Briefing

COVID-19 impacts on wood-based MSMEs in Myanmar

Micro, small and medium enterprises (MSMEs)¹ are the backbone of Myanmar’s economy. They constitute 99% of formally registered enterprises in the country.² These MSMEs are drivers of growth and generate significant livelihood and employment opportunities.

The first COVID-19 cases were observed in Myanmar in March 2020. Since then, the Government has adopted measures to contain the spread of the virus, including border closures, travel restrictions and stay-home notices.³ The COVID-19 pandemic is severely impacting Myanmar’s economy.⁴ To better understand this impact on wood-based MSMEs, the European Forest Institute (EFI) and the Sagawa Institute of Organization Development supported a survey of members of the Wood-Based Furniture Association (WBFA) and the Myanmar Arts and Craft Association (MACA).⁵ The survey was conducted nationwide in August 2020. It was based on a questionnaire developed by the associations and handed to their members by the associations’ regional focal points.

This briefing presents the key findings from the survey and recommends measures that the associations could take to alleviate the severe impacts caused by the COVID-19 pandemic on wood-based MSMEs in Myanmar.

Impact of COVID-19 on WBFA members

One hundred forty-one enterprise members of WBFA (25% of their members) participated in the survey.⁶ Thirty-four percent of these enterprises are micro, 38% small and 17% medium enterprises.⁷ Seventy-two percent of them declared male ownership, 9% female ownership, and the remainder joint or family ownership. The enterprises are all furniture producers.

Key results point to a severe impact of the COVID-19 crisis on furniture-based MSMEs:

COVID-19 forced the majority of enterprises to stop or permanently close their business

A staggering 33.6% of respondents closed their operations permanently due to the crisis while 65.2% stopped them temporarily. Of the enterprises that closed permanently, about one third are micro businesses, while the remainder are small and medium-sized. Figure 1 shows how respondents replied to the question: have you stopped operations due to the current crisis?⁸

Figure 1. Impact on operations.

The financial impact of the crisis on MSMEs is significant

Thirty point five percent of respondents experienced a fall in revenue in the range of 50–75%, while 19.2% of respondents experienced a fall in the range of 75–100%. Respondents stated that they face difficulties paying for raw materials, operational rental and loans.

COVID-19 is having a significant impact on employment and livelihood

Seventeen percent of respondents reduced their workforce by 50–75%, while 15.6% of respondents had to make reductions in the range of 25–50%. These reductions were mainly caused by businesses stopping or downsizing operations. However, other reasons played a role, such as the need for workers to be monitored in quarantine centres, or to take care of family members and return to their hometowns. The impact on rural livelihood is significant because many laid-off workers are migrants from rural areas.

Financial difficulties are caused by low customer demand and difficulties in distributing products

Figure 2 shows that 69.5% of respondents are facing low demand from customers. Difficulties in distributing furniture products affect 45% of all respondents and exacerbate the challenges caused by reduced demand. The most common difficulties are delays and extra costs due to confusing procedures from local authorities, lack of knowledge of procedures and documents required for official distribution, weak cooperation among relevant actors and lack of vehicles. These difficulties were further exacerbated by the restrictions imposed by local authorities to the transportation and distribution of non-essential items to prevent infections from spreading across areas.

Figure 2. Demand from customers⁹

The majority of respondents have no or low access to COVID-19 relief programmes

Figure 3 shows access by respondents to emergency loans in relation to the COVID-19 economic disaster relief plan by the Myanmar Government.¹⁰ Close to 40% of respondents have no access to the loans, while about 30% have received a limited amount of money.

Figure 3. Access to COVID-19 relief loans by enterprises¹¹

To provide a more complete picture on access to finance for MSMEs, respondents were asked to rank their access to government loans that specifically target MSMEs. These loans are unrelated to COVID-19 relief programmes. Figure 4 shows that more than 40% have no access to these loans, while more than 30% have limited access. Results in figures 3 and 4 are similar and suggest that MSMEs in Myanmar have difficulties in accessing finance. The most common difficulties that MSMEs experience are:

Difficulty in providing complete documentation for the loan and inconsistencies in the application requirements.
Challenges in physically visiting the loan evaluation office.
Difficulty in completing the application forms.
Lack of official licences and SME registration cards.

Figure 4. Access to government loans for MSMEs¹²

The majority of respondents face shortages of raw materials

Respondents were asked whether they face raw material shortages due to COVID-19. Eighty- four percent of respondents stated that they face shortages. About half of respondents indicated reductions in the availability of raw materials in the range of 25 to 75%. Remarkably, 24.8% of respondents are experiencing reductions between 75 and 100%.
To better understand the origin of the raw materials purchased by MSMEs, respondents were asked to indicate where they buy the timber from.¹³ Official sources are the auctions organised by the Myanmar Timber Enterprise (MTE) and the Forest Department. Figure 5 shows that many enterprises rely on raw materials from unofficial sources to fulfil their business needs. While unrelated to COVID-19, Figure 5 highlights a major governance challenge for Myanmar because timber of unknown origin is at high-risk of illegality.

