• العربية

Effect of COVID-19

Thursday May 21 2020

MBSC’s Faculty & students discussed the impact of Covid-19 on SMEs & startups & the challenges they are facing.

We are currently living through some extraordinary times, as different nations around the world are stumbling over the ever-increasing numbers of new cases and the rising death toll from the COVID-19 pandemic. In a matter of months, it sent shockwaves through the global economy, closed countries' borders, halted international travel, hindered trade, sent people to their homes, and shock the financial markets to its core.

Amidst all of these evolving conditions, Small and Medium-Sized businesses suffered the most. Many SMEs' supply chains were cut off, operations were hindered, demand for goods and services crumpled, and cash flow became scarce. Moreover, experts are expecting these conditions to last for several months. So, what does the future hold for SMEs in Saudi, the region, and the world as a whole?

In order to answer these questions, faculty members, business experts, and entrepreneurs from Prince Mohammed Bin Salman came together in an analytical project, where they discussed the impact of the ongoing crisis on SMEs, and the best possible solutions to soften its blow. This project resulted in a diverse set of recommendations, which reflects the magnitude of the required efforts to survive the COVID-19 pandemic.

The most proactive step a business can take in these circumstances is to preserve its resources, namely; the social, human, and financial capitals. From a social capital perspective for instance, the current situation offers an opportunity for SMEs to create goodwill among their employees, other businesses, and even customers, by showing the level of their commitment and care towards the society.

Preserving the business's social capital during the COVID19 pandemic also entails maintaining the high spirits. Entrepreneurs must spread positivity around them, and have the skills to look through the crisis. They must revert from spreading the pandemic of fear, and lead their teams by example. Business owners can also utilize the social support networks of incubators, accelerators, and advisors that are springing up around Saudi.

As for the financial capital, the markets' cashflows were vastly affected by the pandemic. The overall consumer consumption dropped substantially, and many industries are suffering from liquidity issues, or risk going insolvent in a matter of months. In order to overcome these fiscal hardships, SMEs must reduce their fixed costs to sustain their cash lifelines. This can only be achieved by renegotiating all of the major cost drivers with suppliers, partners, and lenders.

In that regard and on a local scale, the Saudi government announced several measures to mitigate the negative repercussions of the pandemic on the economy as a whole, and to support the private sector, including the SMEs in particular. These measures include a 50 billion SAR stimulus package that will help to cover the SME's costs and losses, by delaying the payments of taxes, Zakat, and other governmental fees. Also, many programs were enrolled to make it easier for companies to transfer into an online e-commerce model during the crisis.

Furthermore, the Saudi Arabian Monetary Authority (SAMA) has instructed all of Saudi Arabia's banks to postpone loan payments for a period of 2 months, and launched several financing programs to provide loans to struggling SMEs. Moreover, the Human Resources Development Fund (HRDF) declared an initiative that covers almost 50% of new employees' salaries, and the General Organization for Social Insurance activated the Unemployment Insurance (SANED) service by a royal decree, which covers 60% of the employees' salaries in the financially stressed SMEs.

From the human capital standpoint, we have been extremely lucky that this unprecedented crisis struck us in the digital era. The modern technological infrastructure allowed many businesses (especially in the services sector) to move their operations online altogether, allowing the business to continue their work and even providing a competitive edge to those who rode the trend early. Remote working has become a part of everyday lives and will almost certainly remain to be so.

Unfortunately, not all SMEs were able to make that online transition for a myriad of reasons. SMEs must capitalize on this unplanned operational downtime to reorient their strategic focus, and think of new ways to operate and reach the customers. They can also invest the available working hours in training and development, especially given the abundance of the available resources online, from both local and international educational and occupational training institutions.

On the other hand, some manufacturing industries are blooming, like the medical and food manufacturing sector. However, many other factories have been affected because of the need for on-site workers, who are experiencing some difficulty in implementing the newly required social distancing measures. These manufacturers will have to halt their operations temporarily, and must focus on minimizing their costs until the new health measures are lifted.