The COVID-19 onset and its quick spread have severely impacted all countries worldwide, including Kosovo. Regardless of measures undertaken, there were unprecedented slumps in the economic activity, with record GPD downfalls in many countries. In Kosovo, the GDP contracted by 5.6% in the first nine months of 2020, according to OECD. As a response to the enacted measures as well as the overall shift in the business setting, businesses had to quickly adapt and find alternatives for remaining afloat. Going digital in these circumstances was an unavoidable challenge that many local companies had to go through to merely survive. For most, this digital transformation was the tool that ensured their survival.
In this context, seeing the market changes and business model alternations, ECIKS as part of the ACCESS project has conducted a market analysis in order to better understand the impact of the COVID-19 crisis on Micro, Small and Medium Enterprises (SMEs) in Kosovo, with a special focus on their digitalization activities.
As anticipated, the study results showed that the impact of COVID-19 pandemic on SMEs was severe. Looking at sales, around 95% of SMEs experienced a decline in overall sales from the announcement of the first lockdown measures in March to June 2020, compared to same period 2019. As a result of these measures, the local and international value chains were disrupted, where local SMEs reported a higher decrease in export sales rather than domestic ones, mainly reporting disruptions on supply-side (around 67%).
Pursuant to the implementation of the Economic Recovery Programme by the Government of Kosovo, where EUR 365 million were allocated for supporting businesses and stimulating the demand, the most useful measure was the compensation of monthly employee salaries at minimum wage level. An average of 55% of SME have benefited from the measure. However, regardless of the enacted measures, 65% of SMEs expect a continuation of economic downfall due to COVID-19 even throughout 2021.
In order to continue operations, most of SMEs had to make adjustments in day-to-day activities with regards to health and safety issues and operating capacity. While 53% of SMEs said that their focus was mainly to survive, around 33% said their main goal was to reduce costs which was in most cases done by laying off staff. Digitalization came as a need in the midst of the crisis, as an alternative for continuation of day to day activities. SMEs reported that there is an interest in applying digitalization tools with the main focus on websites, webshops, e-government applications, CRM tools, mobile and e-banking, cloud services, social media and sensor technologies. However, while there is interest in digital adaptation, there are still obstacles faced, mainly related to higher implementation costs, lack of skills, lack of external expert services, including technology suppliers, service providers and consultants as well as lack of data protection.
The COVID-19 crisis has impacted largely the whole private sector in Kosovo, especially the SMEs. While different measures have been taken, the economy continues to be stagnant. Businesses are already looking for new avenues of opportunities in the market, thus appropriate incentives need to be made available to ensure their survival. As SMEs make up the backbone of Kosovo’s economy, the focus should be on them, with targeted digitalization interventions that aim at improving performance, competitiveness and market access.