Small businesses are vital to job creation in the Global South and this is how we can help them grow

Carlos Ortíz grew up on El Salvador’s coast. He loved his home region: its ocean, surf breaks and communities. So he watched with sadness as the area’s young people left for better economic opportunities year after year. While the region’s youth looked for work in San Salvador or the United States, the communities they left behind grew older and stagnated.

What Ortíz observed on the surf-battered coast of El Salvador is one data point in a broader trend. Across the Global South, there is an acute jobs crisis, particularly impacting young people. Unemployment rates and the share of youth who are neither working nor studying remain higher than they were pre-pandemic. Meanwhile, the world must create 600 million new jobs by 2030 to absorb a growing population.

Meeting that demand for new jobs will be impossible without the growth of micro, small and medium-sized businesses, which account for more than 70% of employment in the Global South. Properly supported, these businesses can be engines for job growth.

Ortíz saw the same opportunity. “I wanted to find ways to combine my passion for the ocean with my desire to inspire an entrepreneurial spirit. I felt that if we could get young people into exciting, meaningful, dependable jobs, we could begin to stop the flow of youth from the region,” he said. He started a hotel, restaurant and surfing business called Olas Permanentes.

But small businesses often struggle to grow even in the best of times – and across much of the Global South, these are hardly the best of times. Limited business skills and connections to finance and markets make these firms vulnerable. They were hit particularly hard during the COVID-19 pandemic.

For example, an estimated 22,000 micro and small businesses closed in Mexico; in South Africa, up to 60% of small firms had to cease operations. So, what does it take to turn businesses like Olas Permanentes into engines for job creation?

Based on TechnoServe’s decades of experience working with thousands of micro and small businesses across more than two dozen countries to create or strengthen employment opportunities, we believe that there are three keys:

Job growth begins with entrepreneurial skill-building. Entrepreneurs often have an enterprising spirit and technical skills in a wide range of fields, but the vast majority have no formal training in running a business. Essential skills, such as tracking cash flow or properly pricing goods and services, are vital for ensuring the survival of a new business, while more advanced skills around topics such as strategy, human resources, management, e-commerce and circular business models are important for unlocking growth.

To help business owners build those skills, governments, civil society and the private sector must provide engaging, interactive and accessible training that recognizes the needs of different segments of entrepreneurs and inspires behaviour change.

Fortunately, technology is making this easier to do and at scale. Accelerated by the pandemic, there has been a shift towards using digital and remote learning in entrepreneurship training. From WhatsApp to full-fledged multimedia e-learning platforms, these tools can help make training more efficient and effective.

Technology has been particularly important in reaching female entrepreneurs. As women typically do most of the domestic work in many societies, remote learning helps them more easily balance entrepreneurship training with their other responsibilities.

It’s also important we ensure that entrepreneurs have access to the capital they need to grow. According to the SME Finance Forum, there are 131 million micro, small and medium-sized businesses that have unmet financing needs. Women and youth-owned businesses are more likely to have trouble accessing finance.

To solve this problem, we must address issues with the demand and supply of capital for small businesses. On the demand side, entrepreneurs need to better understand their financing needs, which we find they often overestimate, and their options for self-financing. On the supply side, we can help to connect entrepreneurs with investors, banks and other financial institutions. We can also work with lenders to develop financial products that serve the needs of entrepreneurs.

Entrepreneurs also need access to high-value markets where they can sell their products or services. In our projects, business advisors help entrepreneurs to identify promising markets and forge connections with large buyers when business-to-business sales make sense.

Finally, to create lasting change for small businesses and the workers they employ, we must ensure that there is a supportive enabling environment. This means working with governments to create policies to support business growth, building the capacity of public and private-sector service providers to help entrepreneurs and strengthening business networks and roundtables. We have even seen initiatives use mass media, such as radio novelas and television programmes, to create favourable cultural shifts in support of entrepreneurship.

In El Salvador, the case of Carlos Ortíz illustrates what happens when entrepreneurs receive this support. Ortíz enrolled in the Impulsa tu Empresa programme, a partnership between Argidius and TechnoServe, that provides training and personalized assistance to small businesses. He was looking for support to help Olas Permanentes recover from the pandemic. “We decided to hop on the wave,” he said.

The training and advisory focused on financial management, marketing, planning and operations manuals for the business. Ortíz built skills to grow the business, which enabled him to receive nearly $500,000 in financing. His sales increased by more than half and he was able to move forward with plans to open a new Olas Permanentes location. Critically, he has been able to increase the size of Olas Permanentes’ staff by 56%.

Across Central America and Colombia, Impulsa tu Empresa has helped entrepreneurs create more than 2,300 jobs. This, however, represents just a small portion of the total impact that small businesses can have in addressing unemployment. If the millions of small businesses worldwide receive the support they need, they can play a pivotal role in tackling the global jobs crisis.