Looking Beyond the Pandemic: Building back Better

For decades, MSMEs have typically found themselves to be at the back of the line when it comes to access to finance, and yet in 2020 they were at the forefront of the economic impact of COVID-19. Many MSMEs in Asia and the Pacific were – and remain – inadequately equipped to survive the economic maelstrom triggered by the pandemic – they do not have the deep pockets and robust balance sheets to ride out a year-long storm, and pivoting one’s business model is hard when that model typically revolves around just one product or service offering. While a large conglomerate can adjust its sails to ‘tack’ across headwinds posed by the global pandemic, an MSME tends to have fewer resources at its disposal to navigate a path to safety. Larger companies’ greater cash reserves also better equip them to navigate this highly unpredictable pandemic, whose total duration is unknowable, and whose policy responses (i.e. lockdowns and re-openings) are subject to many unpredictable factors and highly variable across jurisdictions. For those MSMEs that survive beyond 2021, there is the prospect of a markedly more uncertain economic growth environment in the years ahead. There is also the threat posed to MSMEs as a consolidation of power and market dominance of larger firms because of the pandemic. While the pandemic has felled numerous smaller firms, some of the larger firms have only grown stronger (Georgieva and others, 2021; Lin, Aragão, and Dominguez, 2021). COVID-19’s impact on business has exacerbated pre-pandemic market concentration trends. The worry here is that this will lead to reduced business dynamism, resulting in lower economic growth, fewer jobs, and slower income growth, as the entrepreneurial endeavours of new firms are undermined by the power that large players have to stifle competition. That in turn does not bode well for productivity growth.

Sustainable Development Goals:

No Poverty

Decent Work and Economic Growth

Reduced Inequalities