UN Trade and Development (Unctad) has warned that continued disruption of traffic through the Strait of Hormuz threatens to disproportionally damage small and medium-sized enterprises (SMEs) around the world, because of their inability to spread risk across markets and suppliers and to diversify their sources of financing.

Yet SMEs are essential to the global economy. They amount to 90% of global businesses, and are responsible for 70% of global employment and 50% of global GDP.

All scales of business have been hit by the traffic disruption in the Strait of Hormuz, as a result of the dramatic drop in ship transits through it, the concomitant increased (and still elevated) crude oil prices, and increasing bond yields, especially in the emerging economies. But rising costs hit SMEs harder than they do large enterprises, and SMEs in developing countries are affected even more than SMEs in developed countries.

Thus, while in developed countries, 25% of small firms paid more than 2.8% of their total sales for their electricity, and the figure for medium-sized and large firms was 2.6% in both cases, in developing countries 25% of small companies paid 4.2%, medium-sized enterprises 3.5% and large firms 3.7%. The importation of goods by small and medium-sized businesses in developing countries cost more than 100% above the equivalent figures for their counterparts in developed countries – the costs for small firms in developing countries amounted to 19.4% of the value of the imported products, while those for counterpart companies in developed countries were 8.3%. For medium-sized enterprises, the respective costs were 17.5% and 7.8%.

SMEs in all countries faced greater difficulty than large enterprises in accessing finance. In developed countries, 28% of small businesses saw access to finance as an obstacle to their operations, while the figure for their developing country counterparts was 48%. For medium-sized companies, the respective figures were 23% and 42%, and for large businesses, 20% and 38%.

SMEs could also face higher borrowing costs.

Past experience showed that SMEs were more vulnerable to external shocks than large businesses. For example, during the Covid pandemic, 64% of small, and 60% of medium-sized, enterprises in developed countries reported a drop in their sales, with the respective figures for their counterparts in developing countries being 88% and 85%. For large businesses in developed countries, the figure was 58%, and for their counterparts in developing countries, 81%.

Unctad urged policymakers to seek to ensure the continuation and inclusion within the economy of SMEs. Policymakers should increase their monitoring of the trade participation of SMEs during shocks and assess their resilience; ensure that SMEs could access finance, including working capital, trade finance and liquidity; reinforce public support for logistics and trade services, including market information and trade facilitation, as well as reliable and affordable logistics, especially in developing countries; and, facilitate the market participation and resilience of SMEs, including their competitiveness and productivity, and the diversification of their suppliers and markets, especially in developing countries, to encourage innovation, protect jobs, and increase resilience to future shocks.