The world has witnessed several crises over the years that disrupted business activities and put economies on its knees. From the Spanish Flu in 1918 that took the lives of almost 50 million people globally to the great depression in the United States of America and other parts of the world between 1929 and 1933 that saw the increase of unemployment rate and stagnation of economic growth. World War I and II also besieged the world and brought about destruction to vital social and economic infrastructures leading to contraction of production at a time when the industrial age was at its mature phase thereby causing drawbacks to business activities.
Following after that was the dotcom bubble that saw most technology companies going under in 2000 which resulted in job losses and untold hardship to several people. Furthermore, it is a little over a decade when the global financial crisis and its subsequent economic recession caused reduction in consumption due to low disposable income which led to reduced economic activities causing high unemployment rate. The aforementioned historical events that changed the world in various ways caused changes to socio-cultural and economic activities.
Presently, the world is faced with yet another crisis, the novel coronavirus also known as COVID-19, a disease that was discovered in Wuhan, China, and was declared a global pandemic in March 2020. COVID-19 revealed the level of unpreparedness of the world albeit having gone through past events that brought about hostility. This resulted in several emergency interventions by national governments to reduce the distress – at a time where the debt burdens of most nations were high – while working towards normalizing the situation and achieving cultural, social and economic recovery afterwards.
Particularly, national governments in a quest to arrest the decline of their Gross Domestic Product (GDP), job losses and reduce infection rate, death toll and other important health and economic indexes had to support businesses to stay afloat in order for the situation not to get to a level of national security. It has therefore become necessary to decipher and examine the situation, particularly in relation to entrepreneurship with regards to interventions by national governments to empower and position entrepreneurs to contribute to post-COVID economic recovery. In this article, critical discussions on the impact of the crisis on national economy and entrepreneurs, role of entrepreneurs in economic development, and interventions by national governments to allow entrepreneurs to contribute to post-COVID economic recovery have been expounded.
- Impact of COVID-19 on entrepreneurs and national economies
Emanating from the macro business environment, COVID-19 brought about both opportunities and threats. The crisis altered lives socially, culturally and ways of conducting business leading to a new normal. Socially, there were mass restrictions with regards to movement of people, goods and services. Culturally, social distancing measures transformed cultural practices while business practices were equally transformed as a result of measures to reduce spread of the disease leading to negative impact on the economy.
Because of the unpreparedness of most national governments, several emergency interventions within the health, political and financial sectors were deployed and the outcomes are experienced in each country. In 2020, most countries witnessed decline in national economic growth due to halt in business activities and general global trade as a result of closing of national borders, international travel restrictions and even local restrictions as postulated vividly in this article.
In terms of negative impact on entrepreneurial activities, entrepreneurial support systems were adversely affected by the pandemic. This includes but not limited to incubators and accelerator programmes shutting down due to a number of reasons including decline of their revenues, government restrictions which led to reduced demand, and a sudden shift of business operations. Furthermore, access to funding and capital were severely affected especially from private sector sources. The decline in entrepreneurial funding was as a result of investors focusing their funds on existing portfolios because of the high risk level and uncertainty that is associated with COVID-19 and post-pandemic world. Likewise, the level of uncertainty caused by the pandemic has discouraged risk taking and this will lead to decline in entrepreneurial activities. However there is a growing debate on whether funding will decline because the fact is people venture into entrepreneurship for a number of reasons but the most topical are due to opportunities discovered or out of necessity while investors also invest for various reasons.
Furthermore, other entrepreneurial support mechanisms including mentoring, coaching, pitching and networking were also affected by social distancing measures. This is worrying because learning and knowledge transfer are critical to increasing entrepreneurial activities in a country. The truth is, although national governments emergency interventions resulted in some positive outcomes such as reducing the rate of new infection or rollout of vaccination programmes, according to research, these same interventions had direct negative consequences on entrepreneurial activities.
For instance, large firms that employ various entrepreneurs as contractors and suppliers had to cut down orders and terminate service contracts. In a similar vein, smaller businesses including entrepreneurs in both the formal and informal sectors were affected. The informal sectors in emerging markets were the most affected by measures implemented by national governments to curb the spread of the virus.
For instance self-employed entrepreneurs in India lost earnings approximately six times more than formal workers.
Although COVID-19 brought about distress to nations and businesses globally, the pandemic also presented several opportunities to entrepreneurial ventures that had positioned themselves right. Companies that were able to take advantage of the pandemic were those that were able to swiftly adjust their operations and utilize technology.
This is because as lockdown measures restricted movements, online activities began to surge upwards. People began to utilize online channels to do the things that they were doing physically such as grocery shopping, interacting with people, conducting work among others. This phenomenon led to increase in demand for useful technological tools, telecommunications measures and logistics solutions. For instance, companies such as Amazon and Deliveroo realised high growth in the UK. In Ghana, we are yet to see data from online giants such as Jumia but they most certainly had increased activities.
- Interventions by national governments that will allow entrepreneurs to contribute to post-COVID economic recovery
Entrepreneurship is the backbone of socio-economic development of every country; therefore entrepreneurial policies are essential to reduce unemployment rate, increase wealth creation and GDP growth. Over the years government interventions for businesses have moved from funding of traditional government owned ventures to providing enabling environment for entrepreneurs to succeed. This includes having access to capital and infrastructure such as transportation, telecommunication, energy, distribution channels and related support industries. It is important to note that, achieving economic recovery must be underpinned with resilience, inclusivity, sustainability and favourableness to climate conditions.
National governments are particularly focused on reducing the burden on their citizens and the nation as a whole. To achieve long-term recovery at a relatively shorter period, deliberate interventions must be developed and implemented by national governments. Policy interventions tailored for post crisis economic recovery and growth must be designed to increase demand in the short-term and increase supply in long-term.
