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SMEs and Refugees

Impact investing in a time of war

Global migration has risen steadily over the past two decades, with the UN recording 281 million people living outside their countries of origin in 2020, a 62% increase from 2000 levels. Much of this peripatetic migration has been fostered by globalization and positive economic activity, as people move in search of opportunity and a better life for themselves and their families.

However, of particular concern underlying these overall figures is the proportion of migrants who have been forcibly displaced across national borders, fleeing war, violence, and persecution. As reported by the United Nations Department of Economic and Social Affairs, over 34 million such involuntary migrants were tallied in 2020, more than double the number in 2000, and despite a reduction in overall migration during the COVID-19 pandemic the number of forcibly displaced persons (FDPs) has continued to rise — including internal displacements, 1 in 95 people on Earth are now forcibly displaced.

The war and destruction in Ukraine are now creating a new wave of additional FDPs: over 6.3 million between February and May of 2022 alone, according to the Office of the United Nations High Commissioner for Refugees. This massive, displaced population is generating significant inflows into Poland, Romania, Hungary, Moldova, Slovakia, and other countries.

1 in 95 people on Earth are now forcibly displaced.

In contrast to other international migrants, who tend to settle in high-income (65%) and middle income (31%) countries, FDPs are destined overwhelmingly (80%) for low-income and middle- income countries, where opportunities and structured support for integration tend to be lower. Although investments in welcoming and supporting migrants pay development dividends — IMF data shows that countries get back nearly twice the cost of welcoming and supporting refugees in the first five years alone — low-income countries are less able to bear these up-front costs on their own. And costs are substantial: the Center for Global Development estimates that just “support for Ukrainian refugees could cost hosting states as much as $30 billion over the next year.”

Refugees Welcome Banner

Employment is the best way for FDPs to support themselves and minimize costs to their host nations, but inability to access the job market due to legal barriers and discrimination is perennially one of the chief concerns for refugee populations. Refugees are undervalued in the marketplace and the workplace, despite frequently possessing valuable skills and experience, due to the perception of them as “other” and to the suspicion of host communities that they will be burdens or potential sources of criminal activity. At the very least, there is always concern that arriving refugees will take existing opportunities from existing residents in a zero-sum job market.

The time-honored way for FDPs to transcend these obstacles is to start their own businesses. Although this might sound like a classic immigrant story from the last century, the trend remains alive and well — a 2012 study by the Ewing Marion Kauffman Foundation found that immigrants to the US were almost twice as likely to start businesses as people born in the US, and, likewise in Britain, newcomers are almost twice as likely to start a business. Migrant- founded businesses are more likely to employ other migrants, and help to spur innovation by transplanting product and service ideas between countries, remixing existing ideas from their founders’ countries of origin in the context of new opportunities to make something novel and additive to the local market.

We were all once refugees

SEAF’s experience with SMEs in emerging markets shows that they follow the same template as more developed countries. In many ways, the skill sets that FDPs can bring with them to lower- income countries are even more in need than they are in high-income host countries. SEAF’s Co- founder and Chief Investment Officer Bert van der Vaart notes that: “for example, SEAF has seen Armenian agribusiness enterprises utilize Syrian refugees to lead export sales campaigns of Armenian mushrooms and vegetables to Arabic speaking countries, not only recognizing the importance of such refugees’ language skills, but also utilizing the business experience and market contacts such refugees had while living and working in Syria.”

Countries get back nearly twice the cost of welcoming and supporting refugees in the first five years alone

Providing a support and funding ecosystem for SMEs founded by or serving FDPs can help cement this positive development impact in place. Van der Vaart goes on to say, “In exploring investment opportunities in investing in Syrian refugees in Armenia, we saw that many of the especially highly educated refugees in fact were ‘snatched’ from productive work in Armenia by the opportunities to migrate to Canada or Australia, countries targeting skilled engineers and doctors. Had there been more sources of equity finance available to support more sophisticated employment, it may have been the case that more might have stayed in Armenia.”

When this terrible war is over, there will be a need to rebuild Ukraine’s infrastructure, and to help create new business links and supply chains with less dependence on Russia throughout the region. Meanwhile, support for small businesses that can support and employ Ukrainian refugees is the best way to ensure that the talent and skills of a great nation are preserved today. We urge all of our colleagues in the impact investing space to join with us in actively looking for ways to provide such support — for refugees from Ukraine as well as from Syria, Afghanistan, South Sudan, Myanmar, and other locations of conflict.

Paul Sheehan is the CEO of SEAF, and oversees the investment, advisory, and operations teams globally. With more than 25 years’ experience in financial institutions, he has spent his career in emerging markets investment and advisory, working on the ground in over 30 countries in Asia, Europe, and Africa. Paul, ... Read more

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