Syrian SMEs in Times of COVID-19 Pandemic: Challenges, Adaptation, and Policy Measures

Abstract

SMEs constitute the backbone of the Syrian economy and have suffered manifold challenges due to the continuous Syrian war. COVID-19 added further pressures on Syrian SMEs and forced them to take certain adaptation strategies to survive. This paper aims to investigate the main challenges that face Syrian SMEs during the pandemic and illustrate how they respond to adversities that emerged from governmental intervention to control the spread of the virus. It also discusses the measures initiated by the government to support SMEs during the pandemic. Through interviewing persons from the Syrian SMEs’ ecosystem, we find that high interest rates on SMEs’ loans decline on demand as well as high inflation represent the main challenges. SMEs respond to these challenges by marketing products online, stock procurement, and strengthening connections with stakeholders. We recommend the Syrian authorities reduce lending rates and increase loan sizes available to SMEs to help them overcome the pandemic adversities. Innovative sources of funding, such as venture capital and equity partnerships, could reduce the funding costs of SMEs. Moreover, SMEs will immensely benefit from training in digital tools to enhance their expansion and survival opportunities. Furthermore, bazaars should be organized during the year to give SMEs the opportunity to gain continuous access to markets. In addition, incubation services should be revised, particularly to SMEs with great potential to grow, to create the suitable environment for them to scale and flourish.

1. Introduction

The COVID-19 pandemic is the largest operational risk event in recent history and has stress-tested large corporations and SMEs alike. However, this pandemic reached Syria in a very difficult time where Syrian SMEs had not yet recovered from the consequences of a long war with its accompanying economic and financial downturn. This pandemic has not only represented a major threat to Syrian SMEs but also created many opportunities and caused radical changes to the dynamics of the Syrian SME sector. Altough SMEs’ failure has negative spillovers to all parts of the economy, the adverse consequences of such failure may exceed its economic side to social and political unrest.

The spread of this pandemic in Syria was late compared to other countries in the region, such as Lebanon, Jordan, and Iran, with the first laboratory-confirmed COVID-19 case reported on 22 March 2020. The number of daily confirmed cases peaked in November 2021 to 520 cases according to John Hopkins University CSSE COVID-19 data with total confirmed cases of 57,406 in December 2022 (Ministry of Health 2022). However, limited resources and testing capacities due to war and sanctions question the accurateness of such figures and suggest that many cases may go unreported (Al Ahdab 2021).

The pandemic has added further challenge to the multiple challenges which Syria is facing due to the manifold crisis and has caused further decline of economic and social indicators, particularly the total estimated GDP decrease of 9.15% during 2019 and 2020. Meanwhile, the inflation rate increased between June 2019 and June 2020 by around 85% and the average of workers in the micro, small, and medium enterprise sector, which is considered a job generating sector and a driver of economic recovery, decreased (United Nations 2022).

Most firms and governments around the world assumed that this pandemic would be virulent and burn out within a few months. However, the death toll and the consequent lockdowns and curfews to combat the transmission of the virus pose significant threats to the business sector and particularly to SMEs. Varying economic intervention measures were used by different countries to tackle the consequences of the quarantine but largely fell short to mitigate the pandemic damage.

Prior evidence on the impact of crises and pandemics on SMEs is documented in many articles. However, the special Syrian SMEs’ environment and the multiple adverse conditions of both the Syrian conflict and COVID-19 pandemic make the Syrian environment both turbulent and unpredictable and constitutes an interesting case study for research and investigation. Hence, this study bridges this gap and provides insight into intervention and adaptation to multi-crisis conditions. Moreover, SMEs are expected to play a pivotal role in the Syrian reconstruction process. Therefore, it is necessary to explore their impediments and success factors to ensure their active participation in the reconstruction process. Furthermore, previous studies survey SMEs on the challenges and adaptation measures they take to cope with the pandemic. However, we also survey other stakeholders in the Syrian SME ecosystem such as microfinance institutions, banks, and public authorities to reach a full understanding of these issues.

The aim of this article is threefold. First, we are interested in determining the forms of adversity facing Syrian SMEs due to the pandemic. Second, we aim to understand what coping strategies SMEs employ to adapt to the new environment created by the pandemic. Third, we want to identify and evaluate the government intervention measures designed to support SMEs during the COVID-19 crisis. This is central to develop appropriate interventions to protect SMEs from the consequences of similar lockdowns and to alleviate the effects of future crises.

