The Covid-19 pandemic is hurting small enterprises globally. But socioeconomic pressures are particularly severe in developing countries, where resources are limited and economic activity weak, and small business frequently the backbone of growth. The pandemic threatens to throw economies into recession and push tens of millions of households back or even deeper into poverty.
| Small businesses need targeted support in order to survive the pandemic. Photo: ADB |
The pandemic’s impact will be disproportionate in least-developed and small-island developing countries, notably in Africa and in the Pacific, which are especially vulnerable to economic volatility and shocks. Their health systems and economies are less able to cope with challenges, leaving their poor and vulnerable groups at increased risk.
Exogenous trade shocks are transmitted through the global value chain. Large retailers have closed stores, hurting factories and workers locked into just-in-time supply chains in countries including Bangladesh and Cambodia. Many micro, small and medium-sized enterprises are fighting for survival as a result. Yet they must cover salaries, rent, and other operating expenses, debts to financial institutions, and taxes.
Many will see letting go of workers as the best solution. This could transform economic crisis into social calamity. Fortunately, the focus of most businesses for now is on protecting employees, understanding the risks to their business, and in managing supply chain disruptions. This will be important for safeguarding jobs and incomes, preserving financial stability, and to revive growth by minimizing disruptions to trade and global supply chains.
Quick recovery of these businesses can mitigate the most dire consequences. But beyond the immediate recovery, we need to ensure the medium to long-term survival of small businesses by removing impediments to their growth.
The key challenges will be to improve access to finance and investment for small enterprises, give them more freedom to expand into new sectors, and promote their use of new technologies to better connect with producers, suppliers and consumers.
The first challenge is the biggest. Banks are often reluctant to lend due to a lack of market information, concerns about risk, and poor quality loan applications. Unless investors, entrepreneurs, and viable businesses can be financed, opportunities will be wasted and growth potential squandered.
Business laws and regulations can be overhauled to suit the needs of modern commerce. In many countries, starting a business involves high costs and long delays, compromising investment and business growth. This is a key reason behind the large informal labor markets of some countries. Efforts must be made to remove bureaucratic red tape to allow businesses to open and operate as quickly as possible when Covid-19 restrictions are eased.
A second step is to rethink the role of state-owned enterprises to provide extra space for small enterprises to grow. In many countries, state-owned enterprises provide essential services such as power generation, water, sewage, and telecommunications. But they can be inefficient, drain government resources, and generate low returns. Many are monopolies. The pandemic might provide governments with opportunities to allow micro, small and medium-sized enterprises to provide some of these essential services.
In tandem, competition and consumer protection frameworks can be improved, especially in markets where participation of governments may be extensive and a few firms dominate key sectors. This reduces consumer choices, keeps prices high, and constrains small businesses. Better consumer protections would reduce the scope for price controls and gouging, which distorts markets and impacts heavily on consumers.
A priority is also to give women the tools to realize their potential to run businesses, broadening avenues to contribute to community welfare and economic growth. Female-led businesses can be encouraged through training in business processes, access to finance, and addressing customary practices that favor men over women. To promote female entrepreneurs in Armenia, for example, such programs resulted in more business registrations by women, improved skills, and better access to finance, while financial institutions were guided on hiring more female loan officers.
Finally, small businesses can be supported to reinvent their business models using new technologies.
A potentially promising sector is health care, currently a global priority as the world battles Covid-19. Instead of having to travel to the nearest major city to see a specialist, tele-health platforms provide virtual diagnosis, treatment, preventive and curative services, as well as training for health care professionals in areas such as epidemiology and pandemic influenza risk communication. These services are becoming indispensable and seem tailor-made for micro, small and medium-sized enterprises with sufficient expertise and capital.
Support for the agriculture sector innovations can provide further fertile ground for these businesses. Already, small-scale farmers are using innovative technologies and practices to raise yields, manage inputs more efficiently, introduce new crops and production systems, and enhance product quality. With well-targeted support, such practices can be crucial to business survival in the current crisis.
For instance, governments can invest in satellite-based earth observation technology to provide smallholder farmers with continuous data on land and water resources. Satellite information on water levels and weather forecasts can help smallholder farmers reduce water stress and consumption while raising yields by as much as 200%–250%.
Tailoring these approaches to specific country circumstances could help save millions of livelihoods in poor communities and fortify economies against future shocks.
Lotte Schou-Zibell is Regional Director, Pacific Liaison and Coordination Office (PLCO), ADB.
