I am lucky to be part of a very able and noble group under the aegis of Pakistan Institute of Development Economics (PIDE) who are daily undertaking analysis and discussions and recommendations geared towards the policy makers in our holy state of Pakistan.
Today, after the daily morning virtual meeting of this group around COVID-19 issues, I came out thinking about the reality of my existence and of my associates in my small ‘do tank’, Reenergia! I am therefore going to talk about and present a use case of a Pakistani SME albeit on the ‘small’ rather than on the ‘medium’ side.
Between Reenergia and its sister concern Paidartwanai, we have an annual turnover of less than 120milPKR. We have about a dozen employees and another half a dozen temporary/short-term staff, and all the typical overheads you can think about! Just FYI, loans to banks are not one of these overheads as banks in Pakistan tend not to look favorably on us—though included are loans extended either as advances by Clients or individuals. Let us review how COVID-19 is impacting us by asking some questions.
First, how much has our work suffered due to the COVID-19 slow-down—in terms of pre-COVID-19 versus now/post COVID-19 business projections. These projections do not include slow-down in business development; but are based on work already developed and about to be signed/contracted. Our estimate of this slow-down is about 30 percent of projections.
Second, how much is the slowdown in business development? This has two parts: a) the slow-down in the reactions to the work already solicited—includes delayed responses to proposals already submitted or being submitted; and b) the slow-down in solicitations for our services. Both are due to the Client base business slowdown or simply difficulty in working-from-home or even revision of priorities. All this hits our bottom line over the next six months by another 20 percent.
With a cumulative impact on our SME of a reduction in revenues of around 50 percent of projected, we are beginning to see another, third, aspect which is hurting SMEs like us: the slow-down in receivables on work already in hand. This is also alarming as we are the part of a value chain and with a small size SME like ours, we are literally the ‘daily wagers’ of the SMEs and businesses. We don’t have reserves to keep paying our employees and our bills and rentals.
I have not accounted for another fourth element which I see affecting almost every SME around us, especially in the tech and services sector; the inability to keep up the pace of work while working-from-home or the absolute inability to work remotely. I will not handle this presently as we are relatively less impacted by this element, till now.
Pakistan, our operating environment, categorizes enterprises that have up to 50 employees and an annual turnover of 150milPKR as Small Enterprises (SE), and those with an annual turnover between that of 150milPKR and 800milPKR as Medium Enterprises (ME). The Small and Medium Enterprise Development Authority (SMEDA) of Pakistan categorizes SMEs overall as enterprises with up to 250 employees and turnover up to PKR 250 million. Pakistan has between 3.2 to 4.5 mil SMEs.
These SMEs contribute up to 40 percent of GDP—adding more than 17trillionPKR. SMEs employ around 80 percent of the non-agriculture labour force—employing a total of around 32 million Pakistanis [between 7 to 10 employees per SME]. Estimated average monthly salary of a SME employee is anyone’s guess but I estimate we can take a range between 30,000PKR and 55,000PKR.
Where are we heading with talking about how the COVID-19 is hurting a SME business like mine and about SMEs in Pakistan? Here’s the thing. If we, at Reenergia, are estimating revenues going down by 50 percent by June, what does this mean for other SMEs? Are we looking at SMEs laying off workers? [https://www.thenews.com.pk/print/633712-forecast-of-covid-19-pakistan-may-face-12-3m-to-18-53m-layoffs-says-study]
Are we looking at an almost 8trillionPKR drag on the economy? How can we cater for the SMEs’ workers? Looking at the 100milPKR relief in the Prime Minister’s COVID-19 relief package, I am wondering if it is adequate? There is obviously no way that Pakistan’s government can afford emulating Canada or others, but even a 100bilPKR package for SMEs alone implies a onetime support of 3,125PKR per person employed in the SME sector of Pakistan.
Who is thinking about this? Planning Commission? Ministry of Finance? Pakistan’s National Security Council? Should not institutions supporting SMEs in Pakistan not be taking a closer look? Karandaaz? SMEDA? Who?