The impacts of the COVID-19 pandemic are a test to the relevance of business associations – can associations support their members in such a difficult time? The crisis has shown many businesses how it’s important to be united and coordinated. Informed businesses during a crisis are better positioned to make sound decisions. Even if there is support coming from the government or other sources (e.g. donors), many of the small businesses need support on how to effectively use their scare resources, as well as how to navigate new regulations and requirements.
The COVID-19 pandemic has had different impacts – sickness or death (health); loss of jobs and income (economic); increased suppression (governance); or increased stress and burden (social). The impacts also differ in their severity for different people, organizations, and countries.
In Moldova, even before the COVID-19 pandemic, the economy had slowed sharply in the last quarter of 2019. So, the pandemic has accelerated the worsening of economic conditions. The economy is expected to decline during 2020. Many businesses closed down with the declaration of a state of emergency in March 2020.
Poverty is projected to increase as households struggle with the effects of COVID-19. Families with more than two children (38%) and single-parent families (27%) are expected to fall below the national poverty line. More people with limited economic sources and businesses with low levels of investment are moving over the edge of poverty and unemployment.
What are the prospects of recovery and adaptation?
We answer this question based on the experience of the OPTIM project of the Swiss Agency for Development and Cooperation (SDC), implemented by Helvetas in partnership with the Moldova Chamber of Commerce and Industry and Mesopartner.
How the pandemic accelerates economic downturns
Measures to contain the spread of the pandemic have led to production disruptions, declines in demand for many goods and services, and scaling down or shutting down of business operations. Small and medium enterprises (SMEs) in Moldova have low relative productivity compared to other countries in the region. SMEs represent around 97% of the total number of enterprises and that they are an essential driver of economic growth and job creation.
For many start-ups and SMEs, access to finance has been hampered by a range of demand- and supply-side obstacles. Skills shortages and poor management practices restrict SMEs’ productivity and innovativeness.
As workers are affected by the pandemic, many are either staying home or are laid off. About 70% of people employed in the SME sector in Moldova are affected. This worsens the labor shortage. In the agriculture sector, for example, seasonal workers have been left unable to reach farms that rely on their labor just as the harvest season is beginning for many crops. Some companies manage to operate at 30% of their capacity, and others manage only 10-15%.
Even if some businesses are going online with the introduction or intensification of e-commence, this isn’t also a straightforward solution.
First, it comes with a lot of pain for businesses. E-commerce isn’t something that can be smoothly and efficiently introduced overnight. It requires partial or total adaptation of the business model and taking care of various elements such as intensive and professional communication with customers. Second, businesses are also not sure whether their customers will receive their orders or not given disruptions in transportation.
Another critical area is a fall in consumer and business spending. This is happening not just because of restrictions in mobility, but also many households are inclined not to spend in the coming months – either due to fear of what comes or loss of income.
Moldova has high migration and huge remittances from those living abroad, accounting for 15% of GDP. The impact of the pandemic is expected to cause a sharp drop in exports and remittances, widening the economic deficit back to above 10% of GDP in 2020.
The road to recovery: the role of business associations
OPTIM has been partnering with the Alliance of Small Enterprises (AIM) before the pandemic. AIM’s members are small businesses working in Moldova. The members work together as allies through networking, resourcing, advocacy, and other initiatives to encourage and protect their growth by sharing common principles.
Then came the pandemic! In a way, the impacts of the pandemic are a test to the relevance of business associations – can associations support their members in such a difficult time?
AIM was one of the first organizations to respond to the crisis. Within two days, it was able to develop a position paper towards the government on behalf of SMEs, requesting appropriate support measures to be put in place. Within two weeks, AIM was also able to cover more than 1,000 businesses with legal, fiscal, and business advice.
Informed businesses during a crisis are better positioned to make sound decisions. AIM has reacted quickly and attempted to rise to the occasion. It has established a Task Force, consisting of a team of legal and financial experts and business consultants who are paired with the businesses. The experts provide immediate advice to the businesses on how to respond to the crisis while at the same time complying with restrictions taken by the government.
One such example is a company called HR portal that runs training programs in Chisinau. “I was not sure about if the help that I get from an expert really address my problem,’ says Cristina Flestor, the Director of HR portal. Cristina heard about the many possibilities of online space for running training. ‘Alexei Kishlaru, AIM’s business consultant, was of great help. We’re now building an online training platform. We’re informed about how to target participants online and feel quite confident that we’ll be successful and keep the model even after the crisis,” adds Cristina.
Many businesses, especially the small ones, are running out of finances. Even if there is support coming from the government or other sources (e.g. donors), some of the small businesses need support on how to effectively use their scare resources, as well as how to navigate new regulations and requirements. AIM has been supporting its members through navigating all the processes that allow businesses to avoid the threat of being ejected from their business premises. The support gives them good legal ground to renegotiate terms and conditions with landlords.
Business development experts also provide a response package to the businesses. An example is how businesses can plan and execute ways for bringing back their operations and respond to the changing environment.
One of the hardest-hit industries in Moldova is tourism. The tourism industry was largely oriented toward outgoing tourism. If borders stay closed for a long time, businesses will need to prepare now and search for other opportunities. This requires understanding the preferences of Moldovan consumers and develop packages for local tourism, once at least internal movement is allowed to a certain extent.
One might argue that businesses need cash support and advice is not going to help, but for Patricia Andronache, the owner of Happy Tour Agency, AIM’s legal support was the key in negotiating terms and conditions of booking cancellations during the crisis.
“If it wasn’t for the quick support of AIM’s lawyer, I probably would have been in much more trouble now.' says Patricia. For her, the experience was very helpful in understanding the relevance of professional support, for example, in drafting legal documents. 'No one knows how and when the crisis can start; we need to get prepared. I’ll definitely use the services of the legal adviser in the future,’ stresses Patricia.
The crisis has shown to AIM, and also many other organizations, how it’s important to be united and coordinated.
‘Before the crisis, I had to convince SMEs on the need to work together,’ says Liliana Busuioc, the Executive Director of AIM. Liliana was trying to promote the value addition of business associations. Now the pandemic is strengthening the message of working together.
‘Talking to many SMEs, everyone seems to know the importance of acting together. I get feedback from many SMEs how they feel grateful that someone is around to support in analyzing complex problems, preparing a consolidated response, and addressing relevant institutions on their behalf. Today, businesses see the role of AIM a lot better,’ adds Liliana.
Building on the momentum, AIM is aiming more! It plans to bring businesses and other associations together. A lot of business membership organizations are advocating and preparing separate proposals to the government. This weakens messaging and wastes efforts and resources. For almost more than a month now, the economic support measures haven’t been announced by the government. The time to work together, therefore, is important through shared responsibilities and a focus on getting quick results.
Many countries are slowly thinking and planning to loosen or lift restrictions and resume businesses. However, many businesses like SMEs in Moldova aren’t quite sure about what the future holds and how they should navigate managing their businesses.
As the example above from OPTIM shows, one of the conditions for recovery is for businesses to work together for mobilizing and sharing resources, and, if possible, quicken the policy response for support by the government and other sources. Collective action isn’t an end by itself, but a means to create added values to members.
The case from AIM shows that the internal governance structure of business associations influences their agility to respond to crises. This contributes to the capacity of small businesses to rebound, reboot, and possibly reinvent themselves.