Without immediate support, small and medium enterprises on verge of collapseDespite employing a majority of the labour force and making significant contributions to the GDP, SMEs rarely feature in policy decisions.
Since the lockdown began on March 24 to contain the spread of the coronavirus, Rishiram Poudel, proprietor of the Chitwan-based Abiral Hatchery, has just one chore to perform everyday—dump his chicken eggs.
“I don’t have customers for the chicks that I supply as poultry farms are not buying them anymore,” Poudel told the Post over the phone from Chitwan. “I have no option than to throw away the eggs.”
As the lockdown has prohibited all public movement, including all transportation services, poultry farmers have not been able to buy chicks from hatcheries. And suppliers like Poudel have been left with no option than to dump the eggs that his around 17,000 chickens lay everyday.
According to Poudel, who is also senior vice-president of the Nepal Hatchery Industry Association, hatchery entrepreneurs have been destroying around 45,000 eggs every day since the lockdown began.
According to the Nepal Poultry Federation, the umbrella organisation of poultry entrepreneurs, the poultry sector is losing Rs220 million every day, which could soon lead to a total collapse of the sector. According to the federation, there is an investment of Rs150 billion in the poultry sector.
The nationwide lockdown, which was extended by 10 days until May 7 on Sunday, has spelled doom for Nepal’s small and medium-sized enterprises (SMEs) like poultry farms, hatcheries and restaurants.
The poultry sector, and hatcheries by extension, is among the sectors most affected— after tourism, including hospitality and travel—by the Covid-19 pandemic.
According to the Restaurant and Bar Association of Nepal, the hospitality sector in Kathmandu, Pokhara and Chitwan employs 50,000-60,000 people.
“As our income has dried up, we are not in a position to pay employee wages, which account for 20 percent of operating costs,” said Araniko Rajbhandari, president of the association. “Then, there’s debt servicing and rent.”
SMEs employ a lion’s share of the labour force in the country and are major contributors to the economy, but they often fail to garner as much attention as large businesses do in the policy-making discourse surrounding the economy.
Experts say that a failure to support SMEs could hit the country’s economy hard.
“SMEs are the largest employment generators in the private sector,” said Shankar Sharma, a former vice-chair of the National Planning Commision. “The government must introduce stimulus packages to resuscitate SMEs as they are the backbone of the economy.”
According to the Industrial Enterprise Act 2016, businesses with fixed assets of up to Rs 100 million are small enterprises while those with fixed assets up to Rs250 million are medium-scale enterprises.
SMEs have created 2.36 million jobs, according to a study report by the Nepal Rastra Bank. At the end of the 2017-18 fiscal year, 275,433 registered SMEs contributed 22 percent to the country’s gross domestic product.
Considering the impact of the pandemic on businesses, the government, on March 29, had decided to postpone the deadline to pay income tax and value added tax by around a month. The usual deadline of mid-April has been moved to May 7. The government also decided that enterprises affected by Covid-19 can pay their loan installments, also due in mid-April, at the end of fiscal year, which is mid-July.
SME entrepreneurs, however, say that the government has yet to come up with a stimulus package targeted specifically at them.
The Nepal Poultry Federation has made a number of demands, including interest waiver for a year, rescheduling of loans by a year, compensation for losses suffered during the lockdown, rebate in electricity bills by 50 percent, and a one-time subsidy on the purchase of chicks for farmers.
For the restaurant sector, Rajbhandari said they have sought contributions from the government to pay workers’ wages along with tax exemptions and interest subsidies.
“We can also work out a certain formula where restaurants bear 33 percent of wages while the government contributes 33 percent and the workers bear the rest,” said Rajbhandari.
Rajbhandari also suggested that the government could make provisions for employees to go on paid leave to travel the country, which would help revive the tourism sector.
With the world economy likely to see the worst recession since the 1930s, developing countries like Nepal with a small economy could face worse consequences.
The World Bank has predicted a growth rate for Nepal in the range of 1.5-2.8 percent in the current 2019-20 fiscal year, followed by 1.4-2.9 percent in 2020-21 and 2.7-3.6 in 2021-22. This follows the Asian Development Bank’s revised growth rate of 5.3 percent for Nepal from 7.1 percent for this fiscal year.
The best way to prepare for the coming crisis will be to shore up SMEs, say economists.
“The lockdown has to be lifted at some point. The government and central bank should not delay in planning and announcing packages for SMEs to build entrepreneurs’ confidence about a recovery,” said economist Raghubir Bista, an associate professor at the Tribhuvan University Department of Economics. “SMEs in agriculture, particularly the livestock sector, and tourism and handicrafts are in serious danger. They need immediate support from the government.”
