Covid-19 Insights: International Development & Small Business in Emerging Markets (Part 1)

Randall Kempner, Executive Director, Aspen Network of Development Entrepreneurs (ANDE)

• Current Status: Small and growing businesses (SGBs) are the backbone of most developing world economies. For hundreds of millions, their livelihood depends on these firms. But now that backbone is breaking. On average, these small businesses have less than 6 weeks of cash on hand. The COVID-19 pandemic struck most emerging markets later than China, the US and Europe, taking hold in April. However, as we get toward the end of May, businesses are still shuttered and at grave risk. According to a survey done by ANDE in early April, our members who represent entrepreneurial support organizations estimated that 42% of the firms with which they work were at risk of failing in the next six months.
• Longer-Term Concerns: In the short term (the next two months), we’ll get a sense of how many small businesses actually go bankrupt do to the initial economic hit. Longer term, if only a fraction of these businesses reopen, we could be looking at staggering unemployment rates in developing countries throughout the world. Many African, Southeast Asian, and Latin American countries had official unemployment rates above 15% before COVID-19, with higher percentages for young people. It would not be a good thing for those countries — and the world — to have lots of disaffected young people unemployed for a long time. This type of situation foments revolution and the rise of extremist groups.
• Noteworthy Aspects: Unfortunately, and unlike here in the US, SGBs cannot expect a government bail out to save them. Emerging market governments do not have the wherewithal to do it. Fun (but troubling) fact: the size of the US small business bailout ($660 billion) is larger than the entire GDP of every single African Country. Not one African country has an annual GDP over $500 billion. There is not going to be a meaningful “PPP” for African small businesses.
• Important Variables: One key source of support for these small and growing businesses are capacity development providers that offer training, mentorship, and capital. Such business advice and support are sorely needed in this crisis. And we are seeing efforts to expand them by many global groups. One that has succeeded thus far is Micromentor, which for a long time has offered virtual mentorship services. Another is Youth Business International, which as recently launched an effort with Google.org to drive support via its affiliate organizations to SGBs.
• But so far, there are too few resources going to support these critical intermediaries. As the businesses they serve, they face a cash crunch and the need to alter their business models. If they fail in significant numbers — a real threat — the road to recovery for entrepreneurial ecosystems around the world will be much longer and more challenging.
• Analyst Assessment: Honestly, there is not much optimism to be found in this space. Perhaps at a sector level, where firms in the healthcare delivery and technology space and food production are seeing increased or at least stable demand, things will not be so bad. But it is hard to find silver linings here. At least not yet. For those interested in following COVID-19 impacts in emerging markets, I would suggest following Devex coverage.
• The Ones to Watch: In response to the crisis, several new COVID-19-response collaborations have been forming to drive financial and other resources to the broader social enterprise/impact investing sector. The World Economic Forum has convened forty development organizations in an Alliance for Social Entrepreneurship. The Global Impact Investing Network has launched the Response, Recovery and Resilience Investment Coalition. Business Fights Poverty has created a collaborative Business and COVID-19 Response Centre.
• Personal Note: Representing an organization that is involved in all three of these efforts, I am cautiously optimistic that we’ll be able to drive new insight and resources to the sector. But, even if we do, it may be too little, too late for many SGBs and entrepreneurial support organizations in emerging markets.