Small and medium enterprises (SMEs) are significant contributors to the global economy. But, with rising energy costs, many middle-class businesses are beginning to struggle.
In developing countries, SMEs make up about 90 percent of the private sector, creating about 50 percent of the jobs in their respective economies. For instance, about 80 percent of African jobs come from small enterprises. In Europe, SMEs represent 99 percent of all enterprises in the EU. They employ over 80 million people and contribute to over half of Europe’s gross domestic product (GDP).
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However, many small and medium middle-class businesses are struggling from the effects of the coronavirus, the current high energy prices, and the unpredictability of supply and profits. The global energy crisis is causing the biggest pressure on SMEs’ survival.
How are middle-class businesses affected by the energy crisis?
Before we see its impact on middle-class businesses, what is causing the current global energy crisis? And can small middle-class businesses recover from the high energy prices?
Energy prices have increased since 2021 because of adverse weather conditions, high population growth, rapid economic recovery measures after the pandemic, and delayed maintenance work during the coronavirus pandemic. Also, the decision by oil and gas companies to reduce investments led to a limited supply.
In addition, Russia began limiting its gas supply to Europe in 2021, months before it invaded Ukraine. This attack and the following sanctions affected the already limited global energy supply.
So what are the effects of the energy crisis on middle-class businesses?
High energy bills
The most direct impact of the energy crisis is high utility bills. As the energy supply decreases, the demand increases, and so does the price. High energy bills have threatened small middle-class businesses with already tight budgets forcing them to take drastic measures to reduce expenditure. But unfortunately, some SMEs have been forced to close their businesses.
According to the UK’s FSB (Federation of Small Businesses), 53 percent of all small enterprises expect to downsize, stagnate, or close within the following year. Data from the FSB also shows that small middle-class businesses have, on average, seen an increase in electricity prices by a whopping 349 percent since 2021.
With energy bills increasing globally, most middle-class businesses may find it hard to stay afloat.
Difficulty hiring staff
Most middle-class businesses are planning to downsize their workforce if prices continue to increase. This means that it will take a lot of work to hire staff. Also, the increased cost of living means people want higher wages, and small businesses may need to meet the wage threshold.
As the demand for energy increases, energy suppliers may struggle to meet the demand. Low supply of energy forces power cuts which disrupts middle-class businesses. Power cuts affect profits, which is more likely if the energy crisis continues.
Difficulty accessing loans and financing
Most middle-class investors across the globe believe their respective governments need to do more to cushion small businesses. With the rising business costs and the possibility of closures, banks may shy away from lending money to SMEs, which may affect business financing.
Also, many small middle-class businesses use rented facilities. So, more government incentives for landlords could ensure they work with their SME tenants to find cheaper, greener, and more sustainable energy sources.
Interrupted supply chain
The current energy crisis has increased transportation costs, affecting the supply chain. Businesses may have to cope with these costs without increasing the prices for their consumers, who also feel the impact. Also, small middle-class businesses experience late deliveries or none at all. These supply problems can disrupt SMEs and make them lose their clients.
How small middle-class businesses can recover from the energy crisis
The energy crisis has greatly affected small middle-class businesses and households. It’s important to keep companies with good prospects from closing their doors for good. Such an outcome will affect real people, families, and communities, not just the company’s profit or national GDP.
Luckily, most governments have taken measures to help households and small companies. SMEs can also take actionable steps to reduce the negative effects of the energy crisis. These measures include understanding your energy use, introducing energy-saving tech, involving your staff, and good housekeeping and maintenance.
Small middle-class businesses may survive the energy crisis with government support, adequate financing, and personal interventions.