www.ifc.org/thoughtleadership NOTE 93 • NOV 2020 Impacts of COVID-19 on the Private Sector in Fragile and Conflict-Affected Situations Prepared by the Fragile and Conflict Situations (FCS) / International Development Association (IDA) Coordination Unit, IFC, in collaboration with FCS Africa, Africa Region, IFC The COVID-19 pandemic is having a significant negative impact on the private sector in developing economies, and businesses and individuals in fragile and conflict-affected situations are among the most severely affected. The pandemic has evolved rapidly from a health emergency to a global economic crisis, spreading through the real sector and posing growing risks to financial systems. Notable sector-level impacts include supply- and demand-based shocks to infrastructure and private healthcare; disruptions to imports, exports, and global and local value chains; and declining agribusiness activity that threatens food insecurity, all leading to financial sector instability. This note examines these sector-level impacts and provides recommendations for how the development community can address them. It advocates, among other things, for balancing short-term, sector-level relief and restructuring efforts with planning for a medium-term to long-term recovery, leveraging upstream interventions to “Build Back Better,” and collaborating with governments and development partners. As fragile and conflict-affected situations face further pandemic-related setbacks on top of already substantial hardships, it is critical that the global development community prioritize support to these vulnerable populations. Fragile and conflict-affected situations (FCS) face many on women is disproportionate, and lockdowns and economic constraints that hamper and undermine their ability to stress can exacerbate domestic violence and harassment. The effectively cope with a crisis of the magnitude of COVID-19. pandemic has also increased the vulnerabilities of forcibly These include poor health systems, weak government capacity displaced persons (FDPs) and their host communities due to to manage a public health response, and limited water limited access to quality healthcare systems and other key availability and related infrastructure that are crucial to services, and the difficulty of practicing social distancing healthcare. The pandemic’s impact is being felt across a range in refugee camps and urban settlements. The development of sectors—from tourism and agribusiness to manufacturing community is mobilizing to address these issues, yet more is and infrastructure. Disruptions to supply chains are required to respond to the acute needs in FCS. particularly harmful to FCS, which are heavily dependent on The COVID-19 Pandemic and FCS food imports and humanitarian aid. The compounded impact According to the World Bank, despite an unprecedented of demand crises, disruptions to transportation and value policy response, the COVID-19 crisis is expected to shrink the chains, and limited availability of credit are forcing micro, global economy by at least 5.2 percent in 2020—the greatest small, and medium enterprises (MSMEs) to cease operations, global contraction in 80 years.1 Although encompassing which in turn increases nonperforming loans and threatens the diverse contexts, FCS countries are generally some of the stability of the financial systems in these nations. poorest and most fragile and, due to these preexisting The COVID-19 crisis also comes with social, public health, vulnerabilities, are likely to be among the most affected by and economic shocks that can exacerbate conflict. The the pandemic. Before COVID-19, real per-capita income in financial strain and compliance with lockdown orders can FCS economies was forecast to increase by an average of 1.4 lay bare inequities and lead to ethnic tensions. The impact percent in 2020; it is now expected to fall by 6.5 percent. 2 1 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group. FCS economies are also more dependent on remittances, so other economies, but limited public finances and fragility impede economic contractions in developed countries, the main source their ability to implement coordinated and effective responses. of remittances, will further compound income reductions in FCS countries. This will be pronounced in remittance- Sectoral Impact Summaries dependent regions such as Latin America and the Caribbean The COVID-19 pandemic has rapidly evolved from a health (Haiti, in particular) and Sub-Saharan Africa. emergency to a global economic crisis, spreading throughout Moreover, COVID-19 and the economic crisis caused by the the real sector and posing growing risks to financial systems. pandemic are converging with armed conflict and climate Discretionary consumption and service-related sectors such change to reverse hard-won gains in global poverty reduction as leisure and hospitality, travel, logistics, and meetings and and shared prosperity. In 2020, an estimated 88 million to conferences have experienced a sharp fall in demand. 