Perceptions of ‘the missing middle’ can shape business policies

Policy debates on de-risking Africa’s food supply chains often emphasize measures for large corporations, while overlooking the ‘missing middle’ of small and medium-sized enterprises. Supporting these businesses through tailored risk-mitigation policies can bolster resilience, economic stability and food security. At the same time, systematically monitoring their ground-level insights – their ‘ear-to-the-ground’ knowledge – gives invaluable input to early-warning systems.

Assem Abu Hatab, NAI and Carl-Johan Lagerkvist External link, opens in new window., SLU

Current discussions about ‘de-risking’ – the strategic application of public policies and financial instruments to mitigate or share risks that discourage private investment – predominantly emphasize macro-level measures that involve governments and large businesses. These approaches focus primarily on having governments – or the international community – intervene to shift or share unpredictable risks, such as political instability, regulatory change or currency fluctuations, that discourage private-sector engagement. Typical mechanisms include guarantees and insurances offered by institutions like the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) or national export credit agencies to cover political and credit risks; facilities for hedging currency exposure; and public-private partnerships in large-scale infrastructure, energy and agribusiness projects.

While these macro-level measures are critical, they cater to the needs of large, multinational corporations. A perspective that is often overlooked is the view of small and medium-sized enterprises (SMEs), despite the critical contribution they make to economic ecosystems. Policymakers can more effectively strengthen SMEs’ resilience to future shocks by engaging with these enterprises to understand their unique risk perspectives and by designing targeted, bottom-up support mechanisms. As global disruption – from conflict to climate change – is likely to continue, such proactive measures are vital for developing strategies that restore and maintain economic stability amid these ongoing global uncertainties.

Interviews with ‘the missing middle’

Harnessing ground-level insights into perceived business risks was the premise of a survey External link, opens in new window. conducted by the Nordic Africa Institute (NAI) and the Swedish University of Agricultural Sciences (SLU). The project looked at SMEs in the agri-food sector in Egypt, though its findings have wider relevance from a larger policy perspective. The survey was conducted in 2022, following Russia’s aggression in Ukraine, which occurred while food systems in Egypt and many other developing countries were still struggling to recover from the consequences of the COVID-19 pandemic. It involved structured interviews with business managers from 450 registered SMEs across various regions of Egypt, collectively representing producers, processors and exporters of raw and processed agri-food commodities. Similar to other African countries, SMEs drive the economy in Egypt, accounting for 90 percent of the private sector, 43 percent of GDP, and 75 percent of the workforce External link, opens in new window.. Yet, SMEs’ size, weaker financial base and frequent exclusion from government support schemes leave them more exposed than larger firms to external shocks. Respondents were asked how they perceived the risks to their business posed by the Russo-Ukrainian war, and there were follow-up questions to assess the actual impact and mitigation strategies.

Before analysing the survey results, we outline the rationale for selecting the Russo-Ukrainian war as a case study and the focus on Egyptian SMEs for examining risk perception and management. When Russia invaded Ukraine in February 2022, Egypt was still grappling with the aftershocks of the COVID-19 pandemic. Both crises exposed vulnerabilities in food supply chains External link, opens in new window., but the war added new layers of pressure External link, opens in new window.. Egypt sources much of its wheat and fertilizer from Russia and Ukraine. The survey also reflected this: over 60 per cent of the SMEs questioned had direct trade ties to those two countries. The war represented a distinct type of external shock that has a profound structural impact on global agri-food systems, disrupting both input supply chains (e.g. inability of major suppliers like Russia and Ukraine to deliver) and output markets (e.g. loss of established export markets). Global logistics were disrupted: blockaded ports and cancelled shipping routes, mostly in the Black Sea, increased delays and risks for exporters. This also pushed up insurance costs. Unlike the price shocks that are caused by oil crises, which allow for a gradual business adjustment driven by the new relative prices, the war’s effects were immediate and systemic, making it ideal for studying vulnerabilities to abrupt disruption.