The remaining sections are organized as follows. Section 2 will discuss the current situation of SMEs in Syria and illustrates the constituents of the Syrian SMEs’ ecosystem. Section 3 reviews the literature on the challenges that face SMEs during crisis times, their coping strategies, and government interventions to alleviate the crisis adversities. Section 4 explains the research methodology. Section 5 presents the results and Section 6 concludes and advances recommendations.

2. The Situation of SMEs in Syria

SMEs represent the backbone of the Syrian economy with over 99 percent of businesses classified as SMEs (Syrian Central Bureau of Statistics 2020). While SMEs drive innovation and competitiveness in many countries and represent 44 percent of the US economy (Kobe and Schwinn 2018), Syrian SMEs concentrate on agriculture and handicraft businesses and lack innovation capabilities. Such a situation is similar to the status quo of SMEs in many emerging countries where SMEs fail to progress into large companies and continue to marginally contribute towards exports.

In 2000, unemployment reached 9.6% (World Bank 2000) which was concentrated among the youth as 80 percent of the unemployed were under 30 years old with no previous work experience (Harb 2006). This situation encouraged the government to establish the General Commission for the National Project of Fighting Unemployment to combat unemployment. This Commission was linked with the Ministry of Planning. This Commission was later dissolved, and a new Commission called the Commission of Employment and Project Development was established in 2016 that was linked to the Ministry of Social Affairs and Labour. This commission was later dissolved in 2016 with the establishment of the Small and Medium Enterprises Development Commission (SMEDC) that is linked to the Ministry of Economics and Foreign Trade (Sirop 2018).

Alasadi and Abdelrahim (2008) examined the performance of Syrian SMEs before the war. They found that the primary source of capital for Syrian SMEs was personal savings and this overreliance on personal savings could be attributed to limited financial sources. Such overdependence on personal savings means that those SMEs have fewer financial obligations particularly in crisis times, but it also means that they have limited capacities and grow slowly.

The Syrian SMEs working in the software industry have long suffered from Syria’s limited domestic market (Ibeh and Kasem 2011). However, their numbers increased during the war due to offshore services capitalizing on their relatively cheap labor, high revenues, and no governmental control on IT exports. Their contributions to Syria’s national exports are uncounted because they do not usually declare their sales.

A report prepared by IFC (2008) on evaluating the microfinance market in Syria indicates that there is a gap between credit supply and demand for micro and small businesses as only 15 percent of these businesses succeed in obtaining loans. In addition, a survey conducted on 50 Syrian SMEs indicated that obtaining funds is the main obstacle that face SMEs with 76.6 percent of SMEs struggling to obtain funds (Sirop 2018). Alnafrah and Mouselli (2020) emphasized the important role of SMEs in the transition to a knowledge-based economy in the post-conflict period and stressed the need to provide them with all financial facilities.

Osman (2021) examined the Syrian microfinance market in Syria pre- and post-conflict. He pointed out that there were four main microfinance companies that specialized in offering funds to SMEs. One of the most important companies was the European Investment Bank which was active in supporting microfinance institutions in addition to SMEs before the Syrian war when it halted all its operations. The three other institutions which remained active during the war period were Agha Khan Microfinance, the National Institution for Microfinance (Al Watanya), and Ibdaa Bank Syria for Microfinance.

The issue of presidential decree No. 8 in 2021 permits the establishment of Microfinance banks to further support SMEs and empower them with extra funding. Agha Khan Microfinance and Al Watanya became banks and one additional bank, Banque Bemo Saudi Fransi Microfinance, has been established on the basis of this decree. However, despite the five-year exemptions of these banks from taxes and many other fees, their interest on loans offered to SMEs reach 18% with a maximum of 5 years. Although the Loan Risk Guarantee Company (LRGC) was established in 2016, it only started guaranteeing loans in 2022 due to bureaucracy and other complications. This left Syrian SMEs stranded and put further constraints on their funding. The share of the SME loans as a proportion from total loans and facilities represents only 4% compared to 8% in Arab countries and 18% in middle-income countries. Bank loans covered 8% of the financial needs of the Syrian SME sector until 2018 (Sirop 2018). Figure 1 depicts the ecosystem of SMEs in Syria.

