Business

Covid-19 Wipes Out Small Businesses in Poor Countries

Rizky Eka Valdano

spent nearly a decade building a travel business from scratch. By early 2020, the Indonesian entrepreneur—who grew up amid economic hardship and paid for college by hawking fake Rolex watches—had 12 employees, a Japanese car and credit cards.

Mr. Rizky’s company closed. His relationship with the woman he planned to marry ended. The 32-year-old now sleeps on a sofa bed in a room adjoining a friend’s carpentry workshop.

“This is the lowest I’ve ever been,” he said.

For the past few months, Mr. Rizky has lived in a room next to the workshop of a carpenter friend, who lets him stay there free of charge.

While struggling companies in advanced economies received aid to cushion the pandemic’s blow, cash-strapped developing countries have provided minimal or no support. Banks are wary about giving loans to such businesses, which they see as riskier than large companies.

Many small and midsize businesses have gone belly up, said

Richard Bolwijn,

 who heads the investment research branch of the United Nations Conference on Trade and Development. In the developing world, “no recovery can take place” unless these businesses revive, he said.

Companies with fewer than 50 employees, along with the self-employed, account for more than 70% of jobs in developing countries, according to the U.N.’s International Labor Organization. In Indonesia—which is suffering its worst economic downturn since the Asian financial crisis nearly 25 years ago—a government study in December found that 98% of micro, small and medium enterprises saw revenues fall during the pandemic and 45% shed employees. The country never went into national lockdown, but large-scale outbreaks have hurt domestic tourism and depressed retail sales.

Yuswati Kastulina closed her two retail stores last year, laid off her employees and shifted her business online, where she has struggled to get online orders.

Before the pandemic, Yuswati Kastulina sold handmade shirts from two stores in the capital Jakarta. With customers avoiding shopping centers for fear of contracting the virus, she closed the stores last year, laid off her staff and shifted her business online. Like many entrepreneurs in developing countries, she has struggled to cultivate an online customer base. “I’m sewing myself to push down the cost of production because there aren’t too many orders,” she said.

Many who had acquired middle-class security have returned to a hardscrabble life.

Mr. Rizky’s parents separated when he was a boy. Debt collectors frequented their home in Jakarta’s outskirts after the family business supplying sweets to local eateries failed. He left home at age 16, sharing a friend’s dormitory bed to save money in college, where he studied international relations.

While still a student, he started a travel agency, betting his country’s expanding middle class would pay to have their vacations planned. Maritim Travel Indonesia began in 2011 with trips to the Thousand Islands north of Jakarta and expanded to destinations like Bali. Two years later, he dropped out of college to focus on growing the business. By 2017, he was offering tours to as far as South Korea.

At one point, Mr. Rizky, on end in jeans, employed 12 workers, and revenue at his travel agency Maritim touched $1 million in 2019.



Photo:

Rizky Eka Valdano

To draw online customers, Mr. Rizky set up six websites featuring holiday hot spots and adventurous activities. He diversified into planning corporate retreats and, in 2018, leased a bigger office in a two-story commercial building in a Jakarta suburb. Eager to plow all his earnings into the venture, he converted the office’s second floor into a living space for himself and three employees. The company’s revenues touched $1 million in 2019.

That year, Mr. Rizky went on a buying spree to boost the company’s competitiveness, spending $22,000 on equipment including six digital cameras, new cellphones for sales representatives, laptops, a sound system for events and a Toyota car. He planned to pay in installments, much of it with his personal credit cards.

“I hadn’t reached my goals yet,” he said. “I couldn’t relax.”

He would soon discover, as the virus spread to Indonesia, that his investments were ill-timed. Clients canceled vacations and study tours, and Mr. Rizky made no money for two months straight. With his office lease paid through early 2021 and his monthly obligations mounting, he gathered his staff in April last year and announced, choking back tears, that they were furloughed.

Lasyarief Romario lost his job when the travel agency closed. He now works as a mechanic and ferries commuters around on motorcycle taxis, earning 70% less than before.

The collapse upended their lives. An early hire, 28-year-old

Lasyarief Romario,

was earning twice as much designing tourist itineraries at Maritim than he had in his previous job packing shipping boxes. With that gone, he found work as a mechanic and riding motorcycle taxis that are commonplace on Jakarta’s streets. His income dropped 70%. Instead of working in an air-conditioned office, he ferries commuters in the scorching heat.

“Whether we want to or not, we have to do it,” he said.

Mr. Rizky figured if he could pivot to a new line of business, he could keep the company afloat until the pandemic receded. He saw an opportunity in supplying face masks, prices for which had soared, and invited his furloughed employees to market the gear for a percentage of sales. But global production of masks ramped up and before he received his first batch of goods, prices plummeted, forcing them to sell at a loss.

He had another idea: supplying frozen food, including vegetables and sausages, to Jakarta restaurants. A supplier lent Mr. Rizky a freezer, which he hauled into the travel agency last May. Margins were low, however, and insufficient to cover his monthly expenses of around $5,000 that included payments on his car, cameras and other pre-pandemic purchases.

He reached out to banks but had no luck. The $160 he received in government assistance for small businesses was nowhere near enough to make a dent.

“I felt so bewildered,” he said. “Where could I possibly get money from?”

In September and October, a jump in coronavirus cases led to a weekslong ban on dining-in at restaurants. Demand for his food supplies dropped further and his few remaining employees left the shared living space above the office. “My team eventually grew disappointed because I failed. It weighed on me,” he said.

Mr. Rizky sold much of the business equipment starting in December and pawned his car in February, but lenders still continue to pursue him.

Last fall, Mr. Rizky’s girlfriend asked when they would get engaged, and he said it would have to be pushed back because of his financial troubles. They broke up. Sitting in his empty Jakarta-area office one November evening, he called his mother and wept. Concerned Mr. Rizky might hurt himself, she contacted his father, who rushed over after midnight. “He kept on talking, so my head wouldn’t be empty,” Mr. Rizky said.

Before dawn, they prayed together for the first time in years.

Mr. Rizky sold much of the business equipment starting in December and pawned his car in February. But it wasn’t enough, with lenders continuing to pursue pending payments for the car, cameras, phones and sound system. Since his lease ran out in April, Mr. Rizky has lived in a room next to the workshop of a carpenter friend, who lets him use it free. To earn some cash, he helps friends who sell clothes and electronics online draw more web traffic.

Mr. Rizky’s father offered to sell the family’s house to help settle Mr. Rizky’s debts, which include credit cards and unpaid corporate taxes, now standing at $25,000. “I’m absolutely devastated,” he said.

Pandemic’s Toll in the Developing World

Write to Jon Emont at [email protected]

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