For Egypt, a country that is heavily reliant on both imports and exports of agri-food commodities, the war’s impact was particularly severe. Egyptian SMEs – both those that were importing raw materials (e.g. grain from Russia and Ukraine) and those that were exporting processed and raw agri-food products (e.g. fruits and vegetables) – faced a dual challenge: the war disrupted their access to critical inputs, while simultaneously altering the export-market dynamics, forcing SMEs to reorient their trade strategies to cope with the disruption. The focus on SMEs stems from their position in the supply chain, operating as they do between large agribusinesses and smallholder farmers or informal traders. These enterprises, working side by side with larger firms in Egypt’s agri-food sector, were directly affected by the war’s disruption, rather than merely indirectly through market ripples that impacted larger players. SMEs are often too large to benefit from microfinance or smallholder aid schemes, yet too small to access commercial credit or government incentives designed for major corporations. This results in a ‘missing middle’ phenomenon that is common across African economies, whereby SMEs in the agri-food sector and beyond are under-supported and encounter distinct risks that necessitate tailored policy support.

Six clusters of perceived business risk

The findings of our survey – conducted in the early stages of Russia’s aggression in Ukraine, when disruption to global food supply systems emerged as a critical business-strategy concern – capture the perceived risks and business impacts reported by agri-food SMEs in Egypt. Their responses were grouped into six distinct clusters of risk perception:

1. Cost-driven risks (10%). Firms in this cluster highlighted rising shipping fees, alternative transport costs and currency volatility. For example, exporters who had shifted from Black Sea routes to longer, costlier alternatives faced significant cost increases.
2. Market dynamics risks (21%). These firms, primarily exporters, expressed concern about declining foreign demand, sanctions, blockaded routes and disrupted logistics. Fruit exporters, for instance, feared being turned away from European ports due to storage delays.
3. Cost and market risks (23%). Combining the above, this cluster included firms anticipating both rising costs and shrinking demand. This ‘high-alert’ group often accurately predicted subsequent business challenges.
4. Multi-crisis risks (9%). Firms in this cluster viewed the war as compounding other challenges, such as domestic economic slowdown, climate shocks and COVID-19 recovery efforts.
5. Contractual / trade partner risks (15%). These firms reported risks like broken contracts, delayed payment or unpredictable payment terms (such as a shift away from USD). Exporters, for instance, worried about contract disputes due to shipment rejections.
6. Cybersecurity / communication risks (22%). These firms were concerned about disruption to digital systems and communication channels critical to their operations, including cyberattacks, hacking, malware, phishing, internet outages or compromised digital payment systems potentially targeted by the war. Compared to other clusters, these firms perceived relatively few risks.

The multidimensional nature of these perceived risks reflects the diverse challenges that SMEs face, shaped by their market exposure, product type and operational experience. This diversity underscores the need for differentiated policy responses to help the agri-food sector prepare for and mitigate shocks. No single solution can address the varied risks perceived by SMEs, which require tailored strategies to enhance resilience across the sector.

Eight out of ten firms negatively impacted

In our analysis of how the SMEs were impacted by the war, we have identified three groups:

1. Minimally impacted (21%). These firms maintained stable revenue and manageable costs, and experienced minimal disruption. Typically, they were larger, export-diversified SMEs with robust cash-flow coverage exceeding six months.
2. Moderately impacted (52%). Firms in this group faced modest revenue declines, rising input costs and occasional delays. They often implemented layoffs and had cash-flow coverage ranging from one to five months.
3. Substantially impacted (26%). These firms experienced a significant drop in revenue of over 10 per cent, coupled with sharply increased costs, frequent shipment rejections and delays. They typically had limited cash-flow coverage of less than three months and layoffs exceeding 20 per cent.

Overall, the survey showed that almost eight out of ten firms were negatively affected, and more than a quarter were substantially affected.

Lessons from the risk-awareness of SMEs

The survey revealed a strong association between the types of risk perceived by SMEs and the extent of the economic impact they were experiencing. Companies that perceived higher risk were disproportionately overrepresented in the ‘substantially impacted’ group. For example, when the survey compared risk perceptions with reported business outcomes, it found that 62 per cent of enterprises in the ‘Cost and market risks’ cluster were also in the ‘substantial impact’ group.

Here are a few policy-relevant insights from the analysis:

1. Low perceived risk does not imply a low level of vulnerability. SMEs with lower risk perceptions may still be vulnerable, due to their operational context, suggesting that policymakers should not equate low risk perception with resilience.
2. Limited risk-awareness requires targeted support. Some SMEs perceive fewer risks due to a lack of information or capacity to assess threats, indicating a need for policies that enhance risk-awareness and crisis-preparedness strategies.
3. Interconnected supply chains amplify the impact. SMEs faced disruption not only from their own vulnerabilities, but also from ripple effects (for example farmers unable to supply inputs or customers delaying payments), highlighting the need for holistic policy interventions.
4. SMEs’ perceptions can serve as early-warning indicators. The risk perceptions of managers of small businesses reflect real-time signals from their business environment, such as rising input prices, shipping delays or payment risks. In contexts with limited or delayed official data, systematically collecting and aggregating these perceptions through surveys or digital platforms can serve as a cost-effective early-warning system to identify vulnerabilities before they escalate into crises.

