Rescuing SMEs, saving the economy
Once again, SMEs are victims of a global economic crisis caused by the COVID-19 pandemic, which poses a great threat to their continued operation and to the livelihoods of workers. The role of SMEs as the backbone of the global economy and their current difficult situation makes it urgent to launch specific plans that provide concrete tools to help rescue them.
Tens of thousands of SMEs could go bankrupt, or are on the verge of doing so, due to this new crisis. We are certainly experiencing one of the most difficult periods in the history of small and medium-sized enterprises. Entrepreneurs are finding it difficult to withstand the shock and access financing on reasonable terms for their operations or expansion.
Of those thousands of entrepreneurs who could lose their businesses, it is not known how many will embark on new adventures. There are no reliable statistics, but very few are likely to do so for the simple reason that they would lose not only their investment, but perhaps also their personal savings and loans. How can we create the right environment for SMEs to grow and prosper even during the crisis? What are the responses and policy measures that have been put in place to support SME development? What needs to be done to help them grow?
SMEs are a key impact factor. They are the ones that generate most employment. As an example, it is estimated that for every million euro invested from an SME, 14.7 jobs are created compared to 3.1 jobs generated if the investment comes from a large company. SMEs contribute more than 40% to GDP in emerging economies. The private sector provides 9 out of 10 jobs in developing countries, plays a key role in creating new jobs, promotes growth and has enormous potential. SMEs in the Mediterranean are an inseparable part of its economy.
The region has 25 million SMEs. All administrations recognise their importance and impact in creating wealth and diversifying economies, taking into account that these and informal companies represent 90% of the business fabric, 60% of GDP and 70% of employment in the region. But SMEs only receive 8% of total bank loans. This recognition, however, has not led to effective solutions to the endemic problems suffered by these enterprises, but rather manifests itself tragically in every crisis.
The government measures or financing programmes put in place are neither sufficient nor satisfactory. The asymmetry of information and the structure of the financial system, the demands for guarantees and the high rates, are impossible to accept.
Despite a growing number of startup accelerators and funds for the region, job creation, competitiveness, higher productivity and economic growth help to reduce poverty. Therefore, SMEs are the key to inclusive growth in the Mediterranean and are essential, especially for the emergence of the regional middle class and access to employment.
Despite a tangle of obstacles, some SMEs have prospered in the region. There is a hardness and resistance among the region's entrepreneurs that allows them to overcome practically all obstacles. They deserve all the support they can get, especially from governments, banks, investors or private equity firms. SMEs will have an essential role to play in creating the 20 million jobs needed to absorb newcomers to the labour market in the coming years.
However, they face many obstacles, including access to finance. We must adapt our systems to support them more effectively and thus participate in their development. Their financing needs amount to EUR 200 billion. These needs constitute a real barrier to their growth and therefore to the economic development of the countries in the region.
In the Mediterranean, they face constant challenges mainly driven by a rapidly changing e-commerce landscape, increasing digitization and growing customer demand; indicating that technology and digital transformation will continue to play an important role in the future of trade and industry. Direct and immediate support should be provided to SMEs to ensure their continued operation. That is, ensuring that support reaches them and their workers quickly, adapting existing government-led social programs, and ensuring open trade and the accelerated flow of essential goods across borders.
It is therefore necessary to support and improve their environment, extend their life cycle, boost their partnership with the public sector and facilitate their access to funding, especially for the most vulnerable. Specific policies, programmes and initiatives must be drawn up to support SMEs, bearing in mind that they are and will be the engine of economic growth, generators of employment and drivers of genuine economic integration. SMEs are often left out of the mainstream, despite their effective contribution to mobilising savings, modernising economies, increasing competitiveness and developing international trade. Channels for dialogue between government, employers, workers and communities must be implemented.
Encourage conventional banks and financial institutions to invest in productive sectors and to finance SMEs and micro-enterprises in Mediterranean countries. To recover from the crisis, the private sector, especially SMEs, needs to be stimulated. On the other hand, it is relevant to work to eliminate the main obstacles to the creation and development of businesses, providing accounting, technical or legal expertise, and providing advice, training, monitoring or awareness of environmental and social problems. It is also necessary to create support centres for small businesses in the informal economy, which occupy a central place in all Mediterranean societies.
The countries of this region must promote the diversification of their economies with the aim of generating sustainable employment, especially for young people, who have an average unemployment rate of 45%. In this context, support for the development of entrepreneurship has to be an essential strategy. To this end, governments must offer an entrepreneurial-friendly platform and provide a transparent and effective business environment if they want to emerge from the crisis and in view of the material and human potential at their disposal.
In the Mediterranean, the spirit of entrepreneurship and creativity has roots that drive us to actively help the creation of SMEs that are very valuable and necessary for economies. This must become an element of competitiveness and a comparative advantage in relation to other economies. An economy that encourages and enables new businesses to be started and creates an ecosystem that facilitates other types of productive economic activity.
The commitment to SMEs means that national and multilateral political and financial organizations must pay particular attention to these companies in the coming years in order to improve their sustainability and ensure their full participation in the process of development and growth.
Anwar Zibaoui is General Coordinator at ASCAME