3. Theoretical Background

A number of theories can be used to explain the survival and resilience of SMEs during the pandemic. The theory of business survival argues that small firms will survive as long as they have a positive net profit (Allchin 1950). However, this theory fails to accommodate the pandemic conditions when net profit turns negative, and businesses are closed. Hence, Assefa and Yadavilli (2020) proposed a new small firm survival theory that addresses the situations where profit becomes negative. According to this new theory, small businesses survive the pandemic as long as the ratio of cash reserves to fixed costs is greater than one.

The institutional theory provides a framework for firms’ access to finance. It argues that firms’ access to finance is governed by the rule, regulations, and institutions at which the firm is subject to (Sherer et al. 2016; March and Olsen 1984; Dimaggio and Powell 1983). In particular, the coercive institutional isomorphism argues that external organizations exert formal and informal pressures on SMEs and limit their access to finance.

Regarding SME resilience, a number of theories are advanced to explain SME resilience during the pandemic. According to contingency theory, there is no best way to run a firm and make decisions. Instead, a firm should align its resources and strategies contingent on the internal and external situations (Lawrence and Lorsch 1999). However, the Resource-Based Theory (RBT) argues that firms adapt to difficult situations by holding valuable and inimitable resources and capabilities (Barney 2001; Ali et al. 2018). In an extension of RBT, Sirmon and Hitt (2009) proposed Resource Orchestration Theory (ROT) and argue that the mere holding of these resources is not enough unless these resources are effectively managed.

Rauch et al. (2009) argued that Entrepreneurial Orientation (EO) explains how SMEs survive during a crisis. EO may be manifested in three dimensions: product innovation, proactiveness, and risk taking. However, EO does not explain the managerial actions to counteract the crisis. ROT, on the contrary, stresses how management mobilizes resources to build capabilities.

Le Nguyen and Kock (2011) suggested chaos theory as a potential explanation for the survival of SMEs during a crisis. They argue that when a firm is pushed to the edge-of-chaos area, as it happens during the COVID-19 crisis, they show their maximum creativity and innovation in responding to the crisis. Hence, the chaos environment surrounding SMEs, which is created by COVID-19, is expected to encourage them to take extraordinary measures to cope and overcome the new conditions.

During a crisis, SMEs are forced to take strategic decisions about allocating resources to exploitation, exploration, or both. Kitching et al. (2009) grouped these adaptation strategies into three main coping strategies of SMEs: retrenchment strategies (cost-cutting operations and harvesting non-core businesses), investment strategies (innovation and diversification), and ambidextrous strategies (mixing retrenchment and investment).

Dolz et al. (2019) demonstrated that SMEs employ ambidextrous strategies that are proficient in transforming and reconfiguring themselves. Hence, their aptitude for quickly seizing opportunities and reassigning their scarce resources sustains their agility in contending with unpredictable circumstances. Rani et al. (2019) found that efficient resource mobilization and “resourcefulness” are winning practices during a crisis. Giunipero et al. (2022) argued that SMEs adopt a mixture of OE and ROT by taking forward-looking actions while restructuring their resources portfolio to reduce costs.

To thoroughly cover the relevant literature of the article, we will design the literature review around three main topics. The first topic is related to the challenges that face SMEs during crisis times and particularly during the pandemic. However, the second and third topics are related to the adaptation strategies deployed by SMEs to counteract the pandemic adversities and the intervention measures advanced by the governments to alleviate the crisis consequences.

3.1. Challenges Facing SMEs during Crisis Times

The literature on crisis management identifies disturbed structures, routines, and capabilities as three channels at which turbulence affects businesses (Williams et al. 2017). Basel II states that operational risk arises from processes, systems, people, and external factors (Girling 2022). However, many businesses fail to recognize threats such external shocks entail and thus are slow to adapt to new conditions (Muñoz et al. 2019).

SMEs are characterized with lower resources and a lack of established business models which make them vulnerable to internal and external shocks (Eggers 2020). The prior evidence from natural disasters, such as hurricane Katrina, shows that small businesses are financially vulnerable to interrupted cash flows and have limited access to funds for recovery as well as critical infrastructure problems (Runyan 2006). Sultan and Sultan (2020) found that COVID-19 negatively affects the production and turnover of Palestinian women’s MSMEs.

