, the number of confirmed and death cases are growing rapidly globally. As of July 19, 2020, WHO reported 14,043,176 confirmed cases in 216 countries with 597,583 deaths (WHO, 2020a).
The first case of COVID-19 in Pakistan was reported on February 26, 2020. From March 15, 2020, the number of confirmed cases has started rising rapidly due to the arrival of pilgrimage from Iran through Taftan Border. Moreover, the announcement and enforcement of lockdown in Pakistan was made in less than a day, creating turmoil as migrants3 rushed to return to their hometowns, thereby aggravating crowding and preventing social distance impossible (World Bank, 2020b). Further, from March 15–25, 2020, the cases jumped from 53 to 1078 (DAWN, 2020). Since then, the cases are growing exponentially day-by-day in different parts of the country. As of July 20, 2020, a total of 265,083 confirmed cases have been reported in Pakistan, out of which 5599 individuals have died so far (COVID-PAK, 2020). The current data shows that 42.63% (113,007) of confirmed cases are reported in Sindh province alone followed by Punjab province with 34.02% (90,191). Fig. 1 represents the province wise confirmed cases in Pakistan.
Further, several businesses, due to their small size and resources constraints do not reach to the post-disaster stage (Samantha, 2018). Moreover, due to the lack of sufficient governmental support, most MSMEs face financial decline and even go bankrupt. MSMEs have limited capability and resources to recover from such crisis, especially those operating in developing countries like Pakistan with high poverty rate, economic and political instability. Therefore, this study moved its foundation to examine the impact of COVID-19 and suggest policy recommendations for the survival of MSMEs in Pakistan.
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