Covid-19 Insights: International Development & Small Businesses in Emerging Markets (Part 2)

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

View initial Insight into this topic (published May 28, 2020).

• 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. 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.
• Update: The situation for SGBs in emerging markets has, unfortunately, not improved in the last month. If anything, it has gotten worse. Our research shows that 12% of SGBs supported by our members have failed in the last month, and an additional 37% at risk of failure (compared to 42% before). So, a total of 49% of SGBs is estimated to be failed or ask risk of closing. The capacity development providers that support SGBs in emerging markets are also suffering. According to our survey, about 60% have cancelled programming. Ten percent have laid off staff. Even so, most of these organizations believe that they will be able to weather the corona-storm.
• Longer-Term Concerns: It is not yet clear how many small businesses will 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. Concern about these countries is even greater now than when I last posted. High unemployment rates, especially among young people, are particularly disturbing, as high unemployment among the young can give rise to extremism.
• Noteworthy Aspects: While we have seen some public sector efforts to support SGBs in emerging markets, the magnitude of the need still outweighs the supply of support. There has been a lot of work to identify, classify and map various programs to help entrepreneurs and small businesses, including maps by EY that looks at tax policy, by the World Bank, which is tracking all government programs, and the Center for Social Enterprise at Duke, which is finding any/all funding support programs it can. The COVID resource page at ANDE has expanded rapidly as new efforts have launched.
• 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 it by many global groups. One that has succeeded thus are 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: Unfortunately, I continue to find little reason for optimism for this area. As always, however, I am impressed by the resilience of emerging market entrepreneurs. They have never had much in the way of government support to assist them, and by their very nature, find ways to survive in challenging economic environments. But, with COVID cases spiking in places like Brazil, India and Pakistan, it seems like the challenge will get worse before it gets better — and likely be around for years to come.
• Emerging Players: New COVID-response collaborations are working to drive resources to the social enterprise/impact investing sector. The World Economic Forum has convened 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.
• In addition to these, the Collaborative for Frontier Finance, is making headway in launching a fund of funds that will drive tens of millions of dollars in debt capital to locally-led investment firms in Sub-Saharan Africa. They would then be able to make concessionary loans to hundreds of small and growing businesses who need capital to recover and build ongoing resilience.

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.