Navigating the Economic Fallout of Covid-19 and Building Back Better
The COVID-19 pandemic is an unprecedented global health crisis. But now it appears that by some measures it will be an even greater and more lasting economic crisis, particularly for the poor in developing countries.
Since 1990, nearly 50 million people have climbed out of poverty every year. It’s one of the greatest achievements of the millennium. But now, the pandemic has plunged the global economy into the deepest recession since World War II, according to a recent report by the World Bank. And an estimated 71 million will likely be pushed back into poverty for the first time since 1998, a new UN report warns. According to the World Bank, this is the first global recession to be triggered solely by a pandemic.
So far, economic projections have shown worse outcomes for advanced economies than developing countries, because the pandemic surged in wealthier regions first, causing lockdowns that suspended and shuttered businesses. But from the beginning, economists have warned that there remains a great deal of uncertainty around the pandemic and its impacts. And, lower-income countries are likely to suffer severe and more lasting impacts because many already have less health-care infrastructure, weak social safety nets, large informal economies, a higher dependence on trade and more people living at or around the extreme poverty line. Now that the pandemic is beginning to surge in countries across South America, South Asia and even Africa, economists and development experts are intensifying their calls for global support and innovative interventions. With lockdown measures in place and business activity disrupted, people who were dependent on meager daily wages are facing hunger and exploitation. And as 90 percent of students worldwide have been kept out of classrooms by school closures, developing countries’ future growth potential is also being severely undermined.
Even before the pandemic, many emerging and developing countries struggled to provide adequate social protections for their citizens due to a lack of resources rooted in problems such as over-indebtedness and poor governance. Now, perhaps more than ever, social safety nets are crucial for keeping households afloat, which is why many humanitarian and development organizations, like Oxfam America and Mercy Corps, have scaled up their food assistance, cash transfers and voucher programs.
Oxfam is also advocating for an “Emergency Rescue Package for All” that would cancel trillions of dollars in debt for developing countries and would increase the funds available to them by at least a trillion. With more funding, countries could expand their social protection programs, including unemployment insurance. But developing countries are facing a serious hurdle with important interventions like unemployment insurance: a huge number of people work in the informal economy, or “off-the-books.” According to the UN’s International Labor Organization (ILO), more than 2 billion people globally make their living in the informal economy; 93 percent of them are in emerging and developing countries. In Africa, nearly 86 percent of employment is informal. This means that governments are having trouble targeting their economic aid when a large portion of small businesses and workers do not file taxes or even have access to formal banking. In a recent report, Mercy Corps wrote that “informality continues to be a significant factor determining individuals’ ability to adapt.” The UN’s Sustainable Development Goals 2020 report estimates that just in the first month of the pandemic, workers in the informal economy saw their incomes drop 60 percent.
Given the need to rapidly deploy economic assistance across the board – including to informal workers, many of whom are the poorest of the poor – some governments and organizations have turned to digital payments, mobile money, and community-based virtual currency to help families receive aid and purchase essential items, like food and soap, without using cash while social distancing. The Mifos X open source banking platform by Mifos Initiative, for example, allows governments to quickly and affordably open cloud-based bank accounts. Individuals, many of whom were “underbanked,” can then receive cash and benefit payments through these accounts, and businesses can access credit and reschedule loans. In addition, Google and the Bill & Melinda Gates Foundation recently also announced Mojaloop, a free, open-source payment platform that connects many different banking and payment systems across a country. Although the need for financial inclusion is time-sensitive during the current crisis, these digital solutions will help developing countries continue to grow over the long run.
An unprecedented characteristic of the COVID-19 economic crisis is how widespread the impact has been. Because advanced economies have also been battered by the pandemic, they’re less able to help sustain emerging and developing economies through trade. Migrant workers in wealthier countries are also experiencing a loss in wages, meaning they’re unable to send as much money home to their families. For developing countries, these remittances are an essential source of income. The World Bank is predicting a 20 percent drop in remittances this year, the sharpest decline in recent history. In Africa, a hit to tourism is also “decimating” the livelihoods of middle-class workers, who were driving the continent’s economic growth, according to a recent article in the New York Times.
