Mbabane: The Southern African Research Foundation for economic development has predicted that due to the COVID-19 pandemic, about 50 percent of SMEs in Eswatini might shut down by 2021.
The observation was made by SARFED in its weekly paper of Economic & Business Commentary, Vol. 4, issue titled “50 percent of SMEs in Eswatini might shut down by 2021 due to COVID-19”.
According to SARFED, Government’s reluctance in sustaining the struggling SMEs might result in 50 percent loss by close down of the sector. This will not only contribute to reduced economic activities, but the reduction in government’s Gross Domestic Product (GDP) as well.
Due to the impact caused by the COVID-19 pandemic on the small and medium-size enterprises, Southern African Research Foundation for Economic Development(SARFED) projects that more than half (50 percent) of the Eswatini based SMEs might go out of business by the 2021. Therefore, the foundation has called upon government and its strategic stakeholders to facilitate a conductive environment which would save the struggling sector.
Research
The research indicates that about 43 percent of the SMEs in Eswatini are least developed as they were characterized with low or poor performance management mechanisms which resulted in them having less supportive facilities like basic technology, poor electricity, poor financing, poor capacity building, as well as poor record management.
Furthermore, according to the World Bank report of 2018 on the country’s ease of doing business indicated that the country’s SME sector was among the least competitive one as it was ranked as 112 out of 190 countries.
Implications
The paper highlights some of the implications which might severely affect the Eswatini economy in short, medium, and long term, which include:
- Loss of human capital development: the SME sector is known to be an innovative sector whose social benefits would include the development human capital, but with the failed system, we see this benefit not achieved in Eswatini in the post COVID-19 era.
- Loss of industrial development: SMEs have the potential to dominate and expand certain industries when exposed to favourable conditions of trade and investment. However, this might be a challenge as COVID-19 would have compromised the entrepreneurial ecosystem of the country.
- Reduction in government revenue: we do understand that SMEs can be a major contributor of government through various activities both at micro and macroeconomic levels. This is due to the fact that the sector has a relatively huge significance of influencing the Gross Domestic Product (GDP) per capita (output per SME unit).
- Broadening of the poverty gap: The SME sector in Eswatini has been a source of income generation and means of reduction of poverty in both urban and rural areas, but its closure would result in to broaden of poverty levels as a result of either reduced or cut down income levels.
- Loss of regional and international trade competitiveness: ESwatini’s determination for economic growth through SME development plays a vital role in creating opportunity for a country’s competitive edge in both region of Africa and the international market. Therefore, this would be great loss if these economic players were not re sustained from the current COVID-19 crisis both in the short and long term periods.
- Increase in unemployment rate. Through the close of some SMEs in the given industry has the potential to lead other sector also close down and eventually increase levels of unemployment as most SMEs would wish to reduce operating cost by scaling down the cost of human labour, hence resulting in increased unemployment.
SARFED suggest that it is can be prudent for the government of Eswatini to intervene the potential crisis of losing SMEs by ensuring that all developed policies and strategies were put into action as soon as possible as this would contribute to the sector’s sustainability both during and after COVID-19.
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