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Small businesses see 60pc profits lost to economic inertia in 2020

By Javed Mirza
December 30, 2020

KARACHI: Majority of small businesses in Pakistan are expecting more than half of their profits lost to coronavirus lockdown in the unprecedentedly disastrous outgoing year, according to a survey’s findings.

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in a survey report on Tuesday said around 70 percent of the country’s micro, small are medium enterprises (MSME) anticipate profit erosion of 60 percent in 2020.

FPCCI designed the survey form and sent them to all trade bodies of the country in order to gain insights on ground realities and issues that badly affected economic growth and trade activities due to lockdown related to coronavirus pandemic.

“Due to lack of sufficient government support, many MSMEs faced financial crisis and even went bankrupt,” said Sultan Rehman, vice president of FPCCI. “MSMEs have limited capability and resources to recover from such a crisis.”

The government ordered economic shutdown in late March and till early August it had been far away from any decisiveness on how to mitigate coronavirus fallouts on the already ailing economy. A barely four-month lockdown delivered the decades-worst annual economic output in the last fiscal year of 2019/20.

According to FPCCI report, 75 percent of MSMEs reported they expected over 60 percent decline in sales, while 67 percent expected their profits to decline over 60 percent in 2020.

Forty three percent of enterprises choose to lay off employees, and 12 percent preferred to reduce staff salary. Besides, 13 percent of the responding enterprises were evaluating partially shutting down their businesses to reduce costs and manage the cash flow shortage. More than 83 percent of the participants reported neither they have any plan, nor they are well-prepared to handle such a crisis.

FPCCI says MSME sector should be supported with loans at 2 percent markup while general sales tax should be reduced to single digit and all other taxes should be deferred. There is an urgent need to negotiate shipping line charges and other port costs with concerned quarters. To provide relief to the exporters, turnover tax must be reduced from 1.5 percent to 0.5 percent, it said.

MSMEs are responsible for 60 percent of total job creation, while contributing 30 to 40 percent to the national gross domestic product. MSME output also contributes around 25 percent to export revenues.

FPCCI says government should protect industry through fiscal measures and other incentives for at least one year so that it would be able to sustain in the international market and continue its contribution to national employment.

FPCCI said since global textile buyers are facing disruption to the supply chains from China and other countries. It is an opportunity for the country’s textile sector to grab a considerable share in the global export markets.

There is already mounting orders for textile products being received, and exporters should be facilitated in terms of low utility prices and release of all pending tax refunds, it said.