As Microsoft President, Brad Smith, recently wrote in a blog post, “the pandemic has shined a harsh light on what was already a widening skills gap around the world – a gap that will need to be closed with even greater urgency to accelerate economic recovery.” Microsoft’s answer to this problem is a new “global skills initiative” that will help 25 million people around the world gain digital skills by the end of the year. The initiative will identify in-demand jobs and the skills needed to fill them, provide free educational content to develop those skills, and provide low-cost certifications and free job-seeking tools. But digital skills aren’t the only path forward. Einstein Rising, a business accelerator for social entrepreneurs in Africa, has launched online “Skills for Change” workshops that teach practical, income-generating skills, such as how to make liquid soap and petroleum jelly for dry skin.
But perhaps more than anything, the pandemic is highlighting just how important it is to develop strong partnerships in our interconnected world. The most vulnerable among us will not be able to survive the impacts of the pandemic without global support; at the same time, the pandemic has made it clear that no one is truly safe and secure unless all of us are. Organizations like Global Partnerships, Upaya Social Ventures and 3rd Creek Foundation are leaning into their partnerships with social enterprises and other organizations in order to help keep everyone – investors, organizations, businesses and households – afloat in these trying times.
Without a doubt, the COVID-19 pandemic is an economic shock of historic proportions that will reverse much of the progress the world has made toward eradicating poverty. However, with innovative solutions and global cooperation, this crisis also presents the world with an opportunity to build back better if we extend the interventions being implemented now into a post-pandemic society. With stronger social safety nets for everyone, financial inclusion through technology and new skills for a changing global economy, perhaps a more equitable society awaits.
The following GlobalWA members are working to address the economic impacts of the COVID-19 pandemic in developing countries.
Awamaki is a small non-profit that connects Andean artisan weavers with global markets to create economic opportunities and improve social well-being in rural Peru. Peru has had the longest lockdown in the world, with borders closed and tourism, transportation, and commerce shuttered for over three months. Awamaki’s partner artisans and their families rely almost entirely on tourism for their incomes and as a result, their villages have been severely affected by the lockdown. Awamaki is fundraising for emergency food relief so the artisans can feed their families while there is no work. The organization is also supporting 160 artisan women and their families with food donations. Additionally, Awamaki is looking for creative new opportunities, including supporting the artisans in making face masks to prevent transmission of the virus that causes COVID-19. Additionally, they have been hosting weaving demonstrations on Zoom, a new way to bring income to their families.
3rd Creek Foundation
Through grants and impact investing, 3rd Creek Foundation supports early stage programs that create sustained economic improvement and dignity for the ultra-poor. The foundation’s recent fundraising campaign, #raise20run20, will support its partner organizations including non-profit organizations that run entrepreneurial training programs as well as small businesses that employ the ultra-poor with dignified jobs.
Bill & Melinda Gates Foundation
The Bill & Melinda Gates Foundation has made critical investments in speeding up development of new tools to address the COVID-19 pandemic, including advanced diagnostics, therapeutics, and vaccines. In addition, the foundation has highlighted the disproportionate impact the pandemic is having on women’s health and economic well-being. Recommended policy actions include ensuring women are essential recipients of financial aid and emergency cash transfers, directing stimulus dollars toward women-owned businesses, increasing women’s access to cell phones in order to manage their money digitally, encouraging flexible work arrangements, and including diverse experts and leaders in decision-making.
Capria is a global impact investment firm managing multiple funds that accelerate the flow of capital to deliver superior returns in emerging markets. Capria holds COVID-19 workshops with its fund managers twice a week to share knowledge and learn from the experience of its partners across the network. The company has found investments in essential products and services to bottom-of-the-pyramid consumers to be a resilient strategy because they serve critical needs even during times of uncertainty.
