The fight against COVID-19: Survival only is not an option for Moldovan MSMEs

Moldova rides the wave of the COVID-19 economic shutdown and learns key lessons of loss, adaptation and hope.

June 29, 2020

Photo: UNDP Moldova. MSMEs employ a larger share of the most vulnerable groups namely women and youth.

The COVID-19 outbreak triggered both a global public health crisis and an inevitable economic recession. The micro, small and medium enterprises (MSMEs), the “lungs” of national economies, have been heavily affected by the pandemic, with severe shortage of oxygen threatening their survival. MSMEs employ a larger share of the most vulnerable groups namely women and youth and hence bear the brunt of such severe impacts.

Moldova MSMEs are no exception and have not been shielded from the multifaceted effects of the COVID-19 pandemic.

But what can be done to help small businesses save jobs and make sure families relying on this income will make it through?

To shoulder the Government’s efforts to mitigate the negative consequences and prepare recovery measures, we at UNDP Moldova are working with the United Nations Country Team and development partners to estimate the impact of the shock and draw the way forward as part of an overall UN Socio-Economic Response. With its global offer that looks beyond recovery, and local presence on the ground on 2/3 of the territory and its partnerships with UN entities, development partners, private sector and business associations, UNDP Moldova is well positioned to support the country in building better and greener.

In Moldova, the MSMEs represent 98.7% of all private sector, ensure almost 60% of business sector employment, and produce 70.8 of value added*. They are the economy’s frontliners, mostly affected by the crisis. Independently of their size, sector, turnover or location, administrative restrictions caused dramatic declines in sales of almost all companies, leading to the full or partial suspension of business operations; while 1/3 of them faced restricted access to raw materials (especially imported ones), and 1/4 - lower demand due to the decline of households’ revenues.

These are some of the findings of a local level needs assessment and evaluation of COVID-19 impact on MSMEs that we at UNDP conducted in April-May 2020 among our beneficiaries, aiming to support us in rethinking our further support. More than 400 entrepreneurs from 140 communities (urban and rural), including the Transnistrian region, took part in this assessment and described their COVID-19 related struggles, as well as the needed support.

It’s been 1.5 months since we cannot export. Additional costly certificates have been introduced. (…) For many days, we are waiting with loaded trucks and if we don’t receive any feedback, we will be forced to shut down our business and fire all employees,” told us a food company representative.

Photo: UNDP Moldova

The end of the crisis or the end of the company?

For many MSMEs, this crisis marks the end of a journey and many of them anticipate an upcoming bankruptcy. As the main challenges are related to the insufficiency of liquidities and lack of financial reserves needed to manage the crisis, companies are trying to avoid layoffs and keep the staff by dramatically cutting wage expenses, up to 41%. The next 2-3 months appear even gloomier, as the number of companies planning to cut wages is higher than the number of those that already did it. More and more people risk being pushed into poverty, as a consequence of COVID-19 crisis.

Our local level assessment showcases a harsh reality: 1/3 of companies have some capital/liquidity reserves that could cover not more than 3 months of their operations, only 12% have access to external financing sources and 50% do not have proper internal procedures for crisis management. All these are amplified by low juridical literacy and poor quality of contracts with partners, without proper clause on force majeure, (suppliers, distributors, etc.), also a reduced diversification of clients and limited or no access to domestic and external markets. In addition, a high number of business owners do not use insurance instruments for their operations.

“Our contract with our counterparts from France does not foresee a force majeure clause and, therefore, we could not use the COVID-19 pandemics argument to adjust our contractual obligations,” said an entrepreneur from the left bank of the Nistru river.

New market niches and innovative approaches

Together with our partners (European Union, Sweden, Switzerland), we have readjusted in a record time most of our joint existing programmes to provide early recovery response to the COVID-19 crisis. Support is not only needed to maintain existing companies on the market, but also to help them rethink their modus operandi, redesign their business models and find new market niches. Most of the assistance focuses on supporting companies to build better, diversify, adapt and come up with more resilient and inclusive business models and products.

UNDP Moldova’s support and mitigation interventions have been immediate as well as of medium-term nature:

  • As part of the immediate support, we will soon launch a small grants programmes for MSMEs, assist with digitization of services and enhance partnerships with sectorial associations and business support organizations. We will also aim at establishing of a consulting mechanism designed to provide advice and strategic support to the most affected and least bankable MSMEs, streamlining the legislation and regulatory framework, as well as launching online platforms to connect producers to the suppliers.
  • As for the medium and long-term support, we will focus on enhancing companies’ resilience to crises by increasing their access to technologies and equipment, infrastructure and markets and by fostering their financial and juridical literacy. The assistance also foresees developing B2B contacts, business development and advisory services, as well as facilitation of the direct access to markets.

In digitization we trust

Digitization is at the core of our UNDP phase 2 response to COVID-19, with the focus on the accelerated use of e-tools. Some companies and their innovative solutions have provided very impactful responses to COVID-19, giving birth to entirely new business products (for example, Simpals with their online learning platform, developed with our support).

Others explored new means to promote their products or services using digital solutions. “Until now, our company did not have a clear name or brand. Now we are working on it. (…) Being in lockdown, we started to pay more attention to advertising and Internet”.

Photo: UNDP Moldova. Thanks to UNDP-Sweden assistance, Angela Sobol created an attractive visual identity for her business.

The new realities spurred an even deeper engagement with our good partners, Moldovan Association of Information and Communications Technology Companies, Tekwill, USAID, Sweden and private companies, aimed to generate new solutions around the emerging opportunities. Through the Innovation Challenge Scheme, MSMEs are encouraged to focus on digitizing their offer.

Meanwhile, our SDG Accelerator for Private Sector offers additional support to MSMEs to launch products or services adjusted to the new opportunities. These are just few of our initiatives that engage with companies to build back better and greener and contribute to accelerated achievement of the SDGs.

When one door closes, another door opens

While COVID19 has unexpectedly shut many doors, its slowly started opening others. We are taking our cooperation with private sector to the next level, towards “building a new, resilient world”. This shall become the new normal.

At UNDP Moldova, we are continuously exploring ways to address the MSMEs challenges during this period and to enhance their business’ drive and adaptation skills to these turbulent times.

Be it a more digitalized era or a physically distanced one, MSMEs need to be supported with an enabling environment, necessary skills and access to resources in order to sustain their crucial role in creating jobs and improving livelihoods.

*SME Policy Index: Eastern Partner Countries 2020: Assessing the Implementation of the Small Business Act for Europe, OECD