Challenges facing SMEs in a (not quite) post-pandemic world

Small and medium enterprises (SMEs) are the backbone of the global economy, accounting for two-thirds of employment globally and about 80% to 90% in low-income countries.

As many SMEs reeled from the disruptions at the start of the pandemic, governments around the globe swiftly announced policies to avoid liquidity crises. But what happens now as the world tries to shift into a (not quite) post-pandemic landscape?

The International Monetary Fund (IMF) projects the world economy will grow by 6% in 2021 and 4.9% in 2022, but with offsetting revision between the advanced and emerging economies.

It points to risks such as “transitory” inflation pressures, which is likely to become more persistent in some emerging economies, and slower-than-anticipated vaccine rollout.

This is further confirmed by three small-business surveys carried out by different agencies this year. First, the Alignable Inflation Poll conducted in mid-2021 with 7,735 small-business owners. Two-thirds of the respondents were concerned that price pressures would hurt their ability to recover.

In addition, participants commented that inflation was already affecting their businesses, as customers were unable to afford their services. Facing inflationary pressures, they were reluctant to increase their prices due to fear of losing customers.

A survey of small business CEOs by the Wall Street Journal and Vistage highlighted that 66% of the participants expect inflation to persist beyond 2021, and 38% believe cost of wages have increased due to supply chain issues.

Finally, a poll of 2,000 small business by CNBC/Momentive Small Business Survey finds that owners are facing high costs and supply disruptions, and scrambling to find qualified employees. About 70% of the participants are witnessing higher supply costs, and 32% offered higher wages.

These surveys indicate that raw materials and labour costs are likely to reduce SMEs cash flows and loan repayment ability.

The IMF and the global monetary authorities continue to believe inflation to be transitory while blaming supply issues, but it could be also a side effect of cheap money available globally. In any case, if inflation does not subside as expected, the authorities will have no option but to raise interest rates to control prices. This again is likely to hurt SMEs as higher interest rates make borrowing money costly.

In this landscape, it is more important than ever for SMEs manage their cash flows efficiently.

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