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22 Apr Views from the Field: Managing Through the COVID-19 Crisis in Frontier Markets
By David Mathewson, SEAF Senior Managing Director
One advantage of investing in emerging markets for over thirty years is that we can safely say that we have worked our way through every conceivable crisis: multiple currency crises, civil wars, regional wars, financial panics, government changes, and everything in between.
While a global pandemic is new for us like everyone else in the world, we have been heartened so far by the resiliency and calm determination exhibited by our portfolio company leaders, many of whom have managed through – or at least certainly lived through – prior crisis times. These individuals seem to possess certain levels of “crisis antibodies”, namely an inherent understanding that crisis times require immediate action and a sure awareness that this crisis, like all others, will pass. For example, our portfolio managers in Turkey for whom this is now their fourth or fifth crisis have shown calm, nuanced management of the times in ways that managers in other more predictably-stable markets often have not. As any experienced professional will attest, difficult experiences do indeed build character and know-how.
As we work hand-in-hand with our portfolio companies around the globe, we have sought to share experiences and best practices amongst our team members and others in the ecosystem. Although we are still in the middle stages of the Covid crisis, a few key learnings shared thus far include the following:
There is strength in numbers
The Covid lockdowns and disruptions affect all parts of society and the economy. Consequently, there are great advantages for industry participants to work together in ways that ensure the survival of the industry. Competition for market share can wait for another day. In Kosovo, for example, we have seen our telecommunication company work in partnership with its industry peers to advocate common positions towards the government. In Georgia, our food retailing company cooperated with its peers to arrange transportation for employees who are keeping all the country’s supermarkets open and stocked with food. Working together as an industry community to share ideas, find areas of collaboration, see challenges from various perspectives, compare solutions, etc. are important elements in getting through the crisis successfully. SEAF supports this peer networking activity directly in over a dozen countries through the work of our innovative CEEDs (Centers for Entrepreneurship and Executive Development).
Be extremely proactive
The middle days of a crisis often are the best times to approach vendors, financers, and others from whom accommodations would be helpful. We strongly encourage our companies to take the lead in contacting vendors and banks to recommend payment plans or other proposals that reflect the companies’ best interests. We also have urged our companies to be proactive with customers/clients to see how the crisis is affecting them. The most pro-active firms likely will be the most successful in navigating the crisis. In the Philippines, our cloud accounting business has reached out to all its SME clients to understand and provide appropriate advice to these entrepreneurs in managing through the swath of new regulatory announcements, including tax updates, while in Vietnam entrepreneurs have worked together with other tenants to approach landlords about rent modifications.
Communicate/take advantage of available programs with applicable governments
Many governments, including emerging and frontier market governments, are providing subsidized access to finance or are developing other stimulus programs. Although many of our private portfolio companies do not have on-going dealings with local governments, we have strongly encouraged our companies to investigate and take advantage of what may be available and to advocate for programs or stimulus that make sense. SMEs make a disproportionate local impact on employment, local supply chains, and stability—this point must be made clear to the relevant governmental authorities and Chambers of Commerce.
Retool and re-adjust
There is no doubt that the Covid crisis will change some things forever for surviving companies, just as we experienced in the aftermath of the GFC and post-2001. Certain businesses will no doubt move more heavily into the digital realm, including customer sales and servicing activities. We already have portfolio companies who plan to keep a significant number of their back-office employees in work-from-home status post-crisis. Expected benefits of this include improved workforce flexibility, employee retention, and lower operating costs as we shed central office space. As a global owner of portfolio assets, we will continue to source global best practices in remote/disbursed employee management and guide our companies in the implementation of these practices.
Be alert to opportunities
Market shocks create unexpected new opportunities. Every portfolio manager will say that great track records are birthed in the depths of an economic downturn. The same dynamic is at work for our private portfolio companies, and we are counseling all of our CEOs to be thinking through strategic options (mergers, acquisitions, product line changes, etc.) which may not have been readily available or advisable prior to the crisis. We recall a number of years ago how an excellent acquisition opportunity in Croatia developed solely because of the retrenchment of a cautious international investor in the wake of the 2001 terror attacks. Such opportunities will surely present themselves again in the coming 12-18 months, and we are eagerly looking to deploy dry powder in those markets where we have available funding, and we expect to re-double our efforts to raise capital in other markets where we have a presence and can sense the opportunities. “Recovery capital” smartly deployed in appropriate sectors will not only speed economic recovery and create jobs with related positive social impacts but will likely result in 2021 being an attractive vintage year.