Don't leave small businesses behind

Don't leave small businesses behind

The time has finally come again for the tourism industry. As many countries start learning to live with Covid-19, travel restrictions are being eased and people are hitting the road after staying put for more than two years.

Returning to my hometown in Samut Songkhram recently, I found a number of tourists in the small province near Bangkok that's best known for its unique Mae Klong Railway Market and Amphawa Floating Market. However, vendors and small shops in the local fresh markets are still struggling, particularly those who haven't joined the government's "Kon La Krueng" co-payment scheme or signed up for online delivery platforms like Grab or Line Man.

"Tourists come and see but many of them don't buy anything. Probably they don't have much to spend or don't want to spend much as the economic picture doesn't look good," one merchant told me. It's a familiar refrain and one being heard across Southeast Asia.

Countless small businesses depend on tourism, and they have been hit especially hard by the pandemic. Micro, small and medium-sized enterprises (MSMEs) create millions of jobs, stimulate domestic demand and are a critical part of many industries.

The Asian Development Bank (ADB) estimates there are 71 million MSMEs in Southeast Asia. They account for 97% of all businesses and employ 67% of the working population.

Despite their numbers, MSMEs in the region contributed just 40.5% to each country's gross domestic product on average and 19.2% of total export value in 2020. And even though the number of such businesses has increased over the past 10 years in the five largest Asean economies, their share of employment has fallen, the ADB has found.

For many small businesses, embracing digital technology could be the difference between success and failure. Digitisation can help them widen their markets and supply chains.

Eight in 10 digitally enabled MSMEs reported being able to reach more customers, according to a 2021 report by the Tech for Good Institute (TFGI), a think-tank affiliated with the regional super app Grab.

The pandemic has hastened the shift to digital, with millions more consumers buying online. When lockdowns closed wholesale markets and restaurants in Malaysia, Lazada set up a virtual store to connect farmers directly with retail consumers. In a month, about 70 tonnes of produce were delivered directly to homes. Indeed, 85% of MSMEs surveyed in Malaysia agreed that they need to use digital platforms to succeed.

Online food and e-commerce made up 8% of total food and retail sales in the region last year. That compared with 17% in the US and 27% in China, so there is large room for growth.

A 2019 study by the Economic Research Institute for Asean and East Asia found that just 34% of surveyed small businesses had an online presence, while another 10% used advanced tools like analytics and automation. The TFGI found that only 20% of MSMEs are currently on online-to-offline platforms.

But every business needs financing to grow, and access to funding is a perennial problem for smaller businesses. Many lack credit histories or records required for formal loans. About 60% of surveyed MSMEs in the region say they have struggled to obtain loans from traditional financial institutions. ADB statistics also show that MSMEs on average have a higher share of non-performing loans, at 4.1% of outstanding credit versus a 2% overall average.

Digital providers are now emerging to help smaller businesses, through innovations such as peer-to-peer financing and crowdfunding. A study of digitisation in women-owned SMEs showed that such platforms not only improve access to funds, but also provide an opportunity for businesses to validate their products and build their customer base at reduced cost.

In addition to digital adoption, connectivity is critical. Between 72% and 85% of the region's MSMEs operate in rural areas, where utilities such as electricity, as well as transport and digital infrastructure are not always up to scratch.

For MSMEs, the pandemic has been a major catalyst for transforming their business models to meet changing consumer habits and rapidly evolving external conditions.

As policymakers map out plans for a more resilient post-pandemic economy, they know what needs to be done to help MSMEs capitalise on rebounding business activity and tourism. They surely understand that unequal digital access limits MSMEs' potential to contribute to the economy.

Investments in infrastructure and digital adoption are vital for MSMEs to widen their reach to customers, lower their cost and greatly realise their growth potential.

Nareerat Wiriyapong

Acting Asia Focus Editor

Acting Asia Focus Editor

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