Bourletidis and Triantafyllopoulos (2014) reviewed the evidence on the situation of SMEs during a crisis and argued that SMEs suffer disproportionally during a crisis. Most SMEs suffer from a decrease in demand (Papaoikonomou et al. 2012) and tightened credit conditions (OECD 2009) during crisis time, especially as they have limited financial resources and depend on bank loans (Mulhern 1996; Domac and Ferri 1999; Özar et al. 2008). In addition, SMEs tend to be over-dependent on a limited number of customers and suppliers (Nugent and Yhee 2002) and markets (Butler and Sullivan 2005; Narjoko and Hill 2007; OECD 2009), which make it harder for them to maintain their businesses during a crisis.

3.2. Financing the SMEs

There is also a growing body of literature on how the pandemic affects the financial positions of SMEs. Fairlie and Fossen (2022) and Bloom et al. (2021) presented that businesses suffer significant declines in sales around the pandemic outbreak, with SMEs being disproportionately affected by the outbreak. Bartik et al. (2020) found that 43% of US small businesses were temporarily closed due to the pandemic with a huge decline in employment. Didier et al. (2021) stated that the economic downturn triggered by the pandemic and its consequences are drastically different from previous crises.

SMEs are generally perceived by banks as risky lenders and they are reluctant to offer them loans, particularly during a crisis where their riskiness is considered even higher Piette and Zachary (2015). Lee et al. (2015) argued that credit conditions become tighter to innovative SMEs during crisis times compared to their non-innovative counterparts.

Gourinchas et al. (2021) argued that credit contraction poses a significant risk to SMEs, and it would disproportionately impact firms that could survive COVID-19 in 2020 without any fiscal support. On the other hand, focusing on the COVID-19 policy response in Germany, Dörr et al. (2022) revealed that government interventions helped to postpone the SME insolvencies that are particularly pronounced among financially weak and small firms. Kaya (2022) illustrated that SME insolvency risk increased in the Euro area by around 28% during the pandemic.

3.3. SMEs Adaptation Strategies

The smallness and newness of SMEs represent an opportunity as they seem more flexible and adaptive to new conditions (Durst et al. 2021; Branicki et al. 2018; Bourletidis and Triantafyllopoulos 2014) as they are less exposed to sunk costs (Tan and See 2004) and can quickly exploit market niches (Hodorogel 2009) and are less dependent on bank credit (Ter Wengel and Rodriguez 2006). SMEs develop alternative marketing strategies and innovative tactics to crisis adversity conditions (Briozzo and Cardone-Riportella 2016; Gregory et al. 2002). Market segmentation is one of the tactics that SMEs use to adapt to crisis conditions (Shama 1993).

Hong et al. (2012) argued that SMEs show resilient market responses to crisis conditions despite their resource constraints and relatively weak market positions. Bourletidis and Triantafyllopoulos (2014) highlighted five adaptation strategies that Greek SMEs use during a crisis such as the product reengineering process, enriching products to accommodate new habits, price fixing, stock procurement, and strengthening connections with stakeholders. D’Amato (2020) found that SMEs significantly reduced their debt, especially their short-term loans, relative to the pre-crisis period.

The emergence of new technologies brings together both opportunities and threats to SMEs (Roy et al. 2018). On the one hand, once new technologies and processes become more pervasive, they disturb older technologies and business models. If SMEs manage to quickly adapt to these changes and improve their processes, they will survive and prosper or otherwise witness a decline in their business and face the risk of closure and bankruptcy.

Digital transformation is a difficult decision any business may make but it becomes particularly challenging during a crisis (Khurana et al. 2022). One of the main emerging trends during the pandemic was that many SMEs went online to solve the problem of reduced demand and to create opportunities. Sultan and Sultan (2020) argued that Palestinian women’s MSMEs used social media to promote their products and compensate for the lost sales due to the pandemic. Engidaw (2022) argued that the internet provides a lifeline for many SMEs and helped them stay alive during the pandemic.

3.4. Government Intervention Measures

Governments around the world released massive stimulus packages to combat the adversity COVID-19 causes to economy in general and to SMEs in particular. Gourinchas et al. (2020) studied the government intervention measures and potential SME failures during the COVID-19 crisis in seventeen countries and showed that around 9% of SME failures were prevented with government interventions.

