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How are small businesses in Colombia coping with the pandemic?

Posted By Juan Navarrete, Fundacion Capital, Wednesday, July 15, 2020
Updated: Wednesday, July 15, 2020

Written by Mauricio Romero, Evaluation and Research Coordinator of Fundación Capital

 

In April 2020,  Fundación Capital  conducted an opinion poll¹ in Colombia to understand how small businesses² are being affected by the crisis generated by COVID-19.

This survey took place as part of the DigitAll project, a Fundación Capital initiative sponsored by Mastercard’s Center for Inclusive Growth. DigitAll’s goal is to strengthen 50,000 small businesses with growth potential (strivers) in Colombia, Mexico and Peru by boosting entrepreneurs’ capacities to better manage their businesses and by promoting their digital transformation. Although this initiative was conceived in 2019, the current pandemic has highlighted the importance of digital transformation in the strengthening and, in many cases, the very survival of small businesses in Latin America. A survey conducted by the Chinese Academy of Financial Inclusion (CAFI) in March 2020 showed that for micro and small enterprises, there is a strong correlation between digitization and financial resilience.

Supporting small businesses in the current situation is vital given that this sector represents one of the main economic engines in the region and is also one of the largest generators of employment. Despite their economic importance, these types of shops have had to face different difficulties related to the competition and expansion of large supermarket chains, and the recent impact on sales caused by quarantine regulations adopted by different governments in the region.

How have businesses been affected by the pandemic?

The main impact on businesses has been in the form of staff layoffs and decreased sales. 45% of the businesses surveyed were forced to lay off some of their employees as a result of the quarantine, and 66% of the businesses reported a 50% (or higher) drop in sales.

What vision do small business owners have for the future?

Despite the current situation and the context of growing uncertainty, the majority of businesses surveyed (63%) said they have the will to continue with their current business and even 28% believe they have the potential to grow.

Have all businesses been affected equally?

It is very important to differentiate by type of business because not everyone is facing the crisis in the same way. Businesses such as stationery stores, hardware stores or hairdressers face greater difficulties due to the closure of the points of sale. In contrast, businesses considered essential (drugstores, grocery stores and mini-markets) have remained in operation, and some of them have even experienced increases in sales.

How do small business owners perceive the digital transformation process?

Most merchants have taken advantage of adopting digital transformation processes. The primary technological solution used by retailers has been selling and shipping through WhatsApp. 69% of them reported offering delivery services to their customers through WhatsApp during the quarantine. Apart from that, no other e-commerce tools were identified. Cash continues to prevail over electronic means of payment, but a change in this trend is very likely due to biosecurity reasons at the points of sale.

What are small business owners’ main needs during the pandemic?

Due to the current situation, new needs related to information accessibility have emerged. Through the survey, we identified that in order to sustain their businesses, small business owners require information related to three fundamental axes: i) biosecurity measures within the business, ii) financial relief programs, and iii) fiscal/tax relief. The main means of communication that small business owners have to access information related to programs or initiatives to help small businesses are television news programs. However, because of business owners’ fixed schedules and the TV programs’ diverse content, these are not necessarily the most suitable channels to access the information that businesses need.

The responses from this survey will be used in order to redesign and adapt the DigitAll project to the new context. For example, based on the information gathered, the virtual assistant “ConHector” developed by Fundación Capital on the WhatsApp platform has been adapted to provide small business owners with an emergency information package with content on biosecurity measures, and tax and financial relief. The analysis will be further enhanced by the results obtained from the surveys in Mexico and Peru.

An important conclusion of the study is that while there is a consensus on the importance of technology in increasing productivity among small businesses, many still find it difficult to navigate the opportunities that digitization brings. The DigitAll project seeks precisely to guide them along the path toward digital transformation.

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The purpose of this survey is to provide a quick statistical measurement to understand the perception of small business owners in the face of the pandemic. This survey is not intended to be nationally representative.

2 The survey was conducted with 200 small businesses located in the city of Bogotá through a digital platform where they directly respond to the survey questions through their own cell phones. The people who responded to the survey participate voluntarily in a community of merchants with small businesses (2–9 employees) dedicated to retail sales: grocery stores, pharmacies, restaurants, miscellaneous, hardware stores, restaurants and bakeries.

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