COVID-19 has significantly impacted small and medium-sized enterprises (SMEs) worldwide, including SMEs in Turkey owned by, and employing, refugees. Over the last two years, they have faced government-mandated mobility restrictions and shutdowns, supply chain disruptions, and demand depression. As Turkey enters a recovery phase, restrictions have been lifted, and the number of COVID-19 cases has decreased, businesses continue to feel the impact of the pandemic and need to adapt to a new way of living with and beyond COVID-19.
During much of this time, Turkey has also been facing pervasive economic challenges. The country is struggling with rising unemployment and high youth unemployment, high cost of living, loss in the value of the Turkish currency, and rising inflation. As the country faces challenges navigating ongoing pandemic recovery and the unstable economic situation, small businesses, which account for more than 70% of employment in Turkey and contribute about 50% to GDP, are an essential component of Turkey’s economic recovery, generating employment, stability, and self-sustaining growth.
Syrians have brought their entrepreneurial skills and capital to Turkey, including the 2,800 businesses in the Building Markets’ network that employ an average of seven people, underlining the importance of the resilience and recovery of businesses that Syrian refugees own. In 2020, Building Markets conducted a randomized survey of SMEs in its business network in Turkey to better understand how the pandemic impacted Syrian entrepreneurs, finding that most businesses reported significant decreases in revenues and many were in urgent need of capital and other support (See: The Impact of COVID-19 on Syrian Businesses in Turkey). In early 2022, Building Markets surveyed the same businesses to understand how they are navigating the current economic situation and identify strategies to help them recover and boost their contributions to the Turkish economy (See: The Impact of COVID-19 on Syrian Businesses in Turkey: Navigating Recovery).
Results indicated that while SMEs in the Building Markets network report a more positive outlook as they navigate COVID-19 recovery than earlier in the pandemic, they face new challenges given Turkey’s economic crisis. SMEs are experiencing the impact of inflation on rising prices, higher cost inputs, and import and export challenges. They report several needs, including access to digital training and tools, increasing procurement capacity, improving sales and marketing, and access to finance and business loans.
The most significant obstacle for SMEs today is the declining value of the Turkish lira. While this research set out to understand the challenges stemming from COVID-19 and what SMEs face as they navigate pandemic recovery, 65% of businesses responded that in the last 30 days, the currency crisis had a greater negative impact than the pandemic.
SMEs have a more positive business outlook in 2022. Overall, businesses had a more positive outlook for 2022 than for 2021, with nearly 60% of SMEs expecting higher profits and 55% anticipating increases in hiring in the coming six months. Over 70% of businesses expect greater business investment this year as compared to last year.
Access to immediate, flexible financing is a priority for SMEs. Despite their optimistic outlook, SMEs are cash-constrained due to the current economic crisis in Turkey and the effects of the pandemic. At the same time, operational costs are rising for SMEs, stemming from rising energy prices and hyperinflation. When asked to identify the most needed policy to support their business during the COVID-19 crisis, over 30% of SMEs reported the need for business loans. Despite significant government and international funding to support SMEs affected by the pandemic, most SMEs indicated that they do not know how to access support.
Businesses’ imports and exports are negatively affected by the current economic situation. While the majority of SMEs surveyed do not directly import or export, of the over 10% that import goods, the majority reported imports being negatively affected due to increased shipping costs and the value of the Turkish lira. Nearly 40% of the SMEs surveyed export products, and the majority of those enterprises reported their exports being negatively affected by the current economic situation.
Many SMEs increased their digital capacities during the pandemic, but further digitalization is needed. Most SMEs regularly access the internet and digital tools to conduct business operations and utilize social media for digital marketing. Nearly 15% of businesses surveyed use an e-commerce platform, with over 20% of them adopting e-commerce during the pandemic. Over 60% of businesses utilizing e-commerce saw sales increase since the beginning of the pandemic. Roughly 10% of SMEs accept digital payments, and 13% of those businesses added the capability to meet customer demands during COVID-19. Stakeholders interviewed for this research highlighted the current difficulty of pricing products for e-commerce purposes given currency fluctuations, and explained that SMEs lack flexibility in pricing compared to larger businesses. They also shared a need for greater capacity building and training so that employers and staff understand how to operate and market their goods and services through digital channels.
While Syrian-owned SMEs face several unique challenges, they are also demonstrating their resilience, including their continued capacity to overcome adversity, their enduring economic participation, and the extraordinary contributions they can continue to make to the Turkish economy.
Recommendations for Donors, Financiers, and SMEs
Building Markets gratefully acknowledges the gift of the United States Government that made this research possible.
Available Documents & Links