Adjust technical assistance to meet challenges
As COVID-19 shifts from a health crisis to an economic crisis, we are working hard to predict how small businesses around the world will weather this storm and what areas we need to work on. The International Trade Center mainly cooperates with small, medium and micro enterprises in developing countries. The typical small business we work with has 10 to 20 employees, is close to or is ready to export, and hopes to achieve international growth. These msm represent 60%–70% of the work in developing countries and about half of economic activity¹. In addition, they often hire young people and women. It is too early to estimate the impact of the pandemic on our core voters. Small businesses have or will soon face a liquidity crisis, which may destroy the entire economic sector. In the coming months, they will face a series of challenges, which depend to a large extent on how policymakers respond to the current crisis.
The challenges facing small businesses
How big is the coming wave? According to the latest estimates from the international monetary fund, the world as a whole is likely to be in recession by 2020. Some sectors will suffer more than others, with travel, accommodation and food services particularly hard hit. The business itself may go through a four-stage process: closure, supply chain disruption, demand decline and, eventually, recovery. The severity and disruption caused by each stage of the process will depend on the policies adopted by the government. We know the impact will be severe; We don’t know how long the crisis will last.
From the closed state to the restored state, MSME will face a comprehensive threat to its survival:
- Demand decline and liquidity acquisition. Demand from the businesses and entrepreneurs we support has fallen sharply, even in commodities, and some buyers are slowing payments on orders they have already received. MSME had little cash reserves and was the first to fail in a liquidity shock. Companies that trade internationally are particularly vulnerable because they rely on increasingly scarce dollars to pay their bills.
- Access input and manage inventory. As supply chains become longer and more complex, msmes often source inputs from abroad. For example, for the clothing companies we work with in north Africa, major inputs (such as fabrics from China) have disappeared as orders have declined.
- Manage your work environment. For locked manufacturing MSME, staying open is a challenge because the factory floor is not designed for social alienation. Mass migration from the cities means workers go missing and may be hard to demobilise. Even if the agricultural calendar continues, many countries have suspended support for farmers.
- Policy uncertainty and supply chain disruptions. Policy has developed rapidly. MSME managers often work alone and cannot create crisis teams to track change. One of our clients reported a fresh batch of products at the airport because passenger air travel had stopped. Supply chain disruptions, such as ground carriers, can create huge liabilities.
- Access to urgent support: many of the small businesses we support are on the fringes of the formal economy or in informal trade. They have very little government support and very little network of government support agencies. When governments provide emergency support, it can be difficult to reach out to these companies and find ways to help.
Reactivate business contacts
When the crisis is over, our beneficiaries will expect us to be ready to help them reconnect with buyers, rehire staff and restart production. It is too early to draw lessons, but the following are based on earlier recommendations in this area:
Revise the script (and listen to it). Like other technical assistance providers, many of ITC’s programs to help MSME have strict goals and work plans that did not anticipate the impact. We should revise these plans and listen closely to MSME managers and the government about their needs – and find ways to make it happen. For example, with the active support of our stakeholders, our colleagues have worked with the African garment industry association to develop a recovery plan.
Get the data ready. International value chains account for a large proportion of trade and are linked to millions of MSME. The ITC is using networks in these chains to measure the impact of the crisis and provide its analysis to policymakers and companies. The key is to conduct a time survey so that they do not disturb their partners in solving the current problem.
Build (rebuild) the ecosystem. MSME needs business support organizations now more than ever. Governments also need an ecosystem that can provide much-needed assistance to their MSME. The ITC’s institution-strengthening team is connecting trade promotion organizations from around the world to share emerging good practices and resources (such as market information) for small businesses so they can learn from each other in real time.
Consider value chains and alliances. Participants across the value chain must work together to restore trade. The ITC, for example, is trying to maintain a dialogue between buyers and suppliers.
Focus on finance. Since ITC beneficiary companies rarely receive formal financing, they may be excluded when the government and international lenders provide emergency liquidity. ITC is working with trade finance providers, regulators, guarantors, buyers and suppliers to integrate MSME into an affordable financing network.
We must start these processes as soon as possible and virtualize them as much as possible. Some ITC teams in Geneva have found ways to help small businesses at a distance by mentoring startups remotely, conducting virtual start-up missions, and even providing early funding to keep small businesses growing at a distance. More importantly, ITC’s field teams have been quick to take a role in collecting data, providing services, and maintaining relationships with customers, which is more important to our response than ever before.
In many cases, our MSME beneficiaries succumb to the immediate effects of covid-19. When they are ready to talk about recovery, we need to be prepared and react quickly.
¹ ITC, ed. SME Competitiveness Outlook: Connect, Compete and Change for Inclusive Growth. SME Competitiveness Outlook. Geneva: International Trade Centre, 2015.
² “World Has Entered Recession, May Recover next Year: IMF.” ThePrint, March 28, 2020. https://theprint.in/economy/world-has-entered-recession-may-recover-next-year-imf/390194/.