115 million people will be pushed into extreme poverty, as Companies dependent on global supply chains in the measured by the international poverty level of $1.90 a day. automotive, electronics, agribusiness, and textile industries An additional increase of 23 million to 35 million in 2021 face significant disruptions to their operations. In the financial could bring the total number of new poor to between 111 sector, banks and microfinance institutions are already affected million and 149 million. The result is hundreds of millions of by a liquidity crunch and are expected to report an increase in additional individuals in poverty, many from populations that nonperforming loans. Companies in the manufacturing and had been relatively spared before the pandemic, and many construction industries continue to face shutdowns and scaled- more from populations subject to FCS hardships.3 back operations. The global economy has acutely felt the impact FDPs and vulnerable communities have been hit hard by the of massive layoffs, furloughs, and reduced compensation. loss of livelihoods and jobs caused by the pandemic. Across the Middle East and North Africa, the United Nations High Health Commissioner for Refugees and its partners received over The effect of the pandemic on the health sector in FCS is 350,000 calls from refugees and internally displaced persons expected to mirror, but be more extreme than, most low- and seeking urgent financial assistance to cover daily basic needs middle-income countries. Private health firms have experienced during the first five weeks of lockdown.4 reduced demand during the pandemic, difficulty accessing Beyond projected impacts on incomes, the pandemic and personal protective equipment and other essentials, and a lack related supply chain disruptions have exacerbated food of public sector contracting to the private sector for COVID-19 insecurity in FCS economies, which are more dependent on treatment and diagnosis. Despite calls to increase health system food imports and generally experience more volatility in prices capacity globally, measures intended to flatten the growth of food and other consumer goods. As the pandemic disrupts curve of COVID-19 cases are decreasing demand for care, global transport and trade, agricultural supply chains will resulting in revenue losses for private healthcare providers and suffer and shortages will increase, causing higher inflation in forcing them to scale back business and lay off workers.7 FCS economies. By the end of 2020, the number of people in This creates a risk of financial pressure—particularly on small acute food insecurity is expected to double to 265 million. 5 businesses such as rural clinics and labs, which provide a large Overall, FCS economies have fewer means to respond to the portion of healthcare in FCS economies—impeding efforts to pandemic. They face the same pandemic-related challenges as provide basic healthcare services to vulnerable populations.8 TABLE 1 Pre-COVID and Post-COVID estimates for selected economic variables for 20206 FCS Economies Non-FCS Economies Change in Change in Change in Change in forecasts forecast (as forecast forecast (as Pre- Post- (percentage % of original Pre- Post- (percentage % of original COVID COVID points) estimate) COVID COVID points) estimate) Real GDP growth (annual %) 3.7 -4.9 -8.5 -232% 4.6 -4.9 -9.5 -205% Real GDP per capita growth (annual %) 1.4 -6.5 -7.9 -571% 3.4 -5.7 -9.1 -268% Inflation, consumer prices (annual change, period avg.)* 8.0 32.1 24.0 299% 4.5 4.8 0.2 5% Foreign Direct Investment, net inflows (% of GDP) 3.6 2.4 -1.2 -34% 3.5 2.4 -1.1 -33% *To prevent bias, the inflation figures exclude Venezuela—a fragile and macroeconomically unstable economy where inflation rates run as high as 100,000 percent. Data source: Macro Poverty Outlook, World Bank. Pre-COVID and post-COVID forecasts were released in January and October 2020 respectively. 2 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group. For example, the Africa Healthcare Federation, an association At a global level, this has resulted in revenue losses of up to 70 for private healthcare firms on the continent, has reported percent for water utilities in emerging market and developing that, on average, private hospitals’ revenues have plummeted economies (EMDEs). Most countries took measures to ensure 40 percent since March 2020. continuity of supply for critical infrastructure services such Health risks are significantly higher in FCS, with one Rand as water during the pandemic. However, disruptions in Corporation study finding that 20 of the 25 countries most global value chains have resulted in delays of crucial supplies, vulnerable to outbreaks of infectious diseases are FCS.9 causing operational challenges for utilities. Water utilities have Somalia, the Central African Republic, Chad, and South reported delays in the delivery of water treatment chemicals Sudan, for instance, face substantial COVID-19-related threats and personal protective equipment. The power sector has also because of political instability and ineffective public health faced a significant slowdown in manufacturing and delivery systems. COVID-19’s burden on health systems translates to of equipment, particularly renewable energy technologies, a negative outcome for public health writ large. According to resulting in project delays and higher construction costs. data from the World Health Organization, UNICEF, Gavi, and Unprecedented disruptions to global trade, travel, and tourism the Sabin Vaccine Institute, routine immunization provision will affect the viability of assets such as ports and airports. services have been substantially hindered by COVID-19 in This will result in significant revenue declines in 2020 (relative at least 68 countries, including FCS, which is likely to affect to pre-crisis projections) for many airports in emerging market roughly 80 million newborn children.10 Fortunately, there is regions. Sharp declines in commodity prices will reduce fiscal some evidence that these hindrances are abating with time as space for public infrastructure investments in commodity- polio campaigns resume.11 dependent countries. Finance Food Security and Agribusiness The financial sector has taken a hit across FCS economies, with Food insecurity looms as a major threat to FCS populations. an expected increase in nonperforming loans. Declines in loan FCS economies are among the most dependent on imports for demand and individual incomes are resulting in financial system basic food security, so they are particularly susceptible to food shocks including ballooning nonperforming loans, insolvency shortages resulting