IOE's Digital Conference on Economic Advocacy for SMEs
24 June 2020
This week as we celebrate MSME Day, MSMEs deserve our attention today more than ever -- the Covid-19 global health emergency is hitting small businesses hard. The pandemic’s economic and health impacts affect millions of MSMEs worldwide. The pandemic led to a 5% drop in global trade in the first quarter, and our latest forecasts project a 27% drop for the second quarter with a 20% annual decline for 2020. ILO estimates show a global decrease of working hours equivalent to 305 million full-time jobs for the Q2, and 38% of the global workforce, or 1.25 billion workers, are in high-risk sectors.
Our WIR2020 projects that flows in foreign direct investment will fall dramatically in 2020 and beyond, decreasing by up to 40% in 2020, down from the 2019 value of $1.54 trillion, reaching the lowest level in the last two decades. Besides slowing down existing investment, prospects of a deep recession are leading MNEs to re-assess new projects and restructuring their value chains for resilience.
Small businesses are most affected within the private sector & a high proportion of these businesses are ceasing operation, in a wide range of sectors, particularly non-essential services. The exact definition of these services varies by country, but they are generally recreational businesses, such as catering, entertainment and tourism.
MSMEs in particular face multi-faceted challenges: in the short term, isolation measures have stunted their operations; in the medium term, economic recession, unemployment and reduced income and market demand threaten their survival. While reopening their businesses, MSMEs need to rely on a well-functioning supply chain and sufficient production factors, especially labour. A major challenge also lies on the demand side, as many consumers remain cautious. In the long run, the new normal will be very different from the pre-COVID era, requiring significant adaptation and restructuring of firms.
The COVID-19 pandemic is speeding up digitalization, and changing how people commute, communicate and consume. As more and more activities have been shifted online, a rapid digital transformation is on its way. Strong entrepreneurial and innovative capacities at the firm level are essential for the digital transformation. Entrepreneurs and MSMEs should play an important role here.
In the wake of Covid-19 we also expect broader structural shifts already under way may accelerate. The new industrial revolution, the shift towards more economic nationalism, and sustainability trends all have far-reaching consequences for the configuration of international production. We see a trend over the next decade towards shorter value chains, higher concentration of value added and declining international investment in physical productive assets. That will bring bring challenges for developing countries. For decades, their development and industrialization strategies have depended on attracting FDI, increasing participation and value capture in GVCs, and gradual technological upgrading in international production networks. In this new context, a degree of rebalancing towards growth based on domestic and regional demand, and promoting investment in infrastructure, domestic services, the green economy and the blue economy is necessary.
MSMEs create jobs that offer hope to the most vulnerable in our communities. They are the spine of our local, national and global economy and must be front and centre in our COVID-19 response and recovery strategies. The first and most urgent step is to provide necessary support for their survival.
At UNCTAD we are doing our part. We are launching a new project on global support to the MSME response promoting post-Covid-19 economic resurgence through MSME-driven growth in developing countries. We also stand ready to help in the long-term recovery of MSMEs and their adaptation to the new realities of more digital, regional and resilient global economy. In the area of entrepreneurship, we offer Empretec -- a flagship capacity-building programme to help entrepreneurs and MSMEs. In addition, our Entrepreneurship Policy Framework aims to support our member states in the design of policies and institutions to promote entrepreneurship for sustainable development. Thank you for your attention.
