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A third of the businesses in South Asia were not in operation amid the novel coronavirus disease (COVID-19) pandemic, according to a recent World Bank working paper. Business closures, sales decline and financial fragility of firms was disproportionately large in the region, the survey found.
Firms in South Asia witnessed an overall sales decline of 64 per cent, the paper said. A global database of over 100,000 firms collected by the World Bank was used to put together the report.
In Nepal, 46 per cent businesses remained open, followed by 60 per cent in Afghanistan and 72 per cent in Sri Lanka, said the paper.
The impact was greater on micro and small firms and female-led firms in South Asia, according to the survey.
Financial fragility
Nearly two-thirds of the South Asian firms were likely to fall into arrears, a significantly higher share than other regions, showed the Business Pulse Survey done in 30 countries by World Bank. Data from the survey was used in the report.
The average probability of falling into arrears for micro and small firms in South Asia was close to 70 per cent, while for large firms it was 52 per cent, it said.
Manufacturing firms in the region expect 25 per cent decline in sales, as opposed to 16 per cent for those in agriculture and other services and 14 per cent in retail, according to the survey.
There was no significant difference in financial fragility between female- and male-led firms in South Asia, it added.
Adjusting to disruptions
More than half the firms in South Asia region reduced hours, wages, or granted (paid or unpaid) leave to workers to tide over the crisis brought on by the pandemic, the paper said.
South Asian firms lagged behind the rest of the world in responding with digital solutions, the paper noted. Only a quarter of the firms in the region reported an expansion in the use of digital technologies, the survey found.
It said firms in accommodation services were particularly lagging behind in increasing the use of digital platforms.
Companies across sectors globally have made changes to their offerings to attune to the changing needs amid the pandemic. This includes innovation in product-mix such as textile firms producing masks and hotels becoming quarantine centres to meet the new demand.
But South Asian firms lagged behind in restructuring their product-mix, found the survey.
Policy support for recovery
In South Asia, only 11 per cent firms reported to have availed public support programs, the paper said. The low access was due to information gaps and importance of networks and inter-organisational capital in times of crisis.
Policy support was required help the companies spring back to health and have a sustainable recovery, the analysis noted. “To be effective, firm support programs ought to be carefully customised.”
The report calls for South Asian governments to promoting linkages between the smaller firms and the more organised larger companies. This will help overcome information gaps and allow for business networks to develop.
Access to credit, payment deferral and tax reduction are the most preferred policy choices by firms in South Asia and these are also the most widely received, said the report.