Export industries are crucial in the crisis because workers in the sector are often formally employed and hence reachable through policy. The firms also typically have formal employment records, relationships with banks and other financial institutions, and a solvency buffer. Moreover, the large export-oriented firms are likely valuable to save. They often embody substantial relationship capital, embedded in relationships with customers, relationships with suppliers, or relationships among employees.
In contrast, a large majority of the urban labour force in the lower-income countries is either self-employed or employed as an informal wage worker. Direct replacement of the wages and earnings of these workers is not feasible, because enterprises have no verifiable records of wages or profits. There is little reason to invest scarce resources in saving the vast majority of these small-scale enterprises, as little relationship capital would be lost if the enterprises were dissolved and re-formed after the crisis.[1]
Keeping exports moving and leveraging solvency in large formal firms is not enough to meet the needs of the new poor generated by the COVID-19 lockdowns. That may imply the need to allocate PPE and testing capacity at important points on the chain where social distancing is impractical. However, given limited fiscal resources, export-oriented firms represent a crucial lever that governments will need in the crisis.
[1] An exception may be enterprises that operate in the domestic food supply chain, which also needs to be kept robust during the crisis.