Ease in taking loans and repaying them could help SMEs, entrepreneurs and analysts say.
“This won’t be difficult because the total credit extended by banks and financial institutions to SMEs is relatively low,” said Sharma.
According to a recent study by the central bank, among all loans issued by banks and financial institutions, 19.52 percent went to small-scale enterprises and 19.67 percent to medium-scale industries. Most small enterprises have taken loans of less than Rs5 million while most medium-scale enterprises have taken loans of a little over Rs5 million. The average interest rate paid on these loans is 12.5 percent.
“The government can cover half of the interest to be paid by the SMEs on condition that they don’t lay off workers,” said Sharma. “This will help revive SMEs and save jobs.”
Economists say that the primary focus of governments worldwide has been on supporting SMEs because their operators are “grassroots entrepreneurs”.
“Tax exemptions, interest subsidy on existing loans and refinancing at very low interest rates to restart the businesses are other measures that can be taken,” said Bista.
On the occasion of the Nepal Rastra Bank anniversary on Sunday, the central bank governor promised refinance facilities for SMEs, along with tourism and other sectors badly affected by the pandemic.
“For this, a refinancing fund of Rs60 billion will be increased gradually,'' he said.
The government earlier had decided to increase the refinancing fund to Rs60 billion from Rs50 billion to provide refinancing facilities for Covid-19-affected sectors.
Easing the process of getting working capital, adjustments in interest rates to be paid in the fourth quarter of this fiscal year and extension of repayment deadlines are other measures announced by the central bank on Sunday.
But economists say that SMEs’ immediate struggles are regarding working capital.
“SMEs lack enough ammunition to survive, unlike large enterprises,” said economist Sujeev Shakya, CEO of beed management, a management, consulting and financial advisory firm. “They are facing problems paying salaries and paying vendors and creditors.”
Frequently asked questions about the coronavirus outbreak
UPDATED as of June 2, 2020
What is Covid-19?
Covid-19, short for coronavirus disease, is an illness caused by the coronavirus SARS-CoV-2, short for severe acute respiratory syndrome coronavirus 2. Common symptoms of the disease include fever, dry cough, fatigue, shortness of breath and breathing difficulties. In severe cases, the infection can cause pneumonia, severe acute respiratory syndrome, kidney failure and even death.
How contagious is Covid-19?
Covid-19 can spread easily from person to person, especially in enclosed spaces. The virus can travel through the air in respiratory droplets produced when a sick person breathes, talks, coughs or sneezes. As the virus can also survive on plastic and steel surfaces for up to 72 hours and on cardboard for up to 24 hours, any contact with such surfaces can also spread the virus. Symptoms take between two to 14 days to appear, during which time the carrier is believed to be contagious.
Where did the virus come from?
The virus was first identified in Wuhan, China in late December. The coronavirus is a large family of viruses that is responsible for everything from the common cold to Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). After an initial outbreak in Wuhan that spread across Hubei province, eventually infecting over 80,000 and killing more than 3,000, new infection rates in mainland China have dropped. However, the disease has since spread across the world at an alarming rate.
What is the current status of Covid-19?
The World Health Organisation has called the ongoing outbreak a “pandemic” and urged countries across the world to take precautionary measures. Covid-19 had spread to 213 countries and infected more than 6,321,836 people with 375,657 deaths. In South Asia, India has reported the highest number of infections at 198,140 with 5,608 deaths. While Pakistan has reported 72,460 confirmed cases with 1,543 deaths. Nepal has so far reported 1,811 cases with eight deaths.
How dangerous is the disease?
The mortality rate for Covid-19 is estimated to be 3.6 percent, but new studies have put the rate slightly higher at 5.7 percent. Although Covid-19 is not too dangerous to young healthy people, older individuals and those with immune-compromised systems are at greater risk of death. People with chronic medical conditions like heart disease, diabetes and lung disease, or those who’ve recently undergone serious medical procedures, are also at risk.
How do I keep myself safe?
The WHO advises that the most important thing you can do is wash your hands frequently with soap and water for at least 20 seconds or use hand sanitizers with at least 60 percent alcohol content. Avoid touching your eyes, nose and mouth with unclean hands. Clean and disinfect frequently used surfaces like your computers and phones. Avoid large crowds of people. Seek medical attention if symptoms persist for longer than a few days.
Is it time to panic?
No. The government has imposed a lockdown to limit the spread of the virus. There is no need to begin stockpiling food, cooking gas or hand sanitizers. However, it is always prudent to take sensible precautions like the ones identified above.