from price distortions and the disruption of filings, asset fire sales, and unnecessary liquidations.12 In housing international trade and supply chains. The UN’s World Food finance, the loss of income will increase bad debts, reduce capital Programme has warned of acute famines due to the pandemic; ratios, put pressure on secondary mortgage markets, and create it estimates that nine of the ten countries most vulnerable to liquidity challenges.13 As capital markets are heavily impacted by food crises—and also impacted by conflict, economic crisis, COVID-19-induced global systemic shock, SMEs and firms with and climate change—are FCS: Afghanistan, the Democratic significant debt in foreign currencies are highly vulnerable.14 In Republic of the Congo (DRC), Haiti, Nigeria, South Sudan, Iraq, in response to financial sector stress, the central bank has Sudan, Syria, Venezuela, and Yemen.17 announced a moratorium on interest and principal payments by In addition, COVID-19 is expected to have an outsized impact on SMEs through its directed lending initiative and has encouraged FCS economies already overburdened by climate shocks. Climate banks to extend maturities of all loans as needed.15 change—and particularly the increase in natural disasters— significantly impacts FCS contexts, with 80 percent of people Infrastructure who are affected by natural disasters already living in FCS.18 The COVID-19 crisis is affecting infrastructure sectors in FCS The agribusiness sector has experienced increased food supply countries through two main channels. These include shocks chain disruptions with growing concern for smallholder to supply and demand for infrastructure services and spillover farmers and access to inputs for upcoming seasons. Informal effects. COVID-19 containment measures are contributing jobs are highly prevalent in agriculture, and such jobs to lower demand for most infrastructure services, causing tend to be the most vulnerable to loss of employment and/ revenue losses for infrastructure utilities and risks to short- or unsafe conditions.19 Additionally, SMEs, which provide and medium-term business continuity. Global demand for most production and post-farm agricultural services in FCS electricity is projected to contract by 5 percent in 2020.16 markets, face financial challenges as a result of the economic At the same time, several power distribution companies have shutdowns mandated for pandemic control. According to a declared “force majeure” and are halting payments to power recent survey, the pandemic has also caused disruptions to producers. Infrastructure utilities in FCS economies have food production, supply chains, and financing in countries like prioritized operational and emergency response expenditures, the DRC, Côte d’Ivoire, and Mozambique. Farmers there have ahead of maintenance and capital expenditures, to ensure reported negative impacts on their production and livelihoods continuity of supply. and evidence of supply-chain breakdowns—in terms of trader 3 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group. scarcity, transport disruptions, and market closures—with of participants are now unemployed as a result of the crisis, increased scarcity in crucial inputs, labor, access to trade while 36 percent of young workers face unemployment. 27 In credit, and bank credit. 20 Colombia, Venezuelan refugees and migrants have attempted In the absence of safety-net programs, widespread business to return home because there are no income opportunities failures will hollow out agribusiness sectors. The loss of jobs and available during the lockdown. 28 incomes is reducing agriculture-related demand and threatening gains made over the past decade in poverty reduction and Information Communications Technologies and improved nutrition in South Asia and Sub-Saharan Africa.21 Digital Services The COVID-19 crisis highlights the important role that digital Value Chains, Imports, and Exports connectivity can play in building resilient companies and The pandemic is expected to cause major disruptions to societies. According to the World Bank, digital transformation imports, exports, and local and global value chains, affecting in Africa could add two percentage points to annual growth many firms and their employees in FCS. Since the outbreak and reduce continent-wide poverty by one percentage point.29 began, Myanmar has witnessed widespread supply chain Middle-income countries have seen notable increases in the disruptions in the garment sector (responsible for a quarter use of digital technology to obtain access to goods and services of exports), international trade, and agriculture (responsible during the pandemic, with governments increasing their use for around half of employment), resulting in mass layoffs of digital connectivity to deliver critical public services such as and factory closures. As a result, Myanmar’s current account healthcare and social transfers. But in FCS, the lack of digital balance deficit is expected to expand from 2.6 percent to 4 infrastructure impacts the private sector’s ability to develop percent of GDP, as exports decline in the gas and garment rapid solutions to meet growing demand by the quarantined subsectors, and an external financing gap of $1.7 billion was populace. Digital infrastructure in FCS economies lags in expected by October 2020. 22 Nigeria, meanwhile, logged comparison to their non-FCS counterparts. Data from the its second straight quarter with a trade deficit in June 2020, World Bank shows that in 2017—the most recent year for after 12 straight quarters of surpluses, as crude oil exports which data is available—only 24 percent of the population in were 12.8 percent lower than a year prior due to COVID-19- FCS used the Internet from any location and on any device, related reductions in international demand. 