Dependent on a daily cash flow and with few savings, small and medium enterprises risk collapseThe central bank has announced financial measures for the private sector but many believe small and medium enterprises will require a different approach.
Khem Bhattarai owns a motorcycle workshop in Gairidhara where he employs four workers. Bhattarai earns about Rs40,000 a month but his expenses are almost the same, leaving him with few savings. His family of eight depends on income from the workshop to survive but ever since the lockdown, Bhattarai has no business and no means to feed his family.
“I have fixed costs to bear despite not making a rupee,” said Bhattarai.
He pays Rs15,000 in rent and does not expect it to be waived as his landlords depend on rent for their own livelihoods. He is also providing food and shelter for four of his workers who have not been able to go back to their hometowns due to the lockdown. With money fast running out, he is hoping for some remedy from the government.
Nepal Rastra Bank has announced a financial package for the private sector, primarily deferment of loans and exemptions from interest, but this assistance might not be enough to keep small and medium enterprises like Bhattarai’s afloat. Oftentimes, these businesses operate on very little capital and require a different approach.
“Small and medium enterprises might require more support from the government,” Shekhar Golchha, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry, told the Post last week. “They will require cheaper finance and tax rebates to survive.”
With economists predicting a global recession to be underway already, small businesses especially in developing countries such as Nepal, are most vulnerable, despite the fact that they are crucial for the health of the economy.
“We’ve had to cancel all our bookings and refund passengers who were unable to travel,” said Ram Timilsina, who owns a travel agency. “Channeling a huge amount of cash on such short notice was difficult, given our daily expenditures and loans to pay.”
Businesses in the travel and tourism sector, like travel agencies, hotels, restaurants and bars, have already been hit especially hard by the Covid-19 pandemic but the subsequent lockdown looks to cripple the entire economy, with most businesses shut down and workers staying home.
The lockdown could go so far as to turn many seasonal businesses insolvent. Many small businesses, like in the tourism sector and in apparel, rely heavily on seasonal customers to stay afloat for the rest of the year. For such businesses, the cost of operation can often be higher than their profits. Even if the government loosens the lockdown or lifts it entirely, customers may take a while to get back to their spending habits, as the impact of the lockdown is going to be widespread.
Because small and medium enterprises are by definition small, there is also a shared camaraderie that has led many business owners to continue to pay their workers. Bhattarai and Timilsina both said that they were continuing to pay their workers, despite having no cash flow.
“I want to support my employees during this crisis but I am in a difficult financial situation myself,” said Sunit Shrestha, who runs a small boutique in New Road that sells women’s clothing. “I have some loans from a cooperative that I have to pay back along with the rent for my store, so it is not sustainable for me to continue [paying them] if the lockdown extends for another month.”
For Kishor Adhikari, the co-founder of a newly established laundromat in Maitidevi, the future looks bleak. His business was picking up and was starting to break even when the pandemic hit.
“In Nepal, laundry is still considered a luxury. Our customers were mostly those with no access to water or rooftops, but this lockdown could mean that we lose out an entire customer base,” said Adhikari.
Businesses like Adhikari’s might not be turning over millions every year but they form a critical part of the economy, as they provide employment opportunities, services to local neighbourhoods, and even act as places of communal gathering.
“These enterprises provide employment to the lowest strata of society where any money earned is most likely to be spent rather than saved,” said Saurav Man Shrestha, an economist. “A possible recourse could be the government investing in various income generating trainings as these will increase the productivity of workers and their employability.”
According to economists, these businesses will require help in the form of subsidies on interest, taxes, and utilities payments, even grants to cover their payroll expenses.
Bishwambher Pyakurel, an economist and professor at Tribhuvan University, says that this lockdown is important for human health but it could mean disastrous outcomes for small and medium enterprises, which make up 22 percent of the economy.
“The government should come up with protectionist measures that ensure cash flow to help these businesses remain afloat, even after the lockdown,” he said.
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.