Emergency support mechanisms for businesses must be anticipated and targeted, depending on the type of shock suffered and the firm’s ability to adapt, rather than solely on its exposure to the shock, according to a new study on SME emergency support mechanisms published by the SMU Foundation as part of the Eco Knowledge project.
Indeed, the MENA region has faced multiple crises, both internal and international, that have severely impacted its economy over the past two decades.
Impact channels of shocks
According to the study, SMEs, which account for about 95% of formal enterprises and employ nearly half of the labor force, are on the front line in facing these shocks. However, their limited access to credit and, in some cases, to support approaches, make them particularly vulnerable.
In this regard, the COVID-19 pandemic stands out as having triggered an economic shock of exceptional intensity, which spared few countries worldwide. Understanding its effects on SMEs helps identify the levers to mobilize to strengthen their resilience and better prepare responses to future crises.
Moreover, the three main identified impact channels are the labor shock, the input shock and the demand shock.
For a preventive approach
Based on a representative survey, the study finds that the effect of the labor shock on SME sales is significant and negative. Non-essential activities enterprises recorded a 15.6% drop in sales compared to essential activities enterprises.
Furthermore, an increase in the standard deviation of the demand shock is associated with an 11% loss in sales. Finally, Tunisian SMEs also experienced a negative influence due to the shock to intermediate inputs, though the magnitude was smaller than that of the demand shock: an additional standard deviation associated with the shock to intermediate inputs is linked to a 7.3% loss in the company’s sales.
The analysis shows that adaptability capacity depends more on the resources and the ability to respond of firms than on their mere exposure to the shock and thus on their need to adapt.
Moreover, in a context of limited public resources, support policies must be strategically targeted to maximize their impact. As soon as access constraints to firms are lifted, aid must be redirected to those affected by persistent shocks – notably those of demand and inputs.
This analysis focuses on the formal sector, while the informal sector, often more seriously affected, remains insufficiently covered. It is essential to invest in data infrastructure and panel surveys to better integrate this segment into policy responses.
In conclusion, the study indicates that to face future crises, public policies must go beyond universal support. A preventive, data-driven approach that takes into account SMEs’ adaptive capacities will better protect the economic fabric while optimizing the use of public resources.