23 According to a compared to 45 percent in other low- and middle-income non- joint World Bank-IFC-United Nations Industrial Development FCS countries. In 2018, there were about 65 mobile telephone Organization survey of Somali enterprise, 71 percent of firms subscriptions per 100 people on average in FCS, compared experienced disruptions to their supply chains. 24 to 102 subscriptions per 100 people in similar non-FCS Small, informal firms are most vulnerable and have limited economies.30 Digitalization can bridge the gap between uneven access to resources to mitigate the impacts of the crisis. As a progress in the realms of governance and commercial and social result, impacts on employment, both formal and informal, development, allowing for disenfranchised communities to gain are expected to be severe. According to the COVID-19 newfound access to goods and services, and building business Business Pulse Survey of Afghani businesses, 38 percent of continuity resilience in the face of shocks.31 firms marked the closure of international borders as the most significant driver of disruption to business operations and Private Equity their value chains, limiting access to raw materials, immediate According to the report Foreign Investor Perspectives inputs, and finished goods needed for trade or production. and Policy Implications, 2017-2018 Global Investment While vulnerability is felt by Afghani firms of all sizes, it is Competitiveness, foreign direct investment (FDI) in FCS considerably higher among firms with at least one female represents just 1 percent of global FDI flows.32 In FCS, where shareholder, exporting firms, and businesses with a larger opportunities are already scarce, the pandemic is expected to share of female workers. 25 slow private equity (PE) transaction volumes as capital will In Lebanon, which has been in a state of emergency for most be deployed more slowly and prudently. In a tighter lending of 2020, almost half the working population is in sectors with environment, PE firms will operate with a more conservative high job insecurity, while the informally employed—who capital structure and reduce leverage. The ability of the make up almost two-thirds of workers in risk-sectors—and funds market to withstand the current economic crisis and refugees and domestic migrants face heightened discrimination the prospect of capital outflows remain largely untested in and increased challenges impacting their employment and FCS, where the markets are small and not yet developed. A livelihoods. 26 In Iraq, similarly, the crisis has disproportionally setback in the market-creation process for smaller PE firms, affected youth and informal workers, with one International particularly generalist firms and those without a differentiated Labour Organization survey noting that roughly a quarter strategy in a downturn, is expected. 4 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group. threaten to reverse development gains and to exacerbate the BOX 1 Investment Needs already precarious circumstances of vulnerable groups. Despite the challenges, there are opportunities for fund The UN-OCHA COVID-19 risk index, which reflects both managers and firms to get involved and leverage their capital for the public good in pandemic-affected FCS. In vulnerability and response capacity, 39 highlights that the the wake of the COVID-19 crisis, some manufacturing 10 countries most at risk of COVID-19—with Somalia, firms are seeking to transition to produce personal Afghanistan, and the DRC the top three40 —host a combined protective equipment, which creates a new need for financial support and skills training from the private 17.3 million internally displaced persons.41 The COVID-19 sector. In addition, as humanitarian supply chains crisis risks deepening societal tensions and inequality are roiled by pandemic-related disruptions, there is a with relation to these groups. In Cameroon, for example, need to help firms create linkages into the value chains a breakdown of inter-community trust is resulting in an of humanitarian operations. Financial support to microfinance institutions and equity stakes in strategic increase in attacks on citizens suspected of carrying the SME on-lending banks could help provide emergency COVID-19 virus. The Islamic State launched attacks in cash infusions to ailing small businesses. Afghanistan and Niger after publicizing their intention to take advantage of the situation.42 Impacts on Gender and Conflict and Security Security and political dynamics are volatile in many FCS Globally, about 264 million women live in FCS countries,33 economies, with increased risk of instability. In Burkina Faso, where they face multiple challenges of poverty, gender- COVID-19 and ongoing insecurity issues have increased based violence, and discrimination founded in inadequate forced displacement and disrupted government services in legal protection. These factors are only heightened by the the country’s northern region.43 What’s more, the interaction COVID-19 pandemic.34 Evidence from past epidemics indicates of COVID-19 and violent conflict could negatively impact resources are often diverted from routine health services, private sector operations in FCS. The insurgency of Islamic further reducing the already limited access of many girls and State-linked militants that emerged in 2017 in Mozambique’s young women to sexual and reproductive health services, as gas-rich province of Cabo Delgado has escalated significantly. well as maternal, newborn, and child health services.35 Between January and April 2020, the Armed Conflict Moreover, as the COVID-19 crisis increases economic and Location & Event Data Project recorded 101 violent incidents, social stress, restricts movement, and causes social isolation, marking a 300 percent increase from the same period last gender-based violence is increasing. Many