Opinion: Building resilient businesses and economies in the coronavirus recovery

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Workers at a garment factory in Accra, Ghana. Photo by: © Dominic Chavez / World Bank / CC BY-NC-ND

The COVID-19 pandemic has highlighted the fragility of many jobs — and markets — across the globe. In a very short time, the context in which we’re operating has changed drastically.

The economic damage among some of the countries we invest in is already clear. Businesses are struggling as a result of government lockdowns, supply chain disruptions, and tightening consumer spending. Many businesses that were booming just a few weeks ago now face incredibly challenging times ahead. The likely impact on jobs, poverty levels, and basic food security are serious — this may be the most important battle we all witness in our lifetimes.

Building this resilience in the private sector today will ensure a swifter and more sustainable economic recovery in the months and years to come.

While we all step up efforts to tackle the challenges presented by COVID-19, it will be critical to link climate action with economic recovery. Helping businesses become resilient will be about supporting them to withstand not just economic shocks, but also the impact of climate change to build a sustainable, more resilient future.

That’s why we are co-hosting the online event series “Building resilient economies and societies in the era of COVID-19” with Devex to explore ways to support resilience in the private sector. Only by strengthening this resilience can we accelerate progress toward the Sustainable Development Goals through long-term job creation, economic stability, and poverty reduction.

An impossible decision

Governments the world over are facing an impossible decision on whether to relax lockdown restrictions, but the dilemma is even more pronounced in low- and middle-income countries. In Africa, on the one hand, the ability of the continent’s health systems to cope with a full-blown pandemic is a serious cause for concern. Yet on the other hand, without relaxing restrictions, the economy is being held hostage.

The economic predictions we’re hearing are difficult to comprehend. The World Bank forecasts that Africa will experience its first recession in this century. The impact on jobs will be huge — McKinsey estimates that between 9 million and 18 million formal jobs will be lost in Africa and that 100 million informal jobs are vulnerable. Globally, around 50 million people could be pushed below the poverty line, with about half of those in Africa. And perhaps most concerning are the predictions on food security — the World Food Programme has estimated that the number of people at risk of starvation globally has doubled to 265 million as a result of COVID-19.

The role of development finance — to support the economic stability that enables countries to leave poverty behind by providing long-term capital to the private sector — has never been more important. Development finance institutions’ mandates mean they are particularly well suited to provide countercyclical financing during financial crises when other sources of business finance are limited.

Our first priority at CDC Group, as the U.K.’s DFI, is to preserve the viability of our current portfolio of businesses — over 1,200 businesses that employ 800,000 people combined. This is particularly the case in those sectors most affected by COVID-19, where it is crucial to act to protect the positive environmental, economic, and social impact of these businesses. That is why we are providing technical assistance, company-specific liquidity, and working capital to many of our portfolio companies — to improve their resilience and protect jobs.

A recent analysis highlights the resilience of funds focused on environmental, social, and governance issues during a crisis such as this. Therefore, supporting businesses to act now on environmental and social issues will be an important part of their ability to recover.

That is why we have been providing advice for employers, investors, and financial institutions on issues ranging from safeguarding health and safety to job protection. For example, our guidance on job protection emphasizes that protecting jobs now is crucial in businesses’ ability to recover quickly and effectively once the crisis is over.

DFIs can support local banks to help protect SMEs

We are also exploring ways to strengthen the resilience of businesses by scaling up our response to the economic and health challenges of the crisis.

As key drivers of growth, it is vital that small- and medium-sized enterprises, or SMEs, secure adequate support to shield them from the downturn. This is even more important in countries where governments are fiscally constrained and face challenges in providing bailout packages that protect wages and provide subsidies for affected businesses.

Companies shifting focus amid COVID-19

Bigbasket, an online supermarket in India, has responded quickly and effectively to both a rise in demand and disruption in its supply chain. It has ensured its workforce is well protected, increased pay by up to 50%, introduced new insurance for employees, and prioritized delivering essentials to ensure they reach the people who need them most.

And Liquid Telecom in Africa is playing a key role in ensuring connectivity, as well as collecting and analyzing data to support governments and development partners in their response.

For our part, DFIs can step forward and channel much-needed liquidity to local banks to enable them to support their business customers. We know this to be the case from our experience in responding to the Ebola crisis in Sierra Leone. We found we could be the most effective by partnering with Standard Chartered Bank to increase lending to local businesses so they can keep going throughout the crisis.

There is also a role for those companies that directly have a hand in combating the COVID-19 pandemic through the provision of health care or access to basic goods and services. We are closely assessing opportunities to invest in this type of business. And indeed, we are already seeing how companies from across our portfolio have shifted their focus to respond to the pandemic.

The role of patient capital

Finally, alongside these immediate actions, it is important to take a long-term view and think about how we can support economies to rebuild and recover once the worst effects of the pandemic have passed. We recognize that DFIs are unlikely first responders in a crisis. Rather, we need to address the long-term challenges it will bring. Our own patient capital will play a vital role at a time when commercial investors pull back, so that in the long-term, countries can mobilize additional capital.

Even at this stage, it is important to think about what more resilient economies should look like in the future and ways we can support them. The investment community has an opportunity to focus on investing in growth and investing in businesses leading the fight against climate change.

The pandemic has shown the strength of community — globally, locally, and across the private and third sectors. Harnessing this collaborative spirit will help us rebuild and secure a prosperous future for people and planet. Building this resilience in the private sector today will ensure a swifter and more sustainable economic recovery in the months and years to come.

About the author

  • Nick O’Donohoe

    Nick O’Donohoe joined CDC as its chief executive in June 2017 and is also a member of CDC's board. He was previously a senior adviser to the Bill & Melinda Gates Foundation, where he specialized in the use of blended finance models to support the work of the foundation. Prior to taking this role, Nick co-founded, with Sir Ronald Cohen, Big Society Capital, or BSC. He served as its chief executive officer from 2011 to December 2015. BSC is an independent financial institution established by the U.K. government as “the world’s first social investment bank” and is capitalized with unclaimed U.K. bank accounts and investment by the largest U.K. banks.