The Plight of Small Businesses in the wake of COVID-19
A case study of a Woman Entrepreneur in Cyprus
In the light of the ongoing COVID-19 pandemic and the associated challenges, many people have suffered the loss of jobs and income. Recent data by ILO indicates that global employment losses were 114 million higher in 2020 compared to 2019. Of this, 81 million employees shifted to inactivity whereas 33 million shifted to unemployment [1]. As a result, most professionals affected by layoffs resorted to self-employment by opening small businesses motivated by their passion or an existing market niche; albeit to meet their needs in the wake of the ongoing pandemic. This is despite the empirical evidence that the majority of small businesses have borne the greatest portion of the social and economic impact of the COVID-19 pandemic [2].
An example is Tiffany Khoury, a new entrepreneur in Cyprus who relocated from Lebanon and started her business in handmade jewelry at the peak of the pandemic. In the formative months of her business, Think Tank AlterContacts [3] caught up with her and had a discussion about business in the COVID-19 operating environment. Despite being a trained professional, she still took some time to finally gather enough courage to start a business in her area of expertise. Today, she operates her business going by the name Artisan with Love; an online shop that ships worldwide.
Tiffany outlines some challenges affecting her business; brand awareness and affording the labor force to help in running the business. These challenges are not unique to Artisan with Love but form a case study of challenges to most start-up businesses in the COVID-19 era. The next section discusses these challenges and what governments can do to support small businesses; deemed critical to reviving the economies post COVID-19.
Getting Started with a Business
Starting a business in the wake of the pandemic must be a daunting venture exacerbated by the existence of little or no support from the government. It takes a lot of fortitude to launch a venture. However, with the increase in job losses; most professionals who find themselves out of the labor market have had no choice but to take advantage of business opportunities presented by the pandemic. This comes with uncertainty fuelled by the changing dynamics in how businesses are operated today, coupled with the waves of lockdowns. Digital platforms and innovative strategies to reach the targeted clientele today are a prerequisite for any business.
A study by the World Bank [4] found that 8 percent of small businesses are more likely to have temporary shutdowns than large firms. On the other hand, the response by governments to the dire situation varies greatly across the spectrum of developed, developing, and low-income countries. While developing countries have made specific efforts to support small businesses through grants, the fiscal space that is currently too tight for developing countries constraints them. This further increases the fear of getting started in a business.
An example of the former is a country like Cyprus where eight out of ten firms expect some form of financial support from the government; whereas in low-income countries, only one in ten businesses received it [5]. As much as the impact of the pandemic on small businesses is uneven there is consensus that it has had a greater negative impact on small businesses across the globe.
Using the Global Entrepreneurship Monitoring data, we give an example of Cyprus and the kind of support available from the government that may help entrepreneurs have confidence in getting started.
From figure 1, it is clear that whereas government support and policies have increased from pre-COVID levels they remain insufficient to entrepreneurs.
Figure 1: Indicators on support to Entrepreneurs in Cyprus, Global Entrepreneurship Monitor 2020/21 [6]
N/B 3.5-4 is partially sufficient; 2.5-3 is indifferent; 1-2 Partially Insufficient
The Call: Enact Policies that Support Small Businesses to Startup by Creating more Demand
Entrepreneurs will play a key role in reviving economies post COVID-19. It is therefore indispensable for governments to have policies and programs that encourage small businesses to remain operational. Governments need to take up policy actions that will push forward small businesses through consumption. Innovative packages will be key to encouraging small businesses to thrive and salvage the economies from the current downturn. Expansionary fiscal policy could increase purchasing power and steer businesses forward.
At the same time, tax policy could be targeted at small businesses as an incentive to continue operations and drive economic recovery. The government could also set up a fund that objectively supports small businesses targeted at the most vulnerable groups in the pandemic like women and youth.
Brand Awareness
Artisan with love highlighted the importance of the digital presence as a marketing tool for businesses. Easy as it may sound it takes hard work, time, and money to be present in the digital platform and be a preferred brand in the midst of huge competition. Despite being a trained digital marketer, Tiffany still found brand awareness to be a challenge. For this reason, small businesses have to find a cutting edge that makes their businesses stand out from the rest. To put up the good competition, small businesses require funds and a team that can take advantage of their synergies and come up with innovative branding strategies.
Another way that small startup businesses gain visibility is through venture capital. This has been impacted by the COVID-19 and seen about 18 percent [7] of investors back out of deals. A direct relationship exists between brand awareness and the volumes of sales made by businesses. It not only requires finances but also awareness to make a brand a household name. It is easier for businesses who have created awareness and buy-in by their engagements in the market over time, unlike small businesses in need of innovative digital and social media platforms presence.
The Call: Finance Small Businesses through Grants and No-Interest Loans
Availing financial support to small businesses allows them to advertise their services and products thus creating brand awareness. At the same time, they generate employment opportunities since they can afford to employ in support of their business endeavors and the existence of resilient supply chains. With increased employment, small businesses create synergies and find an avenue to concentrate on creating brand awareness and increase sales.
The conditions that come with the funds are more important for the small businesses and it is crucial for governments to take into account their place in economic recovery and the prevailing circumstances. It is thus important to either give grants or no-interest loans as an avenue to support small businesses.
Conclusion
Small businesses are an integral part of the success of an economy. In the wake of the pandemic, the envisioned recovery is unattainable if small businesses are made dispensable by governments. This article makes a clarion call to governments to not only have programs that support small businesses but also create an operating and regulatory environment that makes them thrive.
Written by Gayline Vuluku, an economist and a public policy analyst
Edited by Shruti Kumari
September 2021
In 2020 Think Tank AlterContacts launched the Lockdown Economy, an international non-profit grassroots social-economic and educational initiative to help small businesses and self-employed professionals overcome the challenges of the pandemic and reactivate the economy. It is registered by the United Nations as an Acceleration Action for SDG. From May 2020 until July 2021 we have been collecting insights from small business owners and self-employed professionals from different business sectors and countries to see how the COVID-19 pandemic affected their business, their life, and future. This article is based on the field research of the Lockdown Economy.
References
1 - International Labor Organization, Report on Impact of the COVID-19 pandemic. Available at: https://www.ilo.org/wcmsp5/groups/public/---dgreports/comm/documents/briefingnote/wcms_767028.pdf
2 - International Labor Organization Stat Explorer. Available at: https://www.ilo.org/shinyapps/bulkexplorer34/?lang=en&segment=indicator&id=HOW_2LSS_NOC_RT_A
3 - Think Tank AlterContacts, Lockdown Economy Cyprus in a Handmade Jewellery Brand with Tiffany Khoury. Available at: https://www.youtube.com/watch?v=Kznbo5RegSc
4 - Adian, Ikmal; Doumbia, Djeneba; Gregory, Neil; Ragoussis, Alexandros; Reddy, Aarti; Timmis, Jonathan. 2020. Small and Medium Enterprises in the Pandemic : Impact, Responses and the Role of Development Finance. Policy Research Working Paper;No. 9414. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/34552
5 - World Bank, Tracking an Unprecedented Year for Businesses, Everywhere. Available at: https://www.worldbank.org/en/news/feature/2021/02/17/tracking-an-unprecedented-year-for-businesses-everywhere
6 - Global Entrepreneurship Monitor. Available at: https://www.gemconsortium.org/data
7 - World Economic Forum, 4 ways governments can support start-ups and save their economies
Available at: https://www.weforum.org/agenda/2020/06/4-ways-governments-can-support-start-ups-and-save-their-economies/