🦠 Omicron and small business — playing the Covid long game

2021 ended as it began: with bad Covid news. For small enterprises as well as for the general population, a wave of infections slowed or halted business around the world.

Due to the global spread of the Omicron variant, new infections skyrocketed in many countries. Some governments reacted by tightening restrictions, but the more important negative impacts on small businesses came in the form of supply chain and staff shortages, as many workers got infected or had to quarantine.

Omicron may undo the effects of the fledgling recovery and dampen the optimism that had started to emerge towards the end of 2021.

A bleak picture

More and more studies and articles are parsing through Covid’s impact on small businesses. While there are bright spots on digitalization, the picture for the smallest enterprises is mostly bleak.

Studies confirm that all small businesses are affected, while the extent of impacts depends on whether businesses rely on physical exchanges. This leads to massive sector-specific and gender-specific variation. Broadly speaking, the smaller the business, the more of its sales it is likely to have lost.

Digitalization helps offset some of the worst consequences, but less so for the smallest businesses in the poorest regions.

Findings from a survey conducted by the Asian Development Bank Institute in eight countries suggests that small enterprises whose online sales made up more than 40% of total revenue were less likely to lay off staff. Meanwhile, only half of the sampled firms had any online sales — in Mongolia and Bangladesh this figure was as low as 30%.

Government support for small businesses is often not enough to sustain small businesses. Admittedly, it is hard for governments to dynamically respond to COVID-19 waves, and to calibrate the formats of support to be fair and effective.

Resilience, resilience, resilience

As Covid’s impact has been both sustained and uneven, its structural impacts need to be taken into view. Foundational digital divides need to be tackled for microbusinesses to be able to use digital to offset the pandemic’s outcomes.

Small businesses are not just more likely to lose sales in the short term, they are also less well-equipped to weather a long-term economic crisis. Beyond the economic effects, small business owners’ mental resilience may be waning. Digital technologies’ compensating positive effects may apply mostly to formalized small businesses that had basic digital capabilities in place already before the pandemic.

While economists hope for the pandemic to have a cleansing long-term effect by weeding out unproductive and unsustainable businesses, the role of small and informal businesses in fostering more inclusive growth must not be forgotten. For example, many microbusinesses, — while inefficient — provide a stable income for their owners. As discussed in the previous Spotlight (The race to digitalize the humble corner store, January 26 2022), small businesses can be essential last-mile outlets for the digital economy.

One example of the pandemic’s structural impacts comes from supply chains. Small businesses normally function as informal borrowers and lenders along the chain, but they can no longer do so as goodwill and excess cash flow have run dry.

Beyond assessing shutdown rates and changes in tech adoption, in 2022, we will need to pay more attention to the ways in which a persistent global pandemic may have stymied small businesses’ and digital technologies’ inclusive potential.

Small Business Spotlight is a roundup of recent trends and insights about small enterprise in the digital age, by Dr Nicolas Friederici