Did you save some cash for a rainy COVID-19 day? The crisis and SMEs

Abstract

As COVID-19 spreads across the globe, a common public policy response has been to enforce the temporary closure of non-essential business activity. In some countries, governments have underwritten a proportion of the wage income for staff forced to furlough or broadened their welfare systems to accommodate newly laid off workers or small business owners. While these actions are helpful, they do not explicitly address the lack of sales trading activity on business income and cash balances. In commentary, we identify what types of businesses have been increasing their cash holdings in the lead up to COVID-19 as an indication of what types of small and medium-sized enterprises (SMEs) are most at risk if the lockdown extends for a protracted period of time. We find that only 39% of the of businesses were bolstering their cash balances leading up to COVID-19 which suggests that 61% of businesses may run out of cash, including 8.6% that had no retained earnings whatsoever with micro firms at particular risk. The importance of precautionary saving for SMEs is critical to enhance resilience when Black Swan events occur.

Small business awareness and adoption of state-of-the-art technologies in emerging and developing markets, and lessons from the COVID-19 pandemic

“…The COVID-19 pandemic has affected the global health condition and structure of economic order, pulling the global economy into recession. While the first concern is related to the security of public health, the impact on the global economy and SMEs is enormous (Cowling, Brown, and Rocha 2020;Akpan, Soopramanien, and Kwak 2020;Juergensen, Guim on, and Narula 2020). IMF world economic outlook released on 24 June 2020, forecast a 4.9 percent decline in global GDP in 2020 with considerable downward risk.…”

“…Currently, a significant development so far is the switching of business operations by SMEs across the globe into online business due to the changes in consumers' purchase behavior during the lockdown and restrictions on movement. As common with technological revolutions, the unfolding events provide opportunities and threats, produce champions and casualties in EMDEs, and developed economies (Cowling, Brown, and Rocha 2020;Javaid et al 2020;Akpan, Soopramanien, and Kwak 2020).…”

The Covid-19 lockdown in the United Kingdom and subjective well-being: Have the self-employed suffered more due to hours and income reductions?

“…In the context of our work, the Covid-19 crisis induced two related but separate outcomes. It led to not only an involuntarily rise in unemployment among all workers but also an increase in the numbers of self-employed whose businesses were at financial risk due to reduced trading activity (Cowling et al, 2020). This latter effect is particularly interesting for us as the incidence and extent of reduced trading activity was unequally distributed across occupations and sectors of the economy.…”

The effect of the Covid-19 on sharing economy activities

“…While many countries have taken extraordinary measures to curb the pandemic, some have been heavily criticized for mishandling many measures (Niewiadomski, 2020). Some governments have supported the incomes of workers by furloughing non-essential employees and compensating small business owners ( Cowling et al., 2020 ), while others have not offered any financial support to people who lost income, such as in the SE sector, due to the Covid-19. Indeed, the Covid-19 has affected vulnerable groups disproportionately ( Evelyn, 2020 ), and millions of people in the global SE sector have lost their livelihoods.…”