The UK government, for example, has introduced the coronavirus business loan scheme to help SMEs access loans and funds up to GBP 5 million (Fatouh et al. 2021). In this program, the UK government guarantees 80% of the loan and pays interest and any fees for the first 12 months.

Kuckertz et al. (2020) analyzed the policy measures called for or implemented in 40 countries to support SMEs and startups during the COVID-19 crisis. They found that 63.41% of the countries have announced policy measures to specifically meet the needs of SMEs. They indicate that these measures range from low-interest loans, a cut in interest rates, payment delays, tax relief, wage subsidies, training programs, and direct payments among others.

4. Materials and Methods

Our research methodology consisted of two stages. In the first stage, we identified stakeholders involved in the SME ecosystem in Syria. Then, we contacted each stakeholder to nominate a person to communicate and hold an interview with regarding our research topic. The vast majority of stakeholders nominated the director or the vice-director for the interview, while others nominated the public relations directors. Interviewing high-ranking officials had the nature of an expert panel because they were themselves responsible for implementing the governmental interventions and they engage directly with SMEs.

Regarding SMEs, LRGC provided us with a database of SMEs that had contacted LRGC for funding, whether granted or not. Interviews were conducted on a volunteer basis after an announcement from the researchers to SMEs in the LRGC list. A total of 20 SMEs directly welcomed the participation in the interviews. A saturation sampling strategy was adopted in this study. That is, adding participants stops when additional data do not provide any marginal change in the core categories or the relationships (Bhattacherjee 2012). Researchers prefer small sample sizes in qualitative research because a phenomenon needs only to appear once to be part of the analytical map. Guest et al. (2006) argued that data saturation can occur within the first 12 interviews. Nonetheless, Creswell (1998) suggested 5–25 interviews. In this study, the saturation was reached after 15 interviews: 9 with SMEs and 6 with stakeholders from the SMEs’ ecosystem. This number of interviews was restricted by difficult travel conditions and ensured diversity in terms of the type of activities (agriculture, food processing, etc.) they carry out and the region they work in. The SME representatives who replied came from various SME sectors: two from the food preparation sector while the other seven belong to diversified sectors. Those SMEs also cover the whole country: two from each of Homs, Tartos, Lattakiah, and the Damascus countryside, and one from Dier Alzour. However, the number was within the accepted range suggested by scholars.

The second stage was the implementation of the interviews. The interviews were conducted in the form of face-to-face interviews or telephone conversations. Semi-structured interviews were conducted with stakeholders playing different roles in the Syrian SMEs’ ecosystem (i.e., SME managers, resource providers, and connectors, see Kuckertz et al. 2020; Brown and Mason 2017). Saunders et al. (2009) argued that this type of interview is suitable when the planned study contains an exploratory element, which is the case of this study. Interviews were held in Arabic which were then translated into English and translated back into Arabic to double check their accuracy. Appendix A illustrates the number, role, sector, and province of each participant.

The aim of the interviews was to gain insights into the adversity SMEs face during the pandemic and how they cope with the pandemic adversities, and enabled the establishment of a correct analysis of policy measures. The following questions were asked:

• What were the challenges that your SME faced during the pandemic? Were there any opportunities that emerged from the pandemic?
• How did you cope with adversities that were caused by the pandemic? Have you developed any new strategies, products, and/or processes?
• Did the government play any role to counteract the pandemic adversities? How do you evaluate these intervention measures?

To understand and analyze the content of the interviews, we made a transcription of the 15 interviews. Then, a coding strategy for each interview was individually adopted, resulting in several themes based on Stake (2006) recommendations. To clarify and illustrate the outcomes of the study, we examined the similarities and differences amongst the 15 interviews.

5. Results and Discussion

In order to uncover the challenges that are facing SMEs during COVID-19 and their adaptation methods, as well as the governmental intervention to reduce the impact of the pandemic on SMEs, a detailed description of Syrian SMEs responses to these issues is listed below. The names of respondents in the quotations are anonymized for privacy reasons.

