DUSHANBE — The impacts of the Russian invasion of Ukraine on small businesses in Central and West Asia underscore the need for improved strategies to strengthen the entrepreneurial base in the region, according to a report by the Asian Development Bank (ADB).
The effects on micro, small, and medium-sized enterprises (MSMEs) in the region are multiple and vary by country, according to the first and second volumes of Asia Small and Medium-Sized Enterprise Monitor 2022, released today.
MSMEs play a prominent role in the private sector in Central and West Asia. They accounted for 98.9% of all businesses, 46.1% of the workforce, 40.7% of economic output, and almost one-third (32.4%) of total exports on average, based on available data through 2021. While the region made a quick initial rebound from the COVID-19 pandemic, the Russian invasion of Ukraine and related sanctions have since upended MSME operations. Exports have been especially affected, due to the high reliance on the Russian Federation as a trading partner.
“Governments in Central and West Asia should refine their strategies for supporting MSME foreign trade, as well as develop domestic commodity markets,” said ADB Chief Economist Albert Park. “Supporting growth-oriented entrepreneurs will help unlock new productivity, and this support should continue to target youth, women, agribusiness, and tech startups.”
Internationalizing MSMEs and encouraging innovation can help accelerate economic recovery and inclusive, resilient growth, according to the report. Given that the sector represents less of the labor force than in other Asian regions—67.3% in Southeast Asia and 76.6% in South Asia—job creation remains a critical issue for MSME development in Central and West Asia. Youth and women entrepreneurs hold potential to improve the region’s labor markets and accelerate inclusive growth.
Upgrading digital skills and infrastructure is critical, along with diversifying financing sources for small businesses. The MSME credit market remains small in the region. Bank lending to MSMEs averaged 9.0% of GDP and 31.4% of total bank lending during 2015–2021. The small lending markets have led governments to offer financial assistance to MSMEs. Shifting from a high reliance on subsidy-backed finance to more market-based finance—capital markets and digital finance platforms—should be a focus of policy discussions.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.