Nepal | August 08, 2020

MSMEs can sustain for only two months if lockdown is stretched, says study

Himalayan News Service
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Kathmandu, May 16

A study has revealed that every three in five employees have already lost their jobs in the surveyed micro and small businesses in Nepal, with their average monthly revenue plunging by 95 per cent.

A draft report of the study commissioned by the United Nations Development Programme (UNDP) in Nepal titled ‘Rapid Assessment of Socio-Economic Impact of COVID-19 in Nepal’ says that these businesses can sustain for only around two months if the lockdown is stretched. Both formal and informal micro, small and medium enterprises (MSMEs) are hit hard as they tend to have low cash-to-asset ratio.

The impact on labour differs by the nature of contract. “Permanent workers face either pay cuts or unpaid hiatus, backed by strong labour laws that discourage layoffs, while seasonal and informal workers who represent 60 per cent of the labour force face job cuts and losses.”

Temporary workers, internal migrants, day labourers are amongst the most vulnerable based on income, and their ability to sustain through the slowdown. Not being able to find an alternative source of income is judged to be the main impact of the crisis on those already vulnerable or otherwise engaged in precarious work.

The crisis has affected women, especially from lower income groups, differently than men. Women typically work in industries which are comparatively less tele-commutable such as hospitality, wholesale and retail, keeping them out of work and lowering female labour force participation overall.

The survey results indicate that 28 per cent of men lost their jobs during the lockdown, compared to 41 per cent of females.

Similarly, increased responsibility at home due to closure of schools and day care has affected working mothers.

Gender pay gaps compound this inequality — in Nepal, for every Rs 100 that a man spends on daily necessities during the crisis, women spend only Rs 70, as per the report.

The study is based on a survey of 700 businesses and 400 individuals, and consultations with over 30 private sector organisations and government agencies, conducted during the lockdown period.

The report has said that the uncertain impact of the COV- ID-19 pandemic on Nepal’s socio-economy will magnify depending on how events unfold on three fronts: First, its dependence on tourism, trade, and foreign employment — and the consequences that will propagate through the services and industrial landscape; second, if or when the spread of the pandemic overwhelms a grossly inadequate health infrastructure and anti-virals or vaccine become available; and third, Nepal’s heavy geoeconomic reliance on India and China, and the nature of contagion originating in those countries.

Accommodation and food; arts, entertainment and recreation; and transport are the three most affected sectors of the economy, as per the draft report.

Given the international travel restrictions and fall in discretionary disposable incomes worldwide, tourism receipts in Nepal are projected to decline by 60 per cent in 2020, resulting in a loss of foreign currency earnings worth $400 million.

Similarly, the fall in remittances is likely to range between 15 and 20 per cent this fiscal year, the draft report says.

Because of the cumulative impact of trade, tourism and remittance shocks — as well as the negative economic externalities they trigger in allied sectors — Nepal’s projected pre-COVID GDP growth rate of 8.5 per cent will plunge to well below 2.5 per cent in 2019-20, and severely constrain a rebound in 2020-21, the study has said.

A version of this article appears in e-paper on May 17, 2020 of The Himalayan Times.

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