© World Bank Small and medium-sized enterprises account for about half of global GDP. Small business, big risks: disruptions in the Strait of Hormuz could lead to the displacement of small firms from markets Economic development
Disruptions in the Strait of Hormuz could lead to the displacement of small and medium-sized enterprises from trade chains and international trade. The authors of a new report from the United Nations Conference on Trade and Development (UNCTAD) warn about this.
Disruptions in global trade affect all companies, but rarely to the same extent, the report says. The current situation in the Strait of Hormuz is no exception.
Large companies can spread risk across different suppliers, markets and funding sources. Small and medium-sized enterprises usually do not have this opportunity. Yet they make up about 90 percent of all companies in the world, provide about 70 percent of jobs, and account for about half of global GDP.
Risk of Market Displacement
As energy, transportation, and financing costs rise, profitability declines and supply chains are disrupted. This could force companies to cut production, delay investments, or exit the market altogether. The risk of displacement is an ever-present threat, the report warns. Small and medium-sized enterprises risk being excluded from value chains even as global trade recovers from shocks: their sustainability could be undermined by long-term rising energy costs, rising freight rates, rising insurance premiums and limited access to financing.
Recommendations of UNCTAD economists
The authors of the report recommend that governments strengthen monitoring of the participation of small and medium-sized enterprises in international trade during crises.
According to economists, it is necessary to expand the access of small and medium-sized businesses to financing, liquidity and working capital, strengthen government support for trade and logistics services, and increase the resilience of enterprises to crises and promote their participation in markets.