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#BTColumn – Investment in SMEs will assist SDGs post-COVID

Academica and development practitioners will be researching the implications of the COVID-19 pandemic on the economic and social structures of countries for some time to come. Arguably this global pandemic has been the most debilitating on the world’s economies, particularly emerging economies, in the modern era. COVID-19 was a combination of two crises affecting lives and livelihoods concurrently – health and economic crises. Understandably, research will be needed for months to come to explore various hypotheses on the true impact of the pandemic in all areas of development.

One such area of needed research is the pandemic’s effect on SMEs and the Sustainable Development Goals (SDGs). Adopted in 2015 by the United Nations, the SDGs have at the core, peace and prosperity for the people and planet. Ending poverty and other deprivation can be achieved through economic growth. It stands to reason therefore, that there is a positive correlation between economic prosperity and the realisation of improved health, education, and a reduction in inequality, tenets of the SDGs.

Except for social entrepreneurs, most SMEs and entrepreneurs operate an enterprise to make a profit. The profitability of these firms and the overall economic activity generated provide the resources for social programming and the environment to improve livelihoods.

The economic conditions occasioned by COVID-19 influenced a period of stagflation owing to the combination of high unemployment, rising prices and slow or no economic growth. The ECLAC (Economic Commission for Latin America and the Caribbean) estimates that 34 per cent of formal employment and 27 per cent of GDP was generated in sectors strongly affected by the crisis resulting from the pandemic (COVID-19 report, June 2020) ECLAC estimates that 2.7 million formal businesses in LAC would close with a loss of 8.5 million jobs.

Although all businesses would be affected, the report proffered that SMEs were hardest hit by the pandemic. They operate in the economic sectors most affected by demand shocks caused by COVID-19 such as accommodation, food services, cultural and creative sectors, wholesale and retail. These businesses traditionally have low cash reserves and are often not resilient to economic shocks.

Considering the impact of COVID-19 on SMEs, how should we approach the SDGs and the 2030 Agenda? Is there even relevance of this United Nations proclamation in a period of needed economic recovery where the focus is on igniting the engine of the productive sectors to drive growth, soak up unemployment and earn foreign exchange?

The jury may be out, but the SDGs provide a framework within which development policy can be established and the programmatic agenda of emerging economies can be shaped. The SDGs further represent an opportunity for stakeholders to coalesce their strategic plans around a set of policy options to produce the desired development and growth targets for the country and provide a framework for monitoring and evaluation of said targets. Drawing on the popular statement by Peter Drucker that “what gets measured gets done”, the SDGs can serve as the broad policy tools to monitor and evaluate the outputs of the country relative to healthcare, education, poverty reduction, inequality, all being spurred by economic growth.

According to the International Trade Centre (ITC) SME Competitiveness Outlook (2019) SMEs contribute to the SDGs through four main areas:

Employee impacts – investment in SMEs can foster decent job creation and positively affect wages thus reducing poverty and inequality

Business practice impact – management of the business will impact the social and environment aspects of the community e.g., HR policies can improve gender equality and youth employment

Sectoral impact – SMEs can deliver services in key areas that contribute to the SDGs e.g., health, education, agriculture, energy

National economy impact – SMEs create backward and forward economic linkages that can foster competition, innovation, diversification, international trade and growth.

Prior to the onslaught of COVID-19, the ITC projected that investment of $1 trillion annually was needed to assist SMEs in developing countries to enhance their ability to deliver on the SDGs. Investment in SMEs contribute 60 per cent of the 169 SDG targets – SDG 8 and 9 stand out among the goals to be achieved through strengthening the SME sector.

Investment therefore in SMEs will assist with achieving the SDGs. One of the obvious solutions is to scale-up financing for the future.

Governments have provided stimulus and backstop measures including direct and in-direct liquidity support for businesses. These include grants, tax reductions, waivers on rents/utilities, special lines of credit, employment protection, etc. These measures were short-term and served primarily as a backstop to prevent business closures and unemployment. Financing for sustainable development must now be contemplated for the future. The ITC report supports the financing model proposed by the SBA in earlier advocacy interventions and includes: –

Improve credit intermediation via direct interaction with credit unions, commercial banks and central banks e.g., credit guarantee schemes, export credit, direct government lending of public-private funds

Promote alternative sources of credit – peer-to-peer lending, venture capital, business angels, development of stock markets to unleash local and foreign investment

Non-financial mechanisms – public procurement, digital payment systems and e-commerce facilitation.

The post-COVID era will feature a greater focus on building resilient businesses, using technology to deliver goods and services in an inclusive environment where citizens can contribute equitably to the development process. This sounds like the SDGs being operationalised.

The Small Business Association of Barbados (SBA) is the island’s non-profit representative body for micro, small and medium enterprises (MSMEs). Connect with the SBA:

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