A TRADE rebound can look good on paper while leaving smaller businesses out in the cold, according to the United Nations Conference on Trade and Development (Unctad), which warned that recovery from global shocks could deepen the dominance of larger firms if small and medium-sized enterprises (SMEs) are pushed out of value chains.
The warning carries particular weight for the Philippines, where more than 99 percent of establishments are classified as micro, small and medium enterprises (MSMEs), per government statistics data.
In its latest report, Unctad said SMEs face a greater risk of exclusion from value chains even when global trade volumes recover from disruptions, partly because smaller firms have fewer financial and operational buffers than larger companies.
‘Rising energy bills, freight rates, insurance premiums and financing constraints place heavier burdens on SMEs than on large firms,’ Unctad said.
The agency cited disruptions around the Strait of Hormuz as an example of how such pressures can widen the gap between large and small businesses.
Larger companies, it said, can spread risks across suppliers, markets and financing sources, while SMEs typically have fewer alternatives, it said.
The country is among the economies exposed to prolonged disruptions because it imports most of its crude oil from the Middle East, maintains limited strategic fuel reserves and has relatively little fiscal space to cushion external shocks.
For the UN trade and development body, SMEs are important links in global value chains because they provide inputs and services while contributing to entrepreneurship, innovation and economic diversification.
Further, when smaller firms are pushed out of value chains, the consequences can extend beyond individual businesses. Unctad said this can contribute to higher unemployment, lower household incomes and greater social vulnerability.
The agency pointed to previous shocks, including the Covid-19 pandemic, as evidence of the vulnerability of smaller businesses.
Based on Unctad’s data, SMEs were more likely to experience declining sales during major disruptions, with declines tending to be larger among smaller firms in developing economies.
Moreover, it said assessing trade resilience should therefore go beyond headline trade flows and sales figures. Governments also need to consider whether SMEs can maintain their market connections and continue operating during and after disruptions.
Keeping SMEs in the chain
Policy responses should address both the continuity of trade and the continued participation of SMEs in value chains, according to UNCTAD.
It recommended closer monitoring of SME participation in trade during periods of disruption, including their ability to maintain relationships with suppliers and customers and resume operations after shocks.
The agency also called for stronger access to trade finance, liquidity and working capital, which become more critical when higher costs, longer delivery times and extended payment cycles strain smaller firms.
In addition, public support for trade and logistics services should likewise be strengthened, particularly in developing economies, Unctad said.
This includes improving SMEs’ access to reliable and affordable logistics, trade facilitation, market information and other business support.
For longer-term resilience, Unctad recommended measures that improve SME productivity and competitiveness while helping businesses maintain and diversify their supplier and customer relationships.
Such support, it said, can help safeguard jobs, encourage innovation and improve businesses’ ability to withstand future disruptions.
The recommendations are relevant to the Philippines, where MSMEs remain a major focus of the Department of Trade and Industry (DTI), which runs various programs aimed at supporting smaller businesses, including efforts involving financing, market access, entrepreneurship and trade promotion.