Do Digitalization and Digital Finance Help Small Firms Survive Global Economic Uncertainty in Central and West Asia? Evidence from Rapid Surveys

Abstract

The Russia–Ukraine conflict disrupted a V-shaped economic post-pandemic recovery in Central and West Asia. It affected global supply chains and slowed the region’s growth momentum while adding inflationary pressures. Private businesses were adversely affected by the impact of the conflict and global sanctions against the Russian Federation, with the effects being more pronounced for micro and small firms. The pandemic helped create a base of digitalized firms. As the impact of the conflict began to be felt, how did business digitalization affect the operations of small firms? Would digital finance help fill unmet financing demand from small firms during the difficult time brought by the conflict? This paper assesses the impact of the conflict on digitalized small firms’ operations and discusses the effect of digital finance, and whether it helps small firms survive global economic uncertainty. It uses a linear probability regression based on rapid business surveys conducted in seven Central and West Asian countries—Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, and Uzbekistan. The results show that digitalization has yet to allow small firms to take full advantage of the opportunities it offers for more efficient business operations. Digital finance has yet to be well accepted and used by small businesses, even those already digitalized. Based on the analysis, the paper suggests four policy implications that can help promote business digitalization of small firms and the use of digital finance across the region.