5.1. Financing Challenges

Financing challenges represent a set of challenges that are related to securing funds from different sources to keep the SME alive and fund SMEs’ projects and activities. Sirop (2018) argued that Syrian public and private banks are reluctant to give loans to SMEs due to their high credit risk and because they are unable to provide the collateral large borrowers usually provide. For example, one of the requirements to offer SMEs loans is that the beneficiary should contribute 50% of the investment costs while banks offer the remaining in loans and this is difficult for SMEs. On the other hand, Microfinance banks offer small loans (SYP 5–20 million) with interest rates of around 18% but such loans were not enough to start a micro business.

R11, who works for the Real Estate Bank, supports Sirop’s (2018) claim and said:

The Real Estate Bank does not give special treatment to SMEs. They have to apply for loans like other customers. However, they can benefit from interest reductions offered by the Export & Production Support & Development Agency (EPSDA) for up to 7 percent through the Commercial Bank of Syria […].

One of the main financial challenges that face SMEs is related to the relatively high cost of loans. R1, who runs an agricultural pharmacy, stated:

I obtained a 5 million loan which I had to return 9 million. This is very expensive for me. Also, I was mandated to pay for money transfer fees for each instalment because there are no banks close to where I live. This makes the loan’s cost even higher […].

R3, who runs a restaurant, obtained a loan from Al Watanya in 2017 and repaid it in 2020. He said:

[…] I needed another loan to overcome the pandemic adversity but I know I will not be able to pay it back because of the high interest rates.

R4, who used to run a number of schools’ cafeterias, received two loans to establish and expand his business. He explained:

After the pandemic, interest rates become very high. Also, school closures because of the pandemic hit my SME very hard. I lost my capital and I had to stop my business and return to my small-town herding sheep […].

R14, who works for Al Watanya, defended the high interest rates. She said:

Al Watanya, like other banks, has high operational costs that should be covered. However, Al Watanya is lenient on collateral. It is acceptable that the borrower provides us with a reference letter from the Mayor “Muokhtar” among other proofs to receive the loan.

R6 added another challenge that is related to the small amount of loans. He argued that such small amounts are not enough to cover his SME needs:

[…] The current ceiling of loans is not suitable to my business. I run a mill and my financial needs amount to hundreds of millions. Particularly with the devaluation of the Syrian currency, a loan of 5 million Syrian pounds is far less that what my business needs.

However, R13, who works for one of the main microfinance institutions, Ibdaa, explained that the ceilings on loans provided by banks to SMEs are set by the Central Bank of Syria and depend on banks’ capital. R13 said:

[…] The Central Bank of Syria puts a ceiling of 5 million Syrian Pounds on Microfinance Institutions until they increase their capital. Al Watanya can provide larger loans because their capital is larger.

R2 also criticized the length of time and collaterals that are needed to obtain the loans. R2, who runs a chicken farm, elaborated:

[…]I could not get a loan for my agricultural project because the land, which I work in, is still on my father’s name who recently passed away. I do not have other collaterals.

Another challenge is related to public and private banks’ reluctance to provide loans to SMEs. Othman, who works for LRGC, stated:

LRGC received hundreds of phone calls everyday from SMEs asking for loans. LRGC personnel transfer them to public and private banks whom LRGC signed agreements with. Unfortunately, some of these banks are perceiving them as risky customers and they are not really cooperating with them […].

One additional challenge is related to the very expensive energy costs. R8, who runs a food preparation business, explained:

I need cooking gas and raw materials to prepare the food. However, their prices change continuously and become very expensive […].

The results from previous quotations support the institutional theory argument where institutions and regulations adversely influence Syrian SMEs. Such negative influence can be summarized in two veins. First, high interest rates on loans offered to SMEs and small loan sizes adversely affect SMEs’ performance. Second, the absence of venture capital firms that financially support and mentor SMEs keep them struggling to survive. If we add the high inflation rates that resulted from the prolonged Syrian conflict to the previous constraints, we understand the root causes of SMEs’ high operational costs which make them struggle to survive.

5.2. SMEs’ Adaptation Strategies

The challenges that SMEs face during and after the pandemic force them to develop certain adaptation strategies to overcome the adversities. Globally, the supply chain disruptions and the lockdown caused shortages in many items and goods (Ali et al. 2021) and resulted in a sharp increase in their prices. R3 illustrated:

[…] The goods and raw material costs rocketed during the pandemic. My capital enables me to purchase quarter the goods I used to purchase before the pandemic. Also, there was a short in supply of many goods due to supply chain disruption.