women are being year.44 Under the impact of a combination of crashing global forced to quarantine at home with their abusers while services energy prices and imposition of COVID-19-related work and to support survivors are being disrupted or made inaccessible, travel restrictions affecting personnel and supplies, energy resulting in reports of surges in gender-based violence of more projects in the region are experiencing delays. While the than 25 percent in some countries with reporting systems.36 pandemic is a short-term threat in nature, the insecurity of the Compounded economic impacts, meanwhile, are being felt acutely by women and girls who generally earn less, save less, and BOX 2COVID and Women-owned SMEs hold insecure jobs or live close to poverty, all of which increase in Somalia their financial dependence on men. Informal workers, most of COVID threatens women’s empowerment and whom are women and lack access to credit and social safety nets, household welfare in Somalia, where women currently account for more than two-thirds of the workforce in developing provide, on average, 70 percent of household income. countries, ranging from 60 percent in Latin America to over 90 Somali women are engaged in the informal sector, microenterprises, agricultural production, and percent in Sub-Saharan Africa and South Asia.37 livestock. The majority of micro-businesses are owned Formal sector women’s jobs are also at risk during the by women, who constitute 60 percent of businesses ownership. The curfew in Mogadishu has significantly pandemic. In particular, women-led SMEs are at risk as they reduced the time women have to sell tea and milk, often have smaller businesses operating in lower-margin particularly at night, which is their peak business industries and are more susceptible to demand disruptions period. Reduced mobility in the city has reduced the than the average small business (see Box 2). 38 volume of trade, with women recording very low sales or shutting down their tea businesses. Those The COVID-19 crisis compounds social, economic, and health retailing khat and candies, who largely depend on the vulnerabilities, with the potential for significant impacts airport and seaport for their supplies, have gone out on existing FCS dynamics. The confluence of the pandemic of business because of airport closures. Businessmen who normally lend women goods and money for trade with long-entrenched FCS conditions—weak state capacity, have suspended their services, putting women out of a strained social contract, active conflict, tenuous political business. Source: Input provided by FCS Africa. agreements, and forced displacement—result in new crises that 5 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group. region will persist and risk turning into a full-blown civil war, Recommendations for the DFI Community and making the prospect of a long-waited gas boom precarious. Development Partners The Donor Community and IFC Response to Date The development community’s FCS COVID-19 crisis response and recovery interventions should be guided by appropriate The development finance institution (DFI) community has adaptation to COVID-19 circumstances. The recent World sprung into action to address the negative impacts and Bank Group Crisis Response Approach Paper49 and the externalities of the COVID-19 pandemic. DFIs have launched Independent Evaluation Group’s Guide50 provide a framework responses that include the deferment of debt-service payments, for the COVID-19 response in FCS. Key guidelines to inform the provision of short-term liquidity for working capital for DFI responses in FCS contexts consist of: (i) strengthening financial intermediaries to on-lend to struggling firms, and community engagement; (ii) preserving and strengthening trade finance guarantees. Other measures include providing key institutions and services; (iii) focusing support and giving additional financing to existing clients hampered by the special consideration to impacts on vulnerable groups such pandemic and plans to invest in health resilience in EMDE as women, youth, refugees, internally displaced persons, and client countries. The European Bank for Reconstruction and host communities; (iv) mitigating FCS risks and vulnerability Development has announced that it would be dedicating all of and strengthening sources of resilience by linking emergency its activity in 2020–21, worth €21 billion, to the COVID-19 responses, strategy, and operations to fragility and conflict response, including €4 billion in working capital.45 In response sensitive recovery; and (v) building diagnostic work and the to COVID-19, Norfund keeps up with the daily business of its sequencing of the response on country strategic priorities and investments, provides support to affected portfolio companies, ongoing country programing. and helps prepare proactive measures as needed.46 Balancing short-term relief and restructuring efforts while The Trade and Development Bank (TDB), for its part, is preparing for medium-to-long-term recovery is key. DFI undertaking special initiatives targeting continued access to responses to the COVID-19 crisis would do well to follow trade and development financing, focusing specifically on priority medical supplies and other critical commodities.47 the example of the WBG approach stipulated in the Crisis The U.S. International Development Finance Corporation Response Approach Paper, which categorizes responses into (DFC) has approved the new Rapid Response Liquidity three separate but related phases: Relief, Restructuring, and Facility, which provides up to $4 billion in additional Resilient Recovery. 