In emerging markets, the COVID-19 crisis presents an even greater economic challenge than in the United States. The American economy was the strongest in the world before the crisis. Even now, under widespread stay-at-home orders, US unemployment has risen to only 20%, whereas most emerging market countries started the year with formal unemployment rates well above 20%.
In these nations, governments are also implementing stay-at-home orders and enforcing quarantines. Businesses, here and abroad, are shuttered. In response to the pandemic, the U.S. Congress has now approved $660 billion in support to American small businesses, an amount greater than the annual gross domestic product of all but a few large developing countries. In fact, there is not a single African country with an annual GDP above $500 billion.
Suffice it to say, developing countries are not in a position to offer a comparable financial bailout to their business communities. Yet small and medium businesses play as important a role in emerging market economies as they do in the United States. Without the jobs, products, and services provided by these firms, developing countries face a potential economic and social catastrophe.
The Aspen Network of Development Entrepreneurs (ANDE) is a global network of almost 300 organizations that support small and growing businesses (SGBs) in emerging markets. We recently conducted a survey of our members to understand their perspective on the immediate impact of the COVID-19 pandemic on SGBs. The responses are deeply concerning. Our members estimated that 42% of the businesses they support were at high risk of failing within six months – and this was as of early April when COVID-19 had not yet taken hold in much of the developing world, indicating that these figures are on the conservative side.
Despite their own fears about the future, entrepreneurial support organizations in emerging markets are mobilizing to support SGBs. They are pivoting quickly to rapid response mode and finding multiple ways to support businesses in need, from moving programming online to sourcing additional funding.
In South Africa, Innovation Edge, an incubator and investment platform, created a COVID-19 Early Childhood Rapid Response Fund to support organizations with technologies to help youth during the crisis.
In India, C-CAMP, a Bangalore-based business accelerator, convened partners to launch the COVID-19 Innovations Deployment Accelerator (C-CIDA) in late March, aiming to find and support innovations that are ready to be deployed immediately or in the near future to curb the COVID-19 outbreak. To support these innovations, C-CIDA is offering a package of support services including pilot deployment and validation, legal services, investment contacts, and direct investment.
At the global level, Micromentor, the world’s largest community of volunteer business mentors, launched a special COVID-19 Response Effort to recruit and link businesspeople with experience in responding to an economic crisis to entrepreneurs in emerging markets. Thousands of businesses have already been helped.
Organizations are also forming coalitions to drive funding to SGBs and social enterprises. ANDE has joined more than forty global organizations in the recently announced COVID-19 Alliance for Social Entrepreneurship, a partnership spearheaded by the World Economic Forum. And in Latin America, ANDE and thirteen other entrepreneurial ecosystem actors have come together to launchEmprendedores Frente al COVID-19, a consortia helping Latin American entrepreneurs overcome the negative impacts of the crisis. The group is finding and sharing resources, linking entrepreneurs to investors, and advocating for greater business support from national governments in in the region.
These organizations are on the front lines of business response and recovery efforts – yet they themselves are at great risk. Most entrepreneurial support organizations – especially capacity development organizations, training institutions, and accelerators – are small in size and budget. They are dependent upon grants or fee-for-service billing for businesses that now can no longer pay. Like the entrepreneurs they support, they tend to have little cash on hand. According to our member survey, nearly a third of capacity development organizations are themselves at risk of bankruptcy in the next six months.
It’s important not to forget them as we look towards business recovery—we need to support the supporters. In the short term, entrepreneurial support organizations are critical first responders to businesses in need. Through coaching, training and funding, they can help thousands of businesses survive the initial economic hit. Longer term, they will be key players in the emerging market economic recovery efforts, working to rebuild the entrepreneurial ecosystems that will be devastated if economies cannot reopen soon.
The equation is simple. Small and growing businesses create jobs in emerging markets. To survive, many of them will need help from support organizations. But those key intermediaries are also endangered. If they fail, jobs will be lost in massive quantities.
It’s up to global development actors, especially development agencies, development financial institutions, and foundations, to do more to help these intermediaries to make it through.