He explained one of the adaptation tactics he applied. He said:

I had to keep my eye on goods’ prices and order more goods than what I really need to avoid any stoppage that may occur due to shortages in goods availability […].

In fact, this strategy is consistent with the Greek SMEs’ adaptation strategies of stock procurement and strengthening connections with stakeholders mentioned by Bourletidis and Triantafyllopoulos (2014). It also agrees with both theories, CT and RBT, where SMEs collaborate with suppliers and realign resources to ensure continuous supply of goods at reasonable prices.

In the same vein, R15, who works for one of the Social Care Associations that financially support SMEs, said:

[…] One of the SMEs in the sewing sector change its production line from clothes to face masks to respond to the sharp demand for face masks. Other SMEs shift to produce disinfectants and sterilizers to accommodate market needs.

R15 elaborated that SMEs working in the food-preparation (Mouneh) sector were hit the most by the pandemic because their consumers are restaurants which were forced to close during the pandemic amid lockdown measures. They moved online to counter this adversity. He said,

[…] Those SMEs started to market their products online, particularly using Instagram. Some of these SMEs applied for loans to buy high precision camera to take pictures of their food products and upload them on the net and expanded their customers to include households. This change in market segment continues after the pandemic and becomes part of their marketing strategy.

He believed that social distancing created opportunities for some SMEs working in the delivery business too. He explained:

A few SMEs applied for loans to buy electricity bikes to deliver goods and food. Such business flourish during the pandemic. One of the SMEs has developed an application that gives customers the option to order and deliver fast foods or just to deliver them […].

One of the adaptation strategies was to precisely calculate the costs and reprice products. R7 explained:

I run a textile company that produces clothes. My business was affected by inflation and reduction in demand. I had to consult experts to measure my costs correctly and reprice my products […].

He also turns to social media to sell his products which is consistent with Engidaw (2022). He said:

Digitalization benefited my business and helped it to survive and flourish because I started marketing clothes through social media […].

R8, who runs a food-preparation business also benefited from social media platforms. She explained:

Social media contributed significantly to my business success. I use social media to market my food products […].

However, R9, who works in the same sector, believes that social media marketing was not so fruitful to her business. She said:

[…] I participated in a number of exhibitions organized by SMEDC to present and sale SMEs’ products. They were more rewarding and resulted in more sales than social media platforms. The only problem with these exhibitions is that they are mainly organized during summer. I think they should be available all around the year to ensure continuous sales of SMEs’ products.

R8, on the contrary, is unhappy with these exhibitions. She elaborated:

The transportation costs are very high to participate in these exhibitions. I prefer social media […].

The above-mentioned adaptation strategies are in line with the theory of business survival where SMEs act to reduce their costs and increase their turnover. In addition, the change in production lines, the use of apps and social media to market products, as well as participation in bazaars are consistent with contingency and chaos theories. Furthermore, stock procurement and strengthening connections with stakeholders are consistent with ROT.

5.3. Government Intervention Measures

The Money and Lending Council issued Rule 25 on 26 March 2020 that allows banks to postpone all due payments on borrowers who have been affected by COVID-19. It also permitted banks to maintain the credit rating of those customers and give them an extra 90 days to pay their due payments without charging them fines or additional interest. A presidential decree was issued on 31 May 2020 that extended all official deadlines to pay taxes. However, the Central Bank of Syria issued a rule on 15 June 2020 that required banks to stop giving any type of loans in order to reduce banks’ risks and allowed the rescheduling of already granted loans for two years (Mouselli and Mohialdeen 2021).

One of the government interventions to support SMEs during the COVID-19 outbreak was the interest subsidy program where SMEs were granted loans with a simple interest of only 4% interest. This program was initiated in July 2021 and has identified certain businesses, including SMEs, as potential beneficiaries such as those working in producing the components of alternative energies, dairy products, textile industries, and electricity and electronic industries among others.

R12, who works for SMEDC, clarified that the main beneficiaries of the interest subsidy program were large businesses. He said:

[…] Large businesses have more chance to be subsidized by the program. Only 40 to 50 SMEs benefited from this program. Large businesses have no problem providing collaterals and therefore they are treated preferably.