Dalberg has been actively supporting its clients globally on how to respond to the COVID-19 pandemic. This has involved helping large foundations pivot their strategies and grant-making; assessing vaccine discovery efforts for improved access in the developing world; designing bridge finance facilities; and, increasingly, adapting to the “new normal.” A survey Dalberg conducted on leaders at various global philanthropic organizations provides insight into their shifting priorities around the current pandemic. Another report Dalberg co-authored with World Wildlife Fund details the root causes of the COVID-19 crisis and recommends ways to mitigate future pandemics.
Global Partnerships is an impact-first investor dedicated to expanding opportunity for people living in poverty. The organization makes loans and early stage investments in social enterprises that deliver market-based products and services that empower people to earn a living and improve their lives. GP supports its partners in meeting the needs of the most vulnerable during the pandemic. For example, BRAC International, a global microfinance network in Liberia, Tanzania, and Uganda has begun conducting telephone outreach to clients, disseminating health guidance through radio broadcasts, deploying a rapid income and food security assessment to better understand client needs, and proactively linking its clients to non-profit and government resources. Another, Acceso El Salvador, is an agricultural enterprise that purchases goods from smallholder farmers and fishers. Acceso has immediately adapted its technical assistance to focus on pandemic-safe practices while providing farmers with frequent updates on which produce is in high demand. A third partner, Friendship Bridge in Guatemala, responded to the drop in revenue for their female artisan clients by working with them to produce and sell face masks to meet the growing global need.
Foster School of Business (University of Washington)
For over a decade, the Foster School of Business has worked with the Self-Employed Women’s Association (SEWA), “a trade union that promotes the rights of self-employed female workers and aims to organize them for full employment and self-reliance,” according to a former UW Global Business Center Global Consulting Project participant. The partnership brings MBAs together with small business owners in rural India, where students complete projects for the organization as part of their course. SEWA members have produced over half a million face masks (as of April) in response to the coronavirus pandemic.
As a global leader in land rights, Landesa is positioned to assist its partners in government and civil society in responding to COVID-19. The organization is leveraging its networks in Asia and Africa to provide resources and expertise for local partners on the front lines of this global health crisis. In Liberia, Landesa is using its nationally broadcast radio program to educate the public on health, hygiene and social-distancing measures to prevent transmission of the virus. In Tanzania, Landesa is adapting a mobile application, “Law On Your Palm,” which connects rural women with access to legal services, to be used to share information about COVID-19. And in Myanmar, Landesa is helping to equip the Forest Department with protective masks and gloves for use by department staff carrying out essential fieldwork.
Mercy Corps works in more than 40 countries in the Americas, Africa, Middle East and Asia, providing assistance to communities facing crises of all types, including vulnerable people whose circumstances are being made worse by the pandemic. Mercy Corps is responding to the urgent needs, while also investing in long-term solutions that build resilience to future crises. To support the most vulnerable families, Mercy Corps is providing emergency cash assistance so they can cover essential expenses such as food, water and rent. Cash also jumpstarts the local markets and businesses, enabling them and the larger economy to recover. Additionally, Mercy Corps helps small businesses adapt and recover after a crisis, as they are often both the engines of the economy and the most vulnerable to economic disruptions. Through technical support, grants and mentorship, the agency helps businesses get back on their feet, increase their chance of long-term success, and become better prepared for future disasters. A key aspect of Mercy Corps’ work is helping individuals and business owners access financial services and increase financial literacy, so that they have the tools and skills to save for the future, borrow to invest in their businesses, and manage risks no matter the crisis.
In partnership with SAP, leading impact investors, and social enterprise thought-leaders, the MovingWorlds Sustainable Growth of Revenue for International Development (S-GRID) program helps social enterprises, and the individuals within them, to create sustainable revenue streams by partnering with the corporate sector and connecting into global value chains. As we begin to rebuild our post-COVID world, there is an unprecedented opportunity to go beyond the status quo to build more just, equitable, and sustainable global systems.
