The new coronavirus, COVID-19, is having serious consequences for global trade and the companies that support it. As countries face different phases of confinement or de-escalation periods, it is becoming clear that the virus has particularly affected small and medium-sized enterprises (SMEs). This year’s edition of the International Trade Center (ITC) report on SME Competitiveness Outlook 2020 published recently reveals that the COVID-19 pandemic has been a severe test for SMEs and supply chains and global supply, and has thrown international trade into a state of uncertainty. However, recovering from the downturn is possible, and Randall Castillo Ortega, the founder of SME investment firm RACO Investment, discusses how the industry is changing.
The ITC’s Acting Executive Director said in the report that the COVID-19 pandemic has caused both a health and economic crisis and has posed a number of challenges for SMEs and global supply chains. Although some type of containment measure has been applied in almost all countries, the conclusions of the report Competitiveness Outlook for SMEs highlight that the confinements that have had the most impact on trade have been those of China, the European Union (EU) and the US. Together, these three economies account for 63% of global supply chain imports and 64% of exports. The report quantifies the value of global disruption to these manufacturing centers at around $ 126 billion in 2020.
The COVID-19 disruption is also producing negative side effects in developing countries. Explains Castillo, “The SME Competitiveness Outlook report projects that African exporters will lose more than $2.4 billion in exports to the global industry supply chain as a result of factory closures in China, the EU and the US. The bulk of these losses – over 70% – stem from the temporary disruption of supply chain links with the EU.”
Two-thirds of micro and small businesses said that the crisis has deeply affected their business operations, compared to 40% of the largest companies. One-fifth of SMEs stated that they were in a situation of permanent closure risk in the next three months. Companies in the service sector are the hardest hit by COVID-19, especially those dedicated to accommodation and hospitality. 76% of the surveyed companies engaged in these services stated that the total or partial confinements have seriously affected their business operations.
Adds Castillo, “The export bans and other restrictions affect 73% of global trade in COVID-19-related products. A total of 93 countries applied temporary export measures related to the virus, such as restrictions or prohibitions on the export of medical devices, but also food. These export restrictions depend on each region, with Central America seeing a severe degradation in services.”
Over 100 countries, and all of Central America, had applied temporary measures to imports of products related to COVID-19. Most of these measures are aimed at facilitating access to essential food or medical supplies, and three-quarters of developed countries have eliminated or reduced tariffs on medical products since the start of the crisis. Only 46% of developing countries and 18% of the least developed countries have taken similar measures.
In addition to providing a summary of responses taken by governments and measures to overcome the crisis, the 2020 SME Competitiveness Outlook report offers suggestions for companies, business support institutions and policymakers on adaptation to the “new normal” during the next phase.
Ready to begin the recovery process, countries are already working to strengthen the resilience of SMEs to withstand future crises, and targeting the need to intensify efforts for the digitization of SMEs, as well as increasing openness and inclusiveness of supply chains. They are also using the crisis to ensure that businesses around the world are more sustainable and climate-friendly.
Major companies should consider injecting more social capital into global supply chains in the post-pandemic era. Asserts Castillo, “More specifically, they should redesign their approaches to collaborating and sharing costs with SMEs to ensure a more equitable distribution of risks and costs in times of crisis. This would ensure greater mutual trust and, at the same time, help both large and small companies resist and respond to future crises.”