Post COVID-19 economic recovery certain. Will it be equitable?

Most businesses will be affected by the COVID-19 pandemic, and few are well-positioned to weather the storm. Local, state, and federal governments are mobilising support, but if benefits are not delivered equitably, polarisation and inequality will increase as the crisis progresses and lasts long after it has ended.

In Nigeria where micro, small, and medium enterprises (MSMEs) employ over 70 percent of the country’s workforce, it is particularly important to increase equitable access to relief packages to MSME entrepreneurs; thus, building resilience for a strong economic recovery –  one of the areas discussed in a Dalberg report, which analyses the impact of COVID-19 on Nigeria’s economy.

Drawing lessons from another country through analysis and conversations, Dalberg has been tracking the trajectory of what recovery could look like in the US. Among the small business owners Dalberg spoke to, those affected by closures are feeling beholden to landlords, burning through savings, and wary of taking on new loans. Many have laid off their entire workforce. Keeping their businesses afloat through this crisis will require unprecedented measures.

It’s clear from speaking with these business owners that a one-size-fits all recovery will not work. A diversity of businesses run by people from a variety of backgrounds and economic situations demand more. And America’s smallest businesses — those employing 20 or fewer people — will be the hardest hit. These businesses are disproportionately minority-owned and operate with substantially smaller cash buffers. This is also true of small businesses of all sizes operating in mainly African American and Latinx communities. According to a recent study by the JP Morgan Chase Institute, over 90 percent of such businesses have cash buffers of fewer than 14 days. By contrast, small businesses in majority white neighbourhoods are better positioned — just 35 percent have such small cash buffers.

Bend existing systems, don’t let them break 

The smallest businesses in the hardest hit segments — restaurants, bars, and retail stores — are most vulnerable. Without substantial assistance, many of these establishments — and a commensurate portion of the 20 million jobs they represent — will disappear.

There is no time to build from scratch. Initially, we must intervene wisely, and use existing systems to provide immediate relief to these businesses. They need eviction and foreclosure moratoriums, rent forgiveness, loan forbearance, cash grants and more. The  Coronavirus Aid, Relief, and Economic Security (CARES) Act is a huge step. Complementary state and local actions also play a key role. Still, more assistance will be needed. 

Offer grants, in addition to loans

Building the crisis response and recovery around loan programmes alone will significantly disadvantage the smallest and minority-owned businesses. Integrating robust small business grants into any further stimulus would provide more equitable results.

Even in normal times, minority-led small businesses are 30 percent less likely to apply for loans and are three times more likely to fear being denied. Add to this the stifling economic uncertainty of the current moment and it’s no wonder the owners we spoke with had mixed feelings about low, zero interest, and even forgivable loans like those to be issued under the CARES Act’s new Paycheck Protection Programme. Given their current inability to forecast or plan, these entrepreneurs are not confident they can use the money productively and are wary of forgivability clauses. Some have never managed a business with debt. Pepe Kehm, the owner of Peno Italian Soul Food in St Louis, Missouri expressed this concern.

We estimate that the $350bn allocated to the Paycheck Protection Programme, while massive, can cover only a quarter of the total potential demand from businesses. A first come, first served disbursement approach will disproportionately flow to larger businesses that have access to sophisticated law and accounting firms. Smaller businesses will need more hands-on assistance, and as a result, many will struggle to access the first tranche of support before funds run out.

Provide simple and streamlined access to support 

Programmes must be easy to understand and access. There are now dozens of different economic bailout and recovery programmes. Dan Snyder, founder of Corridor, a boutique clothing design and retail company based in NYC, doesn’t worry about the complexity: “We’ll be applying for everything. I have a retail accountant who will tell me what to do.” But others cannot afford such advice and will struggle to stay up to date with assistance programmes while simultaneously trying to reinvent their businesses.

Moreover, women-owned small businesses may disproportionately struggle to navigate this web of support. Our own research shows that women have significantly less time to dedicate to work than men, given the heavier burden they carry in terms of unpaid household and family care work. This is exacerbated by social distancing with children home from school and elderly relatives unable to help. Lise Epperlein Mulderig, owner of CaptureShowroom, a wholesale clothing showroom in Manhattan, explained,

To ensure equity, policymakers need to simplify their programmes to the maximum extent possible, in some cases sacrificing efficiency to maximise reach. National and state networks of small business assistance centres must also accelerate efforts to help less sophisticated businesses meet requirements and access programs.

Build toward a more equitable. sustainable & resilient future 

We have a once-in-a-generation opportunity to transition toward a more equitable and sustainable future. We can strengthen the smallest businesses by helping them implement basic technology and build emergency planning into their operational models. We can also mitigate some of the environmental costs of doing business and accelerate our transition to a more sustainable future by investing in sectors that reduce our carbon footprint and generate new engines for growth.

The worst impacts of COVID-19 are yet to come. At the very least, we must learn its hard-fought lessons and work toward a better and more equitable future.

This article was originally published at length on Dalberg’s official website. Download the full whitepaper here.