How a 3-point plan could help rebuild business for the long-term

Jun 5, 2020

Ensuring continuity in the food sector is key part of sustaining activity in core strategic value chains. Image: Photo by Wonderlane on Unsplash

Bandar Hajjar

Micro, small and medium enterprises were hit hard by COVID-19.
Recovery will take a multi-prong effort that spans immediate and long-term needs.

The scale of the COVID-19 outbreak reveals that we are not prepared for large-scale pandemics. The crisis has already shattered capital markets and the picture for economic growth in 2020 looks bleak. COVID-19 disrupted global supply chains and created poor trading conditions.

The impact to micro, small and medium enterprises (MSMEs) has already been dramatic. 61% of US small businesses surveyed this May by McKinsey said they'd likely file for bankruptcy this year. Around a third of MSMEs polled in India said they're shutting their doors for good. Meanwhile in China, researchers from Tsinghua University found MSMEs still operating there have seen near 70% revenue declines over last year's data.

To bounce back, we need to structure aid to restart a new economy – one that is focused on building capacity around sustainability and Fourth Industrial Revolution technologies – as well as flexibility and long-term needs.

The role small and medium enterprises play

MSMEs account for more than 90% of economic activities and more than 50% of the jobs around the world, as well as contribute more than 40% of GDP in developing countries. In some countries, MSMEs have an even greater importance. In Muslim countries, for example, there are 53.2 MSMEs per every 1,000 people, twice the global rate.

The Great Lockdown has led to a full or partial halt of many businesses’ activities around the world. Despite shrinking economic activities, these companies are still obligated to pay salaries, rent, taxes and other expenses. Many companies have already responded to these strains by cutting workers. Such moves could lead to a severe social crisis, with economists warning that 195 million jobs could be lost worldwide - a number that may even increase if the pandemic persists.

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What is the World Economic Forum doing about the coronavirus outbreak?

A three-part plan

In response to these challenges, the Islamic Development Bank (IsDB) developed a comprehensive integrated response package worth up to $2.3 billion USD. This package, called “The 3 Rs” for Respond, Restore, and Restart, is also a call for joint action to support our Member Countries, wherever they are in their stage of recovery, to deliver economies that are resilient, sustainable and inclusive. These factors could provide a roadmap for others looking to navigate the economy now and the longer-term.

Respond:
Prioritizing urgent, immediate needs is essential to a crisis such as that wrought by COVID-19. If countries' health systems become overwhelmed then greater travel and movement restrictions will adversely, and disproportionately, affect MSMEs.

In the Middle East, our Response track has already strengthened health systems by helping to procure urgent medical and non-medical supplies for infection prevention and control, including personal protective equipment (PPE) for health care workers, as well as medical equipment such as testing kits, laboratories reagent, thermal camera disinfectants and vehicles needed to enhance the capacity of the targeted regions to respond to the COVID-19. It has also worked with the G20 Global Initiative on expanding Pandemic Preparedness capacity, which prioritises building resilient health systems, and supporting research that is needs-driven, evidence-based, and adheres to the principles of affordability, equity and accessibility.

Restore:
MSME’s have taken a huge financial loss already, so it is crucial that to ensure they can continue to trade and sustain their activities. Additionally, we need to ensure that enterprises do not surrender to harsh market forces, and consequently adversely affect other enterprises higher or lower in their supply chains.

In the past 3 months, IsDB has provided financing for trade and MSMEs to sustain activity in core strategic value chains. These efforts help keep businesses running while ensuring continuity regarding the necessary supplies in health and food sectors, and other essential commodities.
Restart:
The pandemic has provided the opportunity to replace the old systems with something new, something better, through innovation. Fragile economies that have been exposed can be rebuilt on more sustainable principles. We can proactively invest in creating and strengthening institutions that prevent crisis.

We can coordinate scientific and technological responses, and research and development activities steering them towards public good. That means using funding to restart a new economy, leveraging science and technology to prevent global value chains disruption under such pandemics, while maintaining zero environmental footprint. We can forge Public-Private-Philanthropic-People-Partnerships to ensure both citizens and economies are going to benefit.

In terms of the IsDB’s efforts, a targeted $10 billion USD aims to unlock $1 trillion USD worth of investments to help catalyze private investment and support both economic recovery and countercyclical spending.

Shaping the new normal
Programs like the “The 3 Rs package” provide an opportunity to create and reshape markets rather than continue limiting roles at the government and international community level to reacting to market failures.

Such an approach ensures that the economy can keep moving. The aim is to provide part of the necessary liquidity, with preferential modes for member countries through their financial sectors. Support must be designed in such a way as to save direct and indirect jobs, energise economic activity, and help regain the growth pace to overcome the current crisis and its potential future consequences.

To be sure, collaboration is key. Crucial to any success is the work of our partners. We are delivering “The 3 Rs package” through a unified country platform, in line with G20 principles, which will ensure long-term coherence and coordination among key stakeholders.

The COVID-19 storm will pass but the choices we make today will change our lives for decades to come. Let us not waste this opportunity to reflect and do development differently.

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