Oxfam America estimates that half a billion people could be pushed back into poverty by the COVID-19 pandemic. During a time of extreme global inequality, this could set back the fight against poverty by a decade, and as much as 30 years in some regions such as sub-Saharan Africa, The Middle East and North Africa. To address the immediate need for economic support, Oxfam is providing cash and in-kind food assistance to those who need it in more than 15 countries around the world, including for refugees, displaced people, and vulnerable families, including in South Sudan and Central African Republic. In the Dominican Republic, for example, Oxfam is working to transfer cash to 4,000 families (benefiting some 20,000 people) to buy basic goods. Oxfam is also partnering with small-scale food producers to amplify their voices in the call for global action on the looming food crises. Oxfam understands that addressing COVID-19’s economic impacts requires a multi-sectoral response and the cooperation of local and international organizations, corporations and governments. At the global level, Oxfam has called for the international community to fully fund the UN’s humanitarian appeal and cancel debts so that poor countries are able to focus on critical needs. Oxfam has also called for an emergency rescue package for all that provides cash grants to those who have lost income and creates at least a trillion dollars in international reserves to dramatically increase resources available to countries.
Pangea has supported its community partners around the world by offering additional flexibility in their grant timelines and supporting organizations as they have shifted their programs toward COVID-19 response. Child Empowerment Program in Uganda, for example, has been producing thousands of masks, sewn by graduates of its tailoring program who received training at CEP’s vocational school (with previous funding from Pangea). They will distribute the masks free of charge to health workers and women who are still struggling to sell vegetables in the market to support their families.
Rise Beyond the Reef
Rise Beyond the Reef bridges the divide between rural remote indigenous Fijian communities and the outside world, promoting women as leaders of their communities on the frontlines of climate justice. The organization has been working with its partners in Fiji to distribute protective COVID-19 kits with washable masks, gloves and disease awareness infographic flyers. Additionally, Rise Beyond the Reef has helped distribute basic food rations to remote partner communities and marginalized areas inside Fiji’s restricted areas to prevent them from traveling to town centers for shopping. And finally, the organization has distributed raised seedlings to partner communities to help boost food security.
Spreeha strives to break the cycle of poverty for underprivileged people by providing healthcare, education, and skills training. COVID-19 has forced the foundation to temporarily close education and training services in order to ramp up its healthcare response, including telehealth. Spreeha is also working closely with the government of Bangladesh in providing health awareness messaging and door-to-door coronavirus screening services.
Upaya Social Ventures fights extreme poverty with dignified jobs and believes job preservation and job creation are crucial to the COVID-19 recovery. To date, Upaya has invested in 21 early-stage businesses that provide jobs for over 17,000 people in the poorest regions of India. To understand how the pandemic is impacting those vulnerable communities, Upaya surveyed a sample of job holders by phone and found that the majority of those surveyed were able to earn money during the lockdown, thanks to their connection with Upaya portfolio companies. To combat the devastating effects of the pandemic, Upaya launched a three-wave strategy in April, starting with helping their existing portfolio companies survive the economic downturn by facilitating access to relief programs and virtual peer learning sessions. The team has since begun deploying revenue-based financing to the companies in its portfolio to provide the liquidity needed to maintain operations and preserve jobs. Upaya has also promoted the direct-support campaigns run by its portfolio companies to assist people who lost their ability to earn during lockdown. Looking toward the recovery, Upaya is building a pipeline of promising new companies and has adapted its annual Accelerator Program into a series of virtual workshops. Upaya has also implemented a streamlined investment process to rapidly extend investments to fill the small business financing gap that has been worsened by the pandemic. The team intends to invest in at least six new companies this year that are creating dignified jobs to fuel the COVID-19 recovery.