In order to resolve the funding problems that face the SME sector, the government has issued legislation to establish LRGC to empower SMEs by providing guarantees to loans offered to SMEs for up to 75 percent of the loan value. However, this company remained dysfunctional until September 2022 when it started signing agreements with private and public banks to guarantee loans offered to SMEs by these banks. However, the reluctance of public and private banks to offer SMEs loans minimizes the expected benefits from LRGC.

R10, who works for the LRGC, explained:

[…] Since September 2022, LRGC has guaranteed 18 loans to SMEs with a total loan value of 3 billion Syrian pounds and a guaranteed value of 800 million. LRGC charges 1.5 percent of the guaranteed value and it is up to the bank to bear this charge or to transfer it to the borrower. LRGC refer SMEs to banks but they seem reluctant to give loans.

R5, who runs a repair shop, said:

The government role during the pandemic was mainly distributing face masks and disinfectants. No other direct intervention was noticed […].

6. Conclusions

Syria is one of the lowest income countries that has been struggling with the war consequences of high inflation and energy shortages as well as conflicting developmental priorities because of limited financial resources, weak institutional capacity, and poor policies (Alnafrah and Mouselli 2020). We found that the limited funding sources of SMEs and strict loan conditions fail to create the suitable environment for them to scale and flourish and to succeed and sustain growth. The current regulatory and financial environment will constitute a constraint toward activating SMEs’ role in the post-conflict period.

Our results indicate that Syrian SMEs were financially fragile and deeply affected by the pandemic. Moreover, we found that SMEs, which adapt digital solutions, were more resilient and were less likely to default than their noninnovative counterparts. Furthermore, innovative SMEs did not face issues finding customers during the pandemic. More importantly, SMEs continued to struggle securing funds from the banking sector and saw their access to funds actually decline during the pandemic. Put differently, banks declined credit to SMEs during this period because they were afraid of the impact of defaults on their balance sheets.

The main takeaway from our study is that the pandemic creates opportunities to innovative SMEs even in these turbulent times. Although the majority of SMEs experienced a decline in demand and sales, some SMEs experienced increased demand and sales, especially those related to health and hygiene products. We found that many Syrian SMEs that demonstrated flexibility in their business models were successful in turning crisis-induced diversity into opportunities.

Certain innovative measures should be considered by SMEs to overcome the multi-adversities caused by both the Syrian conflict and COVID-19. We recommend Syrian SMEs reduce their dependency on loans and increase their equity partnerships to lower their financing costs and increase their resilience. Moreover, we encourage Syrian SMEs to benefit from the digital revolution to market their products not only to Syrian customers but also to customers from the neighboring countries. This will generate more sales and continued streams of cashflow that will help Syrian SMEs to survive. SMEs may also consider strengthening their collaboration with each other to save the transportation costs and other similar costs related to participation in bazaars.

We argue that certain policy measures should be implemented to mitigate SMEs’ liquidity shortages and to promote innovation to avoid unnecessary insolvencies. First of all, the Central Bank of Syria should encourage public and private banks to give larger and cheaper loans to SMEs. Second, more emphasis should be directed towards long-term measures and consistent policies that focus on innovative responses, particularly those based on digital marketing, and train SMEs on issues related to crisis management and preparing business continuity plans. Third, there is an immense need to establish venture capital firms to provide seed capital especially to innovative SMEs that show expansion potential. Fifth, SMEDC should organize bazaars and exhibitions during the year to help SMEs gain easy access to markets and cover or reimburse the transportation costs of SMEs. Local authorities may consider dedicating certain areas in each locality for SMEs as temporary locations for SMEs to market their products. Finally, more efforts should be directed towards SMEs with great potential for growth and particularly in niche sectors such as the knowledge-based sector.

Future research may evaluate the effectiveness of different policy measures undertaken during the pandemic on SMEs and differentiate between sectors. Our study is based on interviews conducted with people who represent the Syrian ecosystem for SMEs. We recommend that future studies use different methodologies, such as questionnaires, to gain further insights into the challenges that face SMEs during the pandemic. It will also be important to follow up on the best practices and success stories of SMEs that cope with crisis to transfer this experience to other SMEs and make them better prepared for future comparable events. This may constitute an important avenue for future research.