The advancing economic impact of COVID on MSMEs in Myanmar industrial zones

Myanmar’s factories are rapidly closing. MSMEs in factory zones have shared the constraints their businesses are currently facing.

Background

The effect of the closure of Myanmar’s factory zones is not yet fully understood, and is only now is the necessary response of the government, development agencies, financial institutions and key stakeholders on-the-ground being considered.

ONOW works directly with nearly 300 businesses; regularly providing coaching services, surveys, and guidance in formal financial management, digital economy, and business management.

From March 23 to March 25, ONOW spoke by phone with 158 of these entrepreneurs by phone. The object of the calls were to:

• provide important COVID-19 health information,
• provide important short term survival tips to reduce the economic impact on MSMEs, and
• survey the constraints faced by ONOW’s portfolio of businesses, especially those based in the factory zone economy.

MSME Characteristics

71% of respondents were female, and 29% were male. 63% of MSMEs were in retail.

We expect that these MSMEs will be affected by:

• reduced demand from consumers in the ecosystem who will have lost their jobs,
• increasing input costs as a result of reduced factory output, and
• a reduction in available cash for operations and reduced ability to service debt.

Key Findings

Most MSMEs reported trouble with a reduction in consumer buying power.

When asked about the primary challenge facing their business:

• 58.8% reported facing Demand Side Constraints
• 37.5% reported facing Supply Side Constraints
• 3.7% reported facing Financial Constraints

With the present reduction in revenue for MSMEs, and the expected rise in operation and input costs, MSMEs will face a large cash crunch in the near term.

Recommendations:

• Government and financial institutions should work together to rapidly extend additional credit to MSMEs at concessionary interest rates.
• Existing lines of credit should be extended, and a delay in payments of principal should be negotiated.

ONOW will continue to survey MSMEs by phone on a biweekly basis.

ONOW has also expanded surveying through its digital platforms to reach a broader audience of both households and MSMEs across Myanmar to gain a stronger picture of the country-wide economic effects of COVID-19.

The Data

Demand Constraints

Reduction of consumer buying power was the primary challenge identified by surveyed MSMEs in factory zones. 46.3% said customers are buying less. This could be attributed to a reduction of available work hours or less overtime being offered to factory workers.

Worryingly, 12.5% of all respondents said their primary constraint to their business was that their customers are experiencing job loss.

Supply-side Constraints

37.5% of all respondents reported Supply-side Constraints as their primary business challenge. This breaks down in the following sub-responses:

• 15.4% of respondents identified non-specific Difficulty Buying Inputs, while
• 12.5% reported Inventory Shortages as their key constraint.
• 9.6% reported Rising Input Prices.

It can be expected that as factories continue to remain closed down, and the longer that factory inputs are unavailable from international markets, Supply-side Constraints will become a larger contributor to cash crunches.

Financial Constraints

Only 3.6% of respondents identified trouble with cash as their primary constraint. 2.9% identified their key business challenge is with servicing a loan. Only .7% reported difficulty paying salaries as their primary challenge.

As the crisis goes on, cash will become an increasing problem for these businesses. Government and Financial Institutions will need to act quickly to meet this need, and stem the resultant tide of MSME failures.

ONOW enables female migrants in Myanmar to become empowered entrepreneurs who are financially capable. ONOW’s business incubator helps a woman

• connect to formal financial systems,
• become digitally literate,
• validate her business idea,
• find startup capital, and
• launch the business.

ONOW coaches these businesses for up to two years through individualize coaching and problem solving. Since 2012, ONOW has helped nearly 500 people launch an enterprise.

ONOW is a member of the Aspen Network of Development Entrepreneurs, and a participant in the Miller Center GSBI Social Entrepreneurship at the Margins.