By Paulo Martelli, CFA: Director, Investments at FinDev Canada
People and organizations around the world are currently facing the abrupt and exceptional challenges resulting from the COVID-19 pandemic. I want to take a few moments to share FinDev Canada’s immediate response to this crisis and discuss how we’re gaining insight into, and preparing for, the medium and longer-term repercussions for our client companies and the people they serve.
Our immediate priority was to learn about the well-being of our clients, their employees, and their families. I’m pleased to say that, with the initial enquiries made, there were no reports of any overly adverse personal impacts. The companies we support through our investments tell us that their employees are well and working as best, and as safely, as they can under the circumstances in their home countries.
Beyond that, we also wanted to know the financial situation and specific needs of those firms in Africa, Latin America, and the Caribbean where we have investments or partnerships designed to promote growth, create jobs, and improve the lives of people living in poverty. I’m pleased to say that this scan of our portfolio has shown that the firms we’ve funded are responding to the crisis relatively well so far. Certainly, they are facing unprecedented challenges in serving customers and within their own supply chains, but they are striving as best they can to weather the uncertainty markets around the world are currently facing. We have been impressed by examples of effective precautionary measures and creative ideas for staff morale, thorough scenario planning, and regular transparent communications with employees, their financing partners and their Boards.
Knowing of the current impacts on the businesses we work with, our next task has been to try to understand what more could be done, and to anticipate potential challenges, or opportunities. This is an on-going exercise as we speak daily with our clients and with other development finance institutions (DFIs), and as we all continue to analyze rapidly changing conditions.
We already know that COVID-19 will, eventually, spare no corner of the world. The economic and financial ripple effects of the pandemic itself and its resulting lockdowns will threaten livelihoods, personal and corporate, everywhere and across all economic sectors, from retail to agriculture to manufacturing to travel, tourism, and hospitality.
The global predictions are stark. The International Monetary Fund foresees a 3% drop in world GDP this year, with advanced economies slumping by more than 6%, the steepest and fastest declines since the Great Depression of the 1930’s. “This is a crisis like no other,” says the IMF, and we agree.
Moreover, developing economies are likely to see an even greater contraction, given that many of these countries rely heavily on international trade or the vulnerable informal sector for growth. The World Trade Organization predicts that trade will fall between 13% and 32% this year. A global recession will mean falling demand for both raw materials and finished goods from countries in the regions where we operate.
Lower export revenues and balance of payments difficulties lead to less foreign investment and less liquidity in domestic markets. Combined with a sudden, dramatic drop in demand and little, if any, financial resources to fall back on, many firms in Africa, Latin America, and the Caribbean will be forced to lay off workers or shut their doors altogether, amplifying the downturn.
Everywhere, the economic impacts of the pandemic will be felt disproportionately by those in the most precarious situations, often carrying out the lowest-paying and least secure work. Women in particular, will bear the heaviest burden. A recent blog by my colleague Anne-Marie Lévesque recently explored what some of the consequences will be, and what could be done to mitigate the impacts.
Focusing on the mission:
At times like this, organizations such as ours are called upon to be even more responsive than might have been the case under “normal” market conditions. Since our doors opened in 2018, FinDev Canada has partnered with other investors in advanced economies, or with other international development finance institutions, to support the growth of the private sector in developing economies. Our raison d’être has been, and remains, to provide businesses in developing countries with the capital they need when and where others are unable or unwilling to do so.
But we can do more, and here’s how. We’re seeking to partner more pro-actively with companies in our priority markets to support their growth and resilience. When we become aware of a potential investment we continue to review and process transactions, but more speedily so that we can get much-needed funds “out the door” sooner. We’ve reduced our regular investment approval decision-making process and are processing select transactions in as little as 60 days.
We’re combining this accelerated timetable with additional stress tests to ensure that each transaction we process is robust enough to deal with the changing economic situation. Since we can’t travel and meet potential investees in person, we’ve dramatically stepped up our use of information and communications technologies to really get to know the entrepreneurs and companies who might be good long-term partners for us.
We’ve also been ramping up consultations with peer organizations, exchanging information to see where we can add value through the expertise we have and the areas that FinDev Canada focuses on: the agribusiness value chain, sustainable infrastructure, and financial intermediaries. Given current circumstances, we expect to be the busiest in this last sector, as we seek to leverage our investments and provide liquidity and capital buffers to the greatest number of small and medium-sized enterprises.
Development finance institutions have always been an essential complement to traditional development assistance and direct foreign investment from the private sector. There is a long history of DFIs from countries such as the United Kingdom or the Netherlands supporting the growth and success of the local private sector in emerging markets.
As a new DFI, we have been working to make our mark over time and boost entrepreneurs and small and medium-sized enterprises in their markets. With a relatively small portfolio to date, we are fortunate to have a more open balance sheet to tackle the COVID-19 crisis, assisting companies to withstand it and flourish when it wanes.
We think that the world we live in today needs more of what DFIs have to offer and that DFIs need to assume fully the missions that they’ve been assigned. From the perspective of FinDev Canada, the moment has come to show what we can do, and we are ready, willing and able to respond.