51 In line with this approach, DFI efforts financing for existing DFC projects stymied by the pandemic. in the immediate-to-short term should provide much-needed In addition, the DFC has announced a call for proposals crisis and emergency support, while also providing plans under its Health and Prosperity Initiative, under which it for the medium-to-long-term recovery reconstruction of plans to invest up to $2 billion to bolster health resilience in pandemic-affected FCS economies in the aftermath. its developing client countries.48 In the health sector, efforts should focus on collaboration In March, IFC approved its $8 billion Fast Track COVID-19 with decision makers at the country and global levels who are Facility to respond to the trade and real-sector impacts on able to identify firms that can address the need for training existing clients. It is ensuring flexibility for its clients within healthcare workers to build capacity. This approach can help its current Operations Procedures, and it continues to provide mitigate the insolvency of private healthcare providers and the essential advisory support, including remote advice for risk long-term degradation of healthcare provision in FCS, while management. Of the $4 billion that has been committed to addressing access to healthcare by prioritizing funding to firms date, close to half is expected to benefit people in the poorest that can deliver and contribute to affordable and improved countries and fragile states, with the remainder helping to health outcomes. 52 support the fight against COVID-19 across other EMDEs. In In the financial sector, DFIs should collaborate to support the next, medium-term response phase, IFC is exploring ways local banks. In addressing the needs of SMEs, in addition to to help in the recovery and rebuilding phase for both new and providing indispensable direct support to small local sponsors existing clients, which includes both COVID-19 “Base of the during this time of crisis, DFIs will look to help expand the Pyramid” and Global Health Value Chain programs. reach of microfinance institutions and central bank programs While these efforts made by DFIs are significant, they are focused on SME financial support. Also, funding support is spread among many countries and are not focused specifically needed in local currencies and at affordable rates. Capital enough on FCS. Considering the substantial hardships support to microfinance institutions as they absorb pandemic- already faced by FCS economies, a more tailored and nuanced related losses is sorely needed, as well as immediate support to approach is required to adequately address the needs of these productive SMEs. Financial services also need to be extended vulnerable populations. to FDP and refugee-owned businesses. 6 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group. DFIs can leverage additional blended concessional DFIs can maintain robust dialogue with existing clients finance, work upstream, and collaborate with multilateral and key stakeholders (such as chambers of commerce) to development banks to support infrastructure in FCS during stay abreast of developments on the ground, allowing DFIs and after the crisis. FCS countries facing elevated liquidity to better support pandemic adaptation and anticipate new constraints during and after COVID-19 will need: (i) DFI opportunities for recovery and beyond. Moreover, DFIs structuring, mobilization, political-risk mitigation and can explore modalities for helping manufacturing clients in expertise to support resilience and recovery efforts; (ii) FCS repurpose their operations to deliver humanitarian aid increased use of risk mitigation instruments, liquidity support, supplies in the wake of disrupted supply chains. and concessional financing; (iii) continued focus on upstream DFIs should look to increase engagement with potential support to improve resilience and support project development new clients to support the resilient recovery process. In the that will ready the market for investments post-recovery; and current, immediate phase of the COVID-19 response, DFIs are (iv) sustained MDB collaboration, especially in sectors that working primarily with existing clients, due to the difficulties remain largely under public management. of engaging with new clients while travel restrictions are Livelihoods and crucial service provision should be protected in place. Yet engaging new clients should be a focus during by expanding advisory and financing to manufacturing, food upstream program development, including identifying private imports, and value chains. DFIs can play a key role helping sector actors that can support recovery efforts in FCS markets. manufacturing sector clients transition their production from apparel to Personal Protective Equipment, 53 scaling Upstream interventions should be leveraged to “Build Back up advisory engagements along with complementary Better” in the face of myriad risks and shocks. Working concessional funding across FCS to safeguard both public upstream can help create the conditions for future capital health and livelihoods. Moreover, as humanitarian aid flows—domestic, foreign, and private—into productive supply chains are disrupted by the impact of COVID-19, investment in FCS economies. Identifying reforms that unlock DFI advisory engagements can begin exploring ways to help private investment can help bring sorely needed capital to FCS manufacturing clients in countries affected by forced recovering FCS countries and create projects for prospective displacement repurpose their operations to deliver goods and investors. In addition, “build back better”—which means not services to support logistics, transportation, and the supply of only restoring economies and livelihoods, but also securing humanitarian aid. DFIs can also provide training for sectoral long-term prosperity that is resilient to new shocks—will be transitions for workers operating in heavily impacted sectors necessary to combat vulnerability and low state capacity to like food services.54 protect FCS populations from climate shocks. 