COVID-19 and the State of Small Businesses in the Developing World in 2021
TechnoServe’s COVID-19 Impact Report examines how the pandemic disrupted key sectors of emerging economies and the livelihoods of those who work in them. Our third feature in our blog series on the report highlights the challenges small businesses faced last year and the opportunities to move toward business survival and recovery in 2021 and beyond.
Evidence of the impact of COVID-19 on small businesses is visible everywhere. Once thriving neighborhoods now feature shuttered storefronts, a solemn reminder of the continued economic toll of the pandemic. And although some semblance of “normal” is returning in some areas, the transition from business survival to recovery and resilience will be a long one.
The Impact of COVID-19 on Small Businesses in the Developing World
In developing countries, small and medium-sized enterprises (SMEs) and micro-retail businesses form the backbone of local economies, providing essential jobs, products, and services to underserved communities.
In Latin America and the Caribbean, 74% of all jobs are at firms with fewer than 50 workers, and that share rises to more than 90% in India and sub-Saharan Africa.
But the impact of the COVID-19 pandemic has created new challenges for these essential enterprises, changing the way they do business. TechnoServe’s COVID-19 Impact Report shows how, in the last year, many of these businesses struggled with three main challenges: a lack of access to markets, supplies, and finance.
By working with small business owners to apply a “crisis toolkit” that would improve their enterprise’s chances of survival, TechnoServe helped many of them to weather the worst of the crisis. But as these entrepreneurs look ahead to 2021 and beyond, they will need continued support to identify market opportunities, adapt their business models, and manage their finances with an eye toward business resilience and recovery.
COVID-19 Creates Unexpected Challenges for Small Businesses in the Developing World
Early last year, as countries around the globe enacted restrictions to stop the spread of the virus, many businesses had to make changes that significantly affected their sales, including:
- Restricting business hours
- Limiting the number of customers they could serve
- Temporarily closing their doors
Consumers also altered their behavior, reducing the number and length of their shopping trips and shifting their buying preferences. In May 2020, TechnoServe found that 57% of micro-retailers surveyed in Africa reported sales as their greatest challenge.
In a global survey a few months later, nearly two-thirds of small businesses reported COVID-related problems with customer demand. As the year progressed and social and travel restrictions eased and re-tightened in different countries, sales challenges largely decreased.
The pandemic also disrupted small business owners’ access to supplies. Slowdowns in border inspections and international shipping made it difficult for businesses to receive imported materials, while local supplies were delayed by travel restrictions and other transportation complications. At the same time, businesses faced rising prices for many goods as transportation and production costs rose.
Even before the pandemic, access to finance was a significant challenge for many small businesses in the developing world. Then, shutdowns and slowdowns in sales reduced entrepreneurs’ available capital, just as the uncertainty around the economy and the risk of business failure made banks and micro-finance institutions less willing to lend money.
When COVID-19 came, it hit my business hard. Most of my customers needed credit since their incomes had been affected, but they still needed food on their tables. What could I say? They had been good customers for years, and I knew them and their families. I could not say no.”
— Jacinta Musyoka, micro-retailer, Kenya
In July, 38% of entrepreneurs surveyed by TechnoServe reported difficulties with access to finance. As businesses adjusted their models and sales recovered, that percentage fell to 17% by January 2021. But that meant that nearly one entrepreneur in five still had unmet needs for financing almost a year after the crisis began.
How Can Small Business Owners Adapt and Build Resilience to Future Threats?
For entrepreneurs suddenly experiencing the effects of an unexpected economic crisis, personalized business advice was essential. With immediate coaching on adapting their business model and financial strategies, many entrepreneurs could pivot their business toward survival.
TechnoServe’s entrepreneurship programs employed a “crisis toolkit” developed from previous work supporting small businesses through acute economic problems. This eight-step approach helped entrepreneurs take stock of the situation, conduct a business model assessment to identify new opportunities, and prioritize key actions needed to weather the crisis.
Drawing on these tools, many entrepreneurs identified new distribution channels, shifted marketing and sales online, and added new products and service offerings to meet new opportunities.
During the lockdown, [TechnoServe] taught us how to display our goods on social media. My shop was not open, but I was still displaying my goods, and people were ordering. In the evenings, I could open the shop to get the [products] and deliver them to my customers.”
— Endurance Boms, entrepreneur, Nigeria
Digital Solutions Help Small Businesses Stay Open
Digital solutions became especially useful in light of social distancing and travel restrictions. Rather than introducing new systems, TechnoServe often helped entrepreneurs apply technology they already used and understood to new ways of doing business.
In Kenya, for instance, TechnoServe worked with entrepreneurs to use WhatsApp groups and other digital platforms to connect with new suppliers and exchange information about good deals on products for their shops. These digital connections helped enterprise owners continue operations in the face of rapidly changing business conditions.
My trainer has connected the shop owners in my region with different suppliers and manufacturers, making it easier for us to get the products we weren’t getting from our usual suppliers.”
– Caroline Moses, shop owner, Kenya
To address access to finance challenges, TechnoServe is helping small business owners evaluate their costs and identify ways to save money without jeopardizing recovery and growth in the future. Once entrepreneurs understand their break-even point, they can make decisions that save money while ensuring business survival, such as foregoing commercial space in favor of operating out of the home.
With the right tools, connections, and support, small businesses in the developing world can find ways to not only survive the crisis, but emerge stronger than ever.