Also, government interventions are effective when undertaking at various levels, thus, local, regional and national. This will help tackle specific problems in order to achieve long-term growth for the economy. This implies that, business as usual and the act of using generic interventions to solve wider national problems will not be effective in the long-term post-COVID. For instance, for a country such as Ghana, attaining economic recovery would be underpinned by implementing specific interventions for the formal and informal sectors while considering geographical locations and implementing agencies within the local government structure.
What is relevant to Small and Medium Scale Enterprises (SMEs) in the capital city, Accra, may not be relevant to their counterparts in the northern part of Ghana. This is because as entrepreneurs in Accra may be burdened by fixed costs such as high property rental, entrepreneurs in Tamale with vast farming activities for example may be burdened by high inventory days which leads to their goods being destroyed due to its perishability.
Generally, governments have their own objectives for pursuing certain economic interventions and this varies from country to country. However, broad policy objectives include job creation, national economic growth, reduction of national security threats, improving national competitiveness – thus increasing hard and soft power of the country -, and achieving political gains for the political party in power.
As expounded earlier, entrepreneurs play a vital role in every economy and this has made it necessary to deliberately create, nurture and sustain entrepreneurial ecosystems for the post-COVID world. In order to sustain entrepreneurial activities within a jurisdiction, strategic interventions must be put in place by national governments to solicit more interest in entrepreneurship because the more actors there are within an ecosystem, the more that ecosystem grows and sustains. In this regard, entrepreneurs can make meaningful contribution to post-COVID economic recovery when there is a strong ecosystem that thrives through inclusiveness and encourages more actors to participate either through taking up new opportunities or solving a need thereby creating value for consumers. One critical factor is the fact that ecosystems are not static, its building blocks or characteristics are changed based on the entrepreneurial activities. The fundamental building blocks that lead to higher entrepreneurial activities such as government support systems, access to capital, and education among others must be a key focus of government interventions in order for entrepreneurs to contribute to post-COVID economic recovery.
Specifically, interventions including tax exemptions and subsidies for entrepreneurs in certain sectors will lead to higher disposable income which can then be reinvested for growth. This intervention will however be useful when a condition of injecting revenue back into a business is tied to these tax incentives and ensuring that proper accountability is achieved. Additionally, due to issues to access to capital from private sector sources, national governments can intervene through financial support schemes such as loans at affordable interest rates or direct equity participation to help entrepreneurs mobilize capital for their operations because of the impact capital has on business success. Direct equity interventions can be implemented first through debt schemes while having an option to convert the loan to common stock at a later date. However, the business of government is not to operate private business, hence in areas where these interventions are adopted there must be an exit strategy for the government as well as ensuring entrepreneurs adheres strictly to corporate governance measures.
Furthermore the possible extension of emergency measures such as tax and social security contribution deferral for certain sensitive industries can be used to ease the burden on entrepreneurs thereby allowing entrepreneurs to contribute to post-COVID recovery. But if this intervention continues it leaves the workforce at a disadvantage because of the reliance on pension contributions after retirement. National governments must also prioritize interventions that lead to building stronger research and development opportunities for entrepreneurs while creating linkages between these research facilities and industry.
Also, access to entrepreneurial knowledge and having the means to transfer knowledge to the wider population helps with innovation adoption and builds useful human capital. Although existing empirical studies that juxtaposes linkage between entrepreneurial education and economic growth is limited, it was found that at a time when the German government realised their economy was stagnated, an intervention to increase entrepreneurial culture in tertiary institutions was adopted and this led to increase in economic growth.
Again, interventions that enable entrepreneurs to access markets such as deploying effective import and export promotion agencies or investment promotion centres will help to create new market and achieve market synergy with other international markets giving entrepreneurs new markets to operate in. This can further be enhanced when national governments collaborate through trade blocs to remove trade barriers between countries and allow movement and goods and services.
Also, interventions that provide networking platforms that allows entrepreneurs to share ideas will help entrepreneurs to contribute meaningfully to economic recovery. This can be achieved through establishment of entrepreneurial parks and hubs. Ghana has taken a step in the right direction by establishing the Accra Digital Centre.
Additionally, in a post-COVID world, digitization will help entrepreneurial activities to thrive. This is because COVID-19 changed consumer behaviour and the shift to online activities seems to be more permanent. In this regard, governments must implement digitization policies to transform their economy from a paper based cash system to an online cashless system. This brings about higher productivity and efficiency because of the reduction of bureaucratic processes within state institutions.
It is critical to note that in deploying interventions that ensures higher entrepreneurial activities, national governments must ensure it does not alter market competition therefore interventions must be implemented in a way that does not disenfranchise any specific group or sector of the economy.
In conclusion, building resilience and utilizing futures techniques such as strategic anticipation, horizon scanning and scenario planning will help entrepreneurs to be agile and be better prepared to reduce negative impact of future crisis. In addition, government interventions are vital to entrepreneurial contribution to economic recovery for various reasons as stipulated in this discussion. For entrepreneurs to contribute to post-COVID economic recovery, government interventions that strengthen the building blocks of entrepreneurial ecosystem are needed, thus, interventions that increases the number of entrepreneurs within a jurisdiction, advances technology, creates strong support services, enhances access to finance and human capital, increases entrepreneurial education and builds a culture where youth participation in entrepreneurship is encouraged. Also, interventions must be planned and implemented to achieve short-term as well as medium to long-term goals such as job and wealth creation.
About the writer:
King A. Wellington is a business strategist with expertise in executing projects and helping companies achieve their goals in diverse industries.