55 In addition to sector-focused support, DFI support can go Finally, it is critical for the global development community to beyond enterprises and the financial sector and include remain focused on supporting FCS. In the era of COVID-19, guiding governments in FCS contexts to elaborate effective while an unprecedented amount of global attention is being paid COVID-19 response programs. For example, IFC been has to the crisis and its impact—mass unemployment, damaged helping the government of Côte d’Ivoire operationalize its financial markets, and disruptions to global trade—there is a newly established private sector support funds for both large danger that the most vulnerable of the world’s population could enterprises and SMEs. be overlooked. As noted in the Poverty and Shared Prosperity Development actors should work together to prepare for 2020 report, conflict—in confluence with the pandemic and resilient recovery, including through leveraging dialogue climate change—threatens to drive FCS populations further with regional partners and sub-regional platforms. While into extreme poverty.56 As such, it is important that enough DFIs’ immediate responses are rightly focused on addressing concern and donor support is given to those whose lives have short-term needs, they should also focus on planning for already been adversely affected by fragility and conflict, as they resilient recovery after the crisis has subsided. In addition, now face further setbacks during the pandemic. ACKNOWLEDGMENTS The note was prepared by the FCS/IDA Coordination Unit within the Blended Finance Department, Economics and Private Sector Development, IFC, and the FCS Africa Initiative, Sub-Saharan Africa Region, IFC, consisting of: Joanna Kata-Blackman, Senior Operations Officer; Kurt Hagemann, Consultant; Audrey (Achonu) Omotayo, Associate Operations Officer; Andre Dybvikstrand Straaboe, Junior Professional Officer; Ozan Cakmak, Extended Term Consultant; Ridwan Bolaji Bello, Consultant; Katrin Greisberger, Operations Officer, and Rebecca Post, Senior Communications Officer, Blended Finance Department; and Weiyi Wang, Knowledge Management Analyst, FCS Africa Initiative, Sub-Saharan Africa Region, IFC. The authors would like to thank the following colleagues for their inputs, review, and suggestions: Getrude Etendi Misango; Bettina W. Boekle; Giima Mabel Lavaly; Adriana Maria Eftimie; Aicha Sow; within Thought Leadership, Economics and Private Sector Development, IFC: Adyasha Mohanty, Research Assistant; and Thomas Rehermann, Senior Economist. 7 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group. Additional analyses provided by colleagues within the Economics and Private Sector Development Vice Presidency, IFC: Emelly Mutambatsere; Andrew Myburgh; Oksana Nagayets; Sephooko Ignatius Motelle; Hassan Kaleem; Heather Kipnis; Anne Njambi Kabugi; Georges Vivien Houngbonon; Carol Marina Tojeiro; Priyanka Tayal; and Shabnam Hameed. Please see the following additional reports and EM Compass Notes about responses to COVID-19 and about reaching unserved and underserved populations in emerging markets: Artificial Intelligence in Emerging Markets—Opportunities, Trends, and Emerging Business Models (report, September 2020); Lessons for Electric Utilities from COVID-19 Responses in Emerging Markets (Note 90, September 2020); Social Bonds Can Help Mitigate the Economic and Social Effects of the COVID-19 Crisis (Note 89, August 2020); Leveraging Inclusive Businesses Models to Support the Base of the Pyramid during COVID-19 (Note 84, May 2020); What COVID-19 Means for Digital Infrastructure in Emerging Markets (Note 83, May 2020). 1 World Bank Group. 2020. Global Economic Prospects, June 2020. 27 International Labour Organization. 2020. “COVID-19 crisis in Iraq disproportionately 2 Note that in this section, the comparative analysis between FCS and non-FCS affects young workers and the informally employed.” Press Release, 16 July 2020. economies includes only low- and middle-income countries. High-income countries 28 United Nations Policy Brief. 2020. “Policy Brief: COVID-19 and People on the Move.” are excluded from the analysis. Note also that the analysis is based on forecasts June 2020. from the World Bank Macro Poverty Outlook (MPO) data, which provides historical 29 World Bank. 2020. “Taking the Pulse of Africa’s Economy.” Africa’s Pulse: Volume 19, data as well as three-year forecasts of growth trends for the global economy. 8 April 2019. 3 World Bank Group. 2020. “Poverty and Shared Prosperity 2020: Reversals of 30 World Bank Group. 2020. World Bank Open Data. Accesses 9 October 2020. https:// Fortune.” Poverty and Shared Prosperity Reports, 2020. data.worldbank.org/ 4 United Nations Policy Brief. 2020. “Policy Brief: COVID-19 and People on the Move.” 31 See also Strusani, Davide, Georges Vivien Houngbonon. 2020. “What COVID-19 June 2020. Means for Digital Infrastructure in Emerging Markets.” EM Compass Note No 83, May 5 World Food Programme. 2020. “COVID-19 will double number of people facing food 2020. crises unless swift action is taken.” News Releases, 21 April 2020. 32 World Bank Group. 2018. “Foreign Investor Perspectives and Policy Implications.” 6 A comprehensive list of the FY 21 IFC FCS Countries can be 2017-2018 Global Competitiveness Report, 2018. found here: https://worldbankgroup.sharepoint.com/:x:/s/ifcbf/ 33 Based on the World Bank FY20 FCS list. At present, there are 39 FCV countries EREDTgXShF5Hu575rSrxCuMBjjxyBg0uo5pDCcp_VbyEaA?e=YaaC1o according to the World Bank FY 21 List of FCV countries. 7 Hellowel, Mark, Andrew Myburgh, Mirja Channa Sjoblom, Srinivas Gurazada, and 34 Quek, Yvonne. 2019. “Women’s Work Amid Fragility and Conflict: Key Patterns and David Clarke. 