These findings underscore the importance of tailored policy responses that account for the diverse risk profiles and operational contexts of SMEs to strengthen their resilience to structural disruption, such as that caused by the war.

Short-term response, long-term resilience

Based on the discussion above, the role of SMEs in de-risking strategies is evident. Beyond this, further insights can be drawn on how to mitigate the impacts of crises and strengthen resilience to external shocks. Here, we can outline policy measures to improve both short-term crisis response and long-term resilience.

For a more effective short-term response capacity to external shocks to the food system, it is essential to build preparedness to provide quick and easily accessible working capital loans, tax relief, targeted subsidies and other means of emergency support. This support will be even more efficient if processors and distributors are prioritized, as disruption to their businesses tends to ripple along the entire chain. Such prioritization measures could, for example, include facilitating fast-track import channels for fertilizers and fuels, and applying (temporary) price-stabilization schemes to those same product categories (in order to reduce volatility). The government and the international community could also help facilitate the access of SMEs to markets, for example by assisting with alternative shipping routes and supporting them in renegotiating disrupted contracts.

When it comes to building long-term resilience, the fine-tuned and receptive ‘ear-to-the-ground’ intelligence of SMEs should be integrated into early-warning systems, as well as into strategic analyses of systemic and idiosyncratic risks. Assessing the perceived risks of SMEs, for example through regular surveys, should be included as part of national food security monitoring. There is strong evidence that diversified trade and supply bases help businesses and economies withstand external shocks. For example, a recent report from UNCTAD External link, opens in new window. on the vulnerability of African economies to global shocks emphasizes that regional integration to diversify exports and supply chains would strengthen the continent’s economic resilience. In the specific case of Egypt’s agri-food sector, this translates into a need to expand beyond today’s heavy reliance on Russia, Ukraine and the EU. The encouragement of South-South trade, the fostering of regional African markets and the promotion of domestic sourcing are strategic policy choices that would diversify supply chains.

Another well-evidenced correlation is that between weak value-chain integration and economic vulnerability External link, opens in new window.. This is especially true when it comes to Egypt’s agri-food sector External link, opens in new window., where the different actors in the value chain often operate in individual silos. For example, small farmers (producers) often sell to intermediaries without much coordination; processors often rely on a too-limited network of suppliers; and exporters often lack steady contracts with processors. These gaps make the value chains fragile; if one actor fails, the whole chain is disrupted. To reduce the weak links, governments should – alongside industry and trade associations – work to incentivize linkages between producers, processors and exporters. They could, for example, support and facilitate networks of SMEs and digital platforms, where different value-chain actors (producers, processors and suppliers) share market intelligence and logistics, and where they can connect more directly – both horizontally and vertically – thus reducing their reliance on intermediaries.

On a macro-infrastructural level, there is research evidence indicating that governments should invest in domestic capacity in terms of grain storage External link, opens in new window., processing External link, opens in new window., fertilizer production External link, opens in new window., transport External link, opens in new window. and cold-chain infrastructure External link, opens in new window., in order to improve food security and economic resilience to external shocks. Financial tools, such as government-backed credit guarantees for exporters External link, opens in new window. and SME insurance against financial risks External link, opens in new window. like contract failures or shipment rejections, are of course also part of the long-term resilience-building toolbox.

Policy recommendations

• Resilience is uneven. Crisis responses to support small firms should target clusters of SMEs, rather than treating the sector as a homogeneous whole. One size does not fit all.
• The 'missing middle' is critical. SMEs form the backbone both of agri-food systems and of many other economic sectors, not only in Egypt, but across Africa and beyond. Any disruptions that hit SMEs endanger the entire supply chain, from upstream producers and farmers through processors and distributors to downstream consumers.
• Integration and diversification are essential. Reducing reliance on a handful of markets and ensuring stronger connections across the value chain will limit cascading risks.
• Use should be made of SMEs’ ground-level insights. The unspoken, intuitive “ear-to-the-ground” knowledge of local businesses is key to predicting and mitigating economic risk. Regular mapping of the risk perceptions of small firms can help inform early-warning systems.