Figure 5. Access to official vs unofficial raw materials¹⁴

Impact of COVID-19 on MACA members

Fifty-one members of MACA were surveyed nationwide (27% of their members).¹⁵ Of these, 60% had between 1 and 10 workers, while the remainder had more than 10 workers. Contrarily to WBFA, female-owned enterprises are significant at MACA. In fact, 47.1% of all respondents declared female ownership. Members of MACA use a variety of raw materials for their traditional handicrafts, including wood, gems, sea products, gold, etc. Of all respondents, 12% declared that their business is wood-based.

Results from the survey of MACA’s members are broadly in line with results from the survey of WBFA’s members. The impact on revenue is more severe for MACA’s enterprises because they rely on tourism to sell their handicrafts, and tourism nearly stopped due to COVID-19. Figure 6 shows dramatic falls in revenue for the majority of enterprises surveyed. This situation resulted in severe impacts on the cash flow of more than 70% of respondents.

Figure 6. Fall in revenue for MACA members¹⁶

Recommendations

The following recommendations are expectations from respondents. They are actions the industry associations could take:

Access to finance

Support members in accessing short- and long-term financial loans by sharing information and assisting them in providing the necessary documents. This is critical because without financial support, more businesses will have to close and lay off workers.
Collaborate with the relevant government departments to facilitate MSMEs’ access to COVID-19 relief programmes.
Collaborate with the relevant government departments to support informal enterprises to register their businesses to enable them to access government relief programmes.

Access to raw materials and products distribution

Support members in accessing raw materials from official and documented sources.
Collaborate with the relevant government departments to ease the challenges that enterprises face in distributing products, such as complex and confusing procedures.

Membership relations

Enhance the collaboration between the associations and their members by putting in place strategies that truly serve the members’ benefits based on an analysis of members’ needs.
Encourage members to cooperate more among themselves and ask for assistance from the association.

Capacity building

Build members’ capacity on production management and marketing and enhance their overall competitiveness and resilience by supporting product innovation and quality.
Collaborate with the relevant government departments to restrict the availability of lower value imported wooden goods.

References

Myanmar’s Ministry of Industry classifies private industrial enterprises as specified in the following publication. (There is no official definition of micro enterprise in Myanmar but it is common practice in the industry to consider enterprises with up to 10 employees as micro.) https://myanmar.gov.mm/en/industries/service/-/asset_publisher/idasset344/content/—394
In addition, it is estimated that 83% of all businesses in Myanmar are in the informal sector. These are mostly micro entities. See: OECD. 2013. Multi-dimensional Review of Myanmar: Volume 1. Initial Assessment, OECD Development Pathways.
http://www.oecd.org/dev/multi-dimensional-review-of-myanmar.htm
The first stay-home notice was issued on 2 April 2020, in Yangon (the commercial capital), and extended several times until July 2020. On 1 September 2020, new stay-home notices were imposed in selected townships in Yangon. On 20 September 2020, Myanmar entered a nationwide lockdown.
https://www.worldbank.org/en/news/press-release/2020/06/25/myanmars-economy-severely-impacted-by-covid-19-report
The survey was conducted in the context of EFI’s Sida-funded work in support of forest- and timber-based MSMEs in the Mekong region. Both associations are cooperating with EFI in a pilot intervention that is testing approaches to promote the formalisation of informal wood processors in Myanmar.
http://www.euflegt.efi.int/smes-mekong
One hundred and forty-one out of 570 WBFA members participated in the survey.
Eleven percent of respondents did not answer the question.
Seven point one percent of respondents did not answer the question.
Five percent of respondents did not answer the question.
Myanmar’s Ministry of Planning, Finance and Industry announced the first COVID-19 loan programme on 28 March 2020. A second programme was announced on 27 July 2020. In the survey, respondents were asked to rate their access to the loans from no access to high access in relation to the amount they had applied for. High access indicates that enterprises received the amount of financial relief they had applied for, while low access indicates that the loan received is a fraction of what enterprises had applied for.
Twelve point eight percent of respondents did not answer the question.
Ten point seven percent of respondents did not answer the question.
Respondents were asked to rank the availability of official versus unofficial raw materials in relation to what they need to run their business. For example, in the case of timber from legal sources, high access would indicate that the respondents can buy the amount of legal raw materials they need. The fact that low and moderate access are options selected by most respondents for both sources of timber shows that mixing raw materials from official and unofficial sources is common practice in Myanmar.
Six point three percent (first chart) and 6.5% (second chart) of respondents did not answer the question.
MACA has 189 members nationwide. As in the case of WBFA, regional focal points distributed the survey to members throughout the country.
Six percent of respondents did not answer the question.

This publication was produced by the EU FLEGT Facility in collaboration with the Sagawa Institute of Organization Development and with support from the Swedish International Development Cooperation Agency. The contents of this publication are the sole responsibility of the EU FLEGT Facility and can under no circumstances be regarded as reflecting the position of funding organisations.

Author: European Forest Institute

Date: 14 October 2020

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About the Forest Smallholders Project

Since 2016, the European Forest Institute (EFI) has been supporting wood-based micro, small and medium enterprises (MSMEs) in four Mekong countries to operate legally and sustainably. Under its Forest Smallholders Project, EFI has been testing solutions to MSMEs’ key challenges in pilot projects. Lessons learnt from these pilots are documented and disseminated nationally, regionally and internationally. Through its support to MSMEs, the Project promotes gender equality and women’s economic empowerment in the forest sector.

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This website has been produced with support from the Swedish International Development Cooperation Agency. The contents of this website are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of funding organisations.