Micro, small and medium enterprises are the key to an inclusive and sustainable future

Idi Amara in Geneva

Micro to Small and Medium sized Enterprises (MSMEs) are undeniable pillars of the worldwide economy, given their small to medium size. Small businesses are crucial for driving economic growth and providing employment opportunities. They make up the majority of businesses, employing a significant percentage of the workforce, and contribute substantially to the overall GDP both domestically and globally.

In order to gain a deep comprehension of the significance of MSMEs in trade and economic advancement, it is integral to move beyond mere numerical figures. When discussing MSMEs, it is not just about looking at overall data but instead focusing on how they have positively impacted the lives of individuals, business owners, and the communities they are a part of.

Bahauddin Agha, a farmer residing in the Pishin region of Pakistan, intelligently utilized a grant provided through aid funding to establish a solar-powered irrigation system. Bahauddin’s grape nursery has expanded its workforce from one employee to six, and nearby farmers frequently visit his vineyards to gain insights into his irrigation system.

Bahauddin aspires to set a precedent for fellow farmers in Pishin by establishing his farm as a leading example of sustainable farming, and ultimately inspire others to follow suit. This anecdote exemplifies how trade, aid, and development policies can greatly influence MSMEs, especially in countries like Pakistan that have endured devastating climate change catastrophes.

In a period where numerous indicators of worldwide sustainability are reversing, MSMEs serve as crucial allies and catalysts for restoring progress towards the achievement of the Sustainable Development Goals. Small and medium-sized enterprises (MSMEs) are crucially contributing to the creation of 600 million jobs necessary to meet the requirements of an expanding global workforce by 2030.

Small and medium-sized enterprises (MSMEs) and small-scale farmers are essential components of the global food production sector and play a crucial role in building sustainable agrifood value chains across numerous nations. They serve as catalysts for achieving more sustainable production and consumption systems by driving innovation, creativity, and the development of new technologies.

However, when external shocks such as crises like COVID-19, conflict, climate change, and cost-of-living increases arise, it is often MSMEs that suffer the most. According to a study conducted by the International Trade Centre (ITC), the COVID-19 pandemic had a significant impact on 60% of micro-sized businesses and 57% of small businesses, in contrast to only 43% of large corporations. Approximately one third of the MSMEs we surveyed have permanently closed as a result of the pandemic.

Nowadays, it is crucial for the global community to acknowledge the significant role played by MSMEs and for governments to establish a supportive business environment that enables these enterprises to not just endure, but also flourish. As the Executive Director of ITC, I would like to propose three essential sectors where governments and important actors can provide assistance to MSMEs.

Firstly, create and facilitate a persuasive argument for micro, small, and medium enterprises to engage in a sustainable transformation. Micro, Small, and Medium Enterprises (MSMEs) in developing nations face heightened vulnerability to climate-related supply shortages and unpredictable price fluctuations.

According to a study by ITC, close to 70% of small companies in sub-Saharan Africa acknowledge the significance of environmental risks to their business. However, less than 40% of these firms have been able to allocate resources towards mitigating these risks.

Various stakeholders, including policymakers and large corporations, play a crucial role in establishing a climate-resilient and adaptable environment for MSMEs. ITC provides a comprehensive roadmap consisting of 10 steps to help policymakers and stakeholders in the value-chain effectively assist small businesses in building climate resilience.

Furthermore, aside from aiding the ecosystem, there is a compelling argument for small businesses to adopt environmentally-friendly practices. MSMEs that are climate-smart enhance their resilience and enjoy a competitive edge by proactively meeting the growing need for sustainable products and services, or by adopting a business model that optimizes resource utilization. To enhance these initiatives, ITC introduced the GreenToCompete program aimed at prioritizing environmental sustainability in the competitiveness of MSMEs. ITC has collaborated with the US Government to create the Climate Smart Network, an initiative that enables buyers to connect with climate-smart small and medium enterprises.

Secondly, restructure supply chains to benefit micro, small, and medium enterprises owned by women. Women have a significant impact on the worldwide economy, and research indicates that when women secure employment, it brings about significant positive changes for both women themselves and the communities they belong to. Unfortunately, there is still a significant disparity between men and women’s involvement in the economy, and the impact of the pandemic has reversed the progress towards gender equality by fifty years.

Women persistently encounter notable obstacles, such as undertaking extensive unpaid caregiving responsibilities, limited financial access, and numerous cultural and structural hurdles. The evidence supporting the economic benefits of empowering women in trade is compelling: women-owned enterprises engaged in exporting generally achieve higher profitability compared to women-owned businesses that do not export. However, despite this, only approximately 20 percent of global exporting companies are owned or led by women.

The international community can assist female-owned businesses by providing them with specific assistance, like customized training and networking opportunities. Additionally, creating a favorable policy environment for women’s involvement in business and trade will also be helpful. ITC is collaborating with partner governments to develop public procurement policies that are sensitive to gender considerations through the SheTrades Initiative.

Even though public procurement is a niche field within trade policy, its significance cannot be overlooked. In developed nations, it constitutes nearly 15 percent of the total gross GDP, while in certain developing countries, it can make up as much as 40 percent. However, it is surprising to note that only 1% of the global market for public procurement, valued at $11 trillion according to the World Bank, is comprised of women-owned businesses. This amounts to almost 12% of the total global GDP. Implementing gender-sensitive public procurement can be a crucial measure for governments to support and promote small and medium enterprises that are led by women or owned by women.

Thirdly, assist small and medium enterprises in transitioning to the digital realm. In today’s globalized society, trade is progressively shifting towards digital platforms. According to ITC research, the success of MSMEs is often dependent on their ability to obtain top-notch connected services such as transportation, logistics, financial services, ICT, and business and professional services. Connected services are a magnet for foreign investment, driving innovation, and boosting small businesses’ exports. They also assist in the integration of these businesses into global value chains.

As observed in the midst of the pandemic, the ability to stay digitally connected became increasingly vital for the resilience and competitiveness of micro, small, and medium-sized enterprises (MSMEs). ITC has introduced the Switch ON Initiative to aid MSMEs in acquiring digital literacy skills which can transform their Internet connection into a means of economic growth, thus supporting MSME digitalization. To achieve affordable and widespread Internet access, it is crucial for the government to take action with measures that include safeguarding privacy and ensuring compatibility between services.