2020. “How COVID-19 (Coronavirus) Affects Private Health Care Constraints”. Georgetown University for Women, Peace and Security. February 2019. Providers In Developing Countries.” World Bank Blogs, 10 June 2020. 35 United Nations Policy Brief. 2020. “Policy Brief: The Impact of COVID-19 on Women.” 8 Hellowel, Mark, et al. 2020. 9 April 2020. 9 Moore, Melinda, Bill Gelfeld, Adeyemi Theophilius Okunogbe, and Christopher Paul. 36 United Nations Policy Brief. 9 April 2020. 2016. “Identifying Future Disease Hot Spots: Infectious Disease Vulnerability Index.” 37 Freund, Caroline and Iva Ilieva Hamel. 2020. “COVID is Hurting Women Economically, RAND Corporation, 2016. But Governments Have the Tools to Offset the Pain.” World Bank Blogs, 13 May 2020. 10 World Health Organization. 2020. “At least 80 million children under one at risk 38 Teleki, Wendy. 2020. “Towards a Gender-Smart Response in the COVID-19 of diseases such as diphtheria, measles and polio as COVID-19 disrupts routine (Coronavirus) Crisis.” Women Entrepreneurs Finance Initiative. 2020. vaccination efforts, warn Gavi, WHO and UNICEF. News release, 22 May 2020. 39 UNOCHA. 2020. “Global Humanitarian Response Plan: COVID-19.” April-December 11 Global Polio Eradication Initiative. 2020. “Polio campaigns resume with strict 2020. COVID-19 prevention measures.” News Stories, 30 July 2020. 40 INFORM. 2020. “INFORM Covid Risk Index: Results and Analysis.” Version 0.1.2, 17 12 WBG. 2020. “Equitable Growth, Finance, and Institutions COVID-19 Notes Finance April 2020. Series. COVID-19 Outbreak: Implications on Corporate and Individual Insolvency.” 41 Internal Displacement Monitoring Centre. 2020. “Global Report on Internal Equitable Growth, Finance, and Institutions Group, 13 April 2020. Displacement 2020.” 13 WBG. 2020. “Equitable Growth, Finance, and Institutions COVID-19 Notes Finance 42 WBG. 2020 “Policy Note on COVID-19 FCV Impacts.” Fragility, Conflict, and Violence Series. COVID-19 Outbreak: Housing Finance Implications and Response.” Equitable Group. Growth, Finance, and Institutions Group, 1 April 2020. 43 WBG. 2020. “Burkina Faso Country Update, April 2020.” Economics and Private 14 WBG. 2020. “Equitable Growth, Finance, and Institutions COVID-19 Notes Finance Sector Development Vice Presidency, Country Economics and Engagement. April Series. COVID-19 Outbreak: Capital Market Implications and Response.” Equitable 2020. Growth, Finance, and Institutions Group, March 2020. 44 Armed Conflict Location & Event Data Project. 2020. “CDT Spotlight: Escalation in 15 International Monetary Fund. 2020. “Policy Responses to COVID-19.” 26 June 2020. Mozambique.” COVID-19 Disorder Tracker Spotlight, 30 April 2020. 16 International Energy Association. 2020. “Global Energy Review 2020.” Flagship 45 European Bank for Reconstruction and Development. 2020. “The EBRD and the Report, April 2020. Coronavirus Pandemic.” 17 World Food Programme. 2020. “2020 Global Report on Food Crises: Joint Analysis 46 Norfund. 2020. “Norfund and the Coronavirus.” for Better Decisions.” 2020. 47 Trade and Development Bank. 2020. “A Strengthened Response to the COVID-19 18 World Bank Group. 2020. “World Bank Group Strategy for Fragility, Conflict, and Pandemic.” 1 April 2020. Violence, 2020-2025.” 26 February 2020. 48 U.S. International Development Finance Corporation. 2020. “DFC Announces $4 19 Climate Prediction Center’s Africa’s Hazards Outlook June 4-10, 2020. Billion COVID-19 Rapid Response Liquidity Facility.” 26 May 2020. 20 World Bank Group. 2020. “COVID-19 and Food Security: Update May 26, 2020”; 49 WBG. 2020. “Saving Lives, Scaling-up Impact and Getting Back on Track. World Bank Survey by Tetra Tech, the African Fertilizer and Agribusiness Partnership. Group COVID-19 Crisis Response Approach Paper.” June 2020. 21 Center for Strategic and International Studies (CSIS). 2020. “Covid-19 Threatens 50 WBG. 2020. “Lessons from Fragility, Conflict and Violence (FCV) for COVID–19: A Global Food Security: What Should the United States Do?” 22 April 2020. Reference Guide Navigating IEG’s Evidence to Inform the COVID-19 Responses.” 22 International Monetary Fund. 2020. “Myanmar: Requests for Disbursement Under Independent Evaluation Group, 2020. the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press 51 WBG. 2020. “Saving Lives, Scaling-up Impact and Getting Back on Track. World Bank Release; Staff Report; and Statement by the Executive Director for Myanmar.” IMF Group COVID-19 Crisis Response Approach Paper.” June 2020. Staff Country Reports, 2 July 2020. 52 Hellowel, Mark, et al. 2020. 23 Golubski, Christina and Mary Treacy. 2020. “Africa in the news: African economic growth, Nigeria, and Burundi updates.” Brookings Institute, 13 June 2020. 53 Moyo, Mary-Jean and Tania Lozansky. 2020. “Working with Africa’s Apparel Makers to Produce Personal Protective Equipment.” World Bank Blogs, 19 May 2020. 24 United Nations Industrial Development Organization. 2020. “Impact of the COVID-19 Crisis on Firms: Preliminary findings from the business survey in Somalia.” September 54 International Labour Organization. 2020. “Jobs for Peace and Resilience: A response 2020. to COVID-19 in fragile contexts.” ILO Guidance Note, 20 April 2020. 25 Rehman, Zia Ur. 2020. “COVID-19 Hit Businesses in Afghanistan Leaving Workers 55 Organisation for Economic Cooperation and Development. 2020. “Building Back Vulnerable.” International Finance Corporation Blogs, 1 September 2020. Better: A Sustainable, Resilient Recovery after COVID-19.” OECD Policy Response to Coronavirus (COVID-19), June 5, 2020. 26 International Labour Organization. 2020. “Rapid Diagnostic Assessment of Employment Impacts under COVID-19 in Lebanon.” ILO Country Brief, 3 September 56 World Bank Group. 2020. “Poverty and Shared Prosperity 2020: Reversals of 2020. Fortune.” 8 This publication may be reused for noncommercial purposes if the source is cited as IFC, a member of the World Bank Group.