Global small and medium-size enterprises (SMEs) are grappling with various economic challenges that threaten their expansion. The primary concerns stem from inflation and geopolitical unrest, with financial-market volatility increasingly becoming a pressing issue.
The impact of these factors is evident in the preliminary 2022 results of our Fast Runner businesses. The impressive growth we saw in 2021 has proven unsustainable in 2022 due to the economic complexities discussed below.
Rising Capital Costs
Efforts to combat inflation have led to soaring interest rates—increasing credit costs and making it more difficult for small businesses to obtain capital. The collapse of Silicon Valley Bank, First Republic, and Signature Bank has far-reaching consequences for lending to SMEs. The ripple effect in the lending ecosystem is already affecting Fast Runner businesses. Our initial 2022 impact data shows the following:
- Diminished credit availability: Financial institutions have adopted a more cautious approach and tightened lending standards, making it challenging for SMEs to access capital for growth, working capital or investment in new projects.
- Escalating Borrowing costs: In periods of financial instability, lenders might raise interest rates or enforce stricter terms and conditions to offset perceived higher risks. Consequently, SMEs may face increased borrowing costs, impacting their profitability and financial well-being.
The ongoing conflict in Ukraine and trade disputes with China have drastically impacted SMEs worldwide. The following are some ways in which these conflicts have affected our Fast Runner businesses:
- Supply chain and operational disruptions: The war has interfered with supply chains, hampering the production and distribution of goods. Additionally, the conflict has driven up energy prices, with electricity costs surging 14.3% in the U.S. and an average of 50% worldwide in 2022.
- Increased costs: The trade dispute has made it more difficult to import goods from China. Several Fast Runners rely on Chinese suppliers for raw materials or finished goods, and the tariffs have increased the prices of those goods.
As a result, our preliminary Fast Runner data indicates a general decline in profits and a 31.5% drop in exports in 2022 versus 2021. Our Skillanthropists are addressing these losses by advising Fast Runners to diversify their supply chains, concentrate on local value chains and explore eco-friendly energy sources.
Technology’s Impact on Job Quality
The rapid progression of technology and AI significantly impacts job quality and the demand for reskilling and upskilling. The following are some critical ways AI affects job quality:
- Reskilling and upskilling: As AI technology evolves, many workers will need to reskill or upskill to maintain their relevance in the job market.
- Increased costs: While AI technology excels at routine and repetitive tasks, it struggles with tasks requiring human interaction and soft skills, such as communication, empathy and creativity. Consequently, these skills are likely to gain importance in the job market, giving workers who possess them a competitive edge
The inevitable influence of AI on job quality and reskilling is substantial and will continue to develop as technology progresses. Workers must adapt by acquiring new skills and maintaining flexibility in the job market. Jobs should not be viewed as commodities but as opportunities for growth.
As job losses mount, it is crucial to embrace and implement the message of the International Labour Organization (ILO) Philadelphia Declaration: Poverty anywhere is a threat to prosperity everywhere. Bpeace and our Skillanthropists play a vital role in offering upskilling opportunities to ensure workers are prepared for the future job market.
As we conclude our 2022 impact analysis, we see persistent indications of growth, innovation and adaptability. Our Fast Runners’ growth will be moderate but is expected to surpass the 3.4% global growth of 2022.
By addressing these challenges and adapting to the ever-evolving economic landscape, SMEs can remain resilient and continue to contribute positively to the global economy.