Nepal’s MSMEs Faces The Risk Of Closing Their Operations

Survey Reveals Extent of the Fallout from the Pandemic on Micro, Small and Medium Enterprises in Nepal

Sept. 24, 2020, 1:25 p.m.

Kathmandu, Nepal, September 23, 2020— The COVID-19 pandemic has spurred more Nepali businesses to start using the internet, social media or digital platforms to seize business opportunities, in the wake of declining traditional sales.

The survey also reveals over half of Nepal’s micro, small and medium enterprises (MSMEs) face the risk of permanently closing their operations within a month under the current conditions of COVID-19 impacts.

The finding is revealed in the COVID-19 Nepal Business Pulse Survey carried out between May 25 and June 10 by the IFC and World Bank, in partnership with the government of Japan. It shows a fifth of businesses surveyed have started to use or have been using the Internet, social media, specialized apps, or digital platforms for business purposes.

Based on a sample of more than 540 representatives from MSMEs across all provinces the survey also revealed over eighty percent of businesses have suffered from a slump in sales and have taken measures such as granting leave without pay or reduced the hours or wages of their employees.

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“These findings highlight the severe burden micro, small and medium-sized businesses are facing in Nepal due to the impacts of COVID-19,” said Rolf Behrndt, IFC South Asia Manager for Advisory Services. “We know these businesses play a vital role in Nepal’s economy but clearly with a drop-in demand and sales, employers have had to opt for a range of measures to cope with less revenue, prompting questions about their future viability.”

Forty-five percent of the firms had granted a leave of absence to employees, and 27 percent had reduced working hours. Across all sectors, sizes and locations of firms, 12 percent of female employees have been put on reduced pay.

“The COVID-19 pandemic has dealt a major blow to Nepal’s economy, with enterprises of all sizes bearing the brunt with little to no revenue. Eighty-three percent of the firms reported a decline in sales compared to the same time last year,” said Wendy Werner, IFC Country Manager for Nepal, Bangladesh and Bhutan. “Micro, small and medium-sized businesses play a key role in helping Nepal’s economy grow. I believe these findings would be useful in preparing a well-informed response to help the businesses get back on their feet.”

MSMEs contribute 22 percent to the country's Gross Domestic Product (GDP) employing about 1.75 million people. The Central Bureau of Statistics projects that the fallout from the pandemic will mean significant contractions in the expected growth rate for the sector in the fiscal year 2020 compared to years past.

“These survey results shine a stark light on the importance of ensuring that this sector not only survives the COVID-19 pandemic but also transforms in ways that improve its resilience and capacity to contribute to economic recovery. To this end, the World Bank – working closely with the government and the private sector – has prepared new projects to support micro, small and medium enterprises, including in the agriculture, tourism and financial sectors”, said Faris Hadad-Zervos, the World Bank Country Director for Maldives, Nepal and Sri Lanka.

Globally, IFC has put in place a package of measures—worth a total of $8 billion—to help sustain economies and protect jobs around the globe. In Nepal, IFC has just invested $25 million in NMB Bank to support small and medium-sized enterprises (SMEs) and green projects, and there are more under discussion with other clients.

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