A business
survey of Ugandan enterprises, reveals that new realities requiring
companies to adjust to
new business models, is the prudent way to respond to the uncertainties of the Coronavirus (Covid-19).
new business models, is the prudent way to respond to the uncertainties of the Coronavirus (Covid-19).
The
most popular adaptation measures according to a survey examining the
impact of Covid-19 on formal Small and Medium Enterprises (SMEs), is the
use of digital and communication technologies plus new
procurement/supply delivery channels.
A socioeconomic
assessment of Covid-19 by the United Nations Capital Development Fund
(UNCDF), Makerere University (the College of Business and Management
Sciences) and Uganda Revenue Authority (URA) conducted in April 2020
reveals that only those SMEs that have embraced new models as a priority
in their operations, will thrive amidst the pandemic.
The report, however, notes that so far, online channels are used by
about 40 per cent of all companies. Almost as many use telephone
communication to reach out to customers, receive orders and payments.
This
should be in addition to switching local materials where possible.
Mobile door-to-door delivery is also widespread, with 27 per cent of all
companies relying on this method.
Digital solutions
reduce transaction costs of dealing with suppliers and customers,
facilitate financial transactions, and allow for data recording and
analysis for multiple purposes including building the business credit
profile to facilitate access to finance.
In the context of Covid-19, digital solutions minimise the need
for physical contact between the business and its partners and
customers.
Digital potential
The sectors with a huge digital potential, education and health and social work, also report low uptake of digital solutions (23.0 and 30.6 per cent, respectively). The challenge of creating adequate online content in a short period of time and availability of digital devices and Internet penetration as well as digital skills) hamper wider application of digital solutions across all industries.
The sectors with a huge digital potential, education and health and social work, also report low uptake of digital solutions (23.0 and 30.6 per cent, respectively). The challenge of creating adequate online content in a short period of time and availability of digital devices and Internet penetration as well as digital skills) hamper wider application of digital solutions across all industries.
The report
assessing socioeconomic impact of Covid-19 discloses that only about 15
per cent of surveyed companies can sustain more than three months of
operation on their current cash flow.
To stay afloat, SMEs must adjust to keep their profitability up.
To stay afloat, SMEs must adjust to keep their profitability up.
The
survey released recently by the Minister of Trade, Ms Amelia Kyambadde
notes that 85 per cent of all businesses will be financially distressed
after three months of lockdown.
“The expectation of
loss is at least 90 per cent and uniform across companies of all sizes,
with a somewhat higher loss expectation among the companies employing
51-100 employees,” reads the report assessing socioeconomic impact of
Covid-19 on formal sector and SMEs.
The report
indicates: “Companies that expect a drop in their revenues of above 10
per cent this year belong to the following sectors, culture, sports and
entertainment; accommodation and catering; transport, storage and postal
industry; wholesale and retail trade and manufacturing.”
Impact on workforce
Layoffs are likely to continue. The downward pressure of declining production due to a reduced workforce and slowing demand forces companies to look for ways to reduce their operating expenses including labour. About 62.3 per cent of the respondent companies are considering or have already started cutting jobs.
Impact on workforce
Layoffs are likely to continue. The downward pressure of declining production due to a reduced workforce and slowing demand forces companies to look for ways to reduce their operating expenses including labour. About 62.3 per cent of the respondent companies are considering or have already started cutting jobs.
The biggest layoffs are planned
by companies with 11-50 employees (72.5 per cent) followed by companies
with 51-100 employees, 65 per cent of which are implementing or planning
staff downsizing.
The industries bracing for the
biggest layoffs include accommodation and catering, mining and
quarrying, manufacturing, culture, sports and entertainment, and
wholesale and retail trade. This would mean a loss of jobs for more than
100,000 employees in the formal sector.
Impact on supplies, operating costs
Some industries expect an increase of over 30 per cent in the cost of inputs and operating costs. These include manufacturing and supply of utilities (electricity, heat, gas and water), where 45 per cent of companies expect an increase of more than 10 per cent.
Impact on supplies, operating costs
Some industries expect an increase of over 30 per cent in the cost of inputs and operating costs. These include manufacturing and supply of utilities (electricity, heat, gas and water), where 45 per cent of companies expect an increase of more than 10 per cent.
According
to the report, businesses are unlikely to absorb these costs in the
aftermath of Covid-19, resulting into higher prices for the consumers on
these essential goods and services.
Recovery
Recovery for most businesses is expected to take more than three months and possibly until the end of the year. According to 1,012 companies surveyed, 70 per cent respondents estimate their recovery time of to be in more than three months.
Recovery
Recovery for most businesses is expected to take more than three months and possibly until the end of the year. According to 1,012 companies surveyed, 70 per cent respondents estimate their recovery time of to be in more than three months.
Industries with the longest
period of recovery of more than three months include accommodation and
catering (57.6 per cent of respondents); production and supply of
electricity, heat, gas, and water (54.2 percent); real estate industry
(54.2 percent); financial industry (44.2 per cent); and manufacturing
(41.2 per cent).
The tourism industry, which started
slowing down in January and all but stopped in early February, does not
expect to recover until over a year from now, bringing the full recovery
to the second quarter of 2021.
Also, two most
appreciated business relief measures are an extension of loans terms and
reduction of financing costs for SMEs (66.8 percent of all responding
companies) as well as an extension of tax payment deadlines to the
Uganda Revenue Authority (URA) (also 66.8 per cent). Suspending payments
for the utilities and loan interests is also viewed as an effective
relief measure by 44.3 per cent of the respondents.
The
longer businesses stay inoperative, the greater the economic impact and
the more difficult it becomes for them to resume their operations. The
smaller companies which are the backbone of any economy are particularly
concerned.
Bigger companies are easy to refinance to start operation, but once small companies are out of business, they may never recover for various reasons.
Bigger companies are easy to refinance to start operation, but once small companies are out of business, they may never recover for various reasons.
Uganda needs a proper
relief and economic stimulus package that would define all government
measures in support of businesses through an act of Parliament. The
relief package would set any reduction in utility fees and rental costs,
extension of taxation duration of tax holidays, wage entitlements of
the staff (full pay or reduced) and any possible government support in
this respect, access to affordable capital.
Businesses are convinced that without such a package to kick-start the economy, many businesses may not be able to recover.
Further
rescue packages should be linked to upgrading businesses, for example
adding to local value, to decrease reliance on imported inputs, to get
standards certification so that the next time a shock hits, the
businesses can ride the wave.
Low demand, labour freeze
About half of the businesses in the country have experienced decline in demand for their goods by more than 50 per cent. Eight out of every ten businesses (83%) reported a decline in demand for their products.
Low demand, labour freeze
About half of the businesses in the country have experienced decline in demand for their goods by more than 50 per cent. Eight out of every ten businesses (83%) reported a decline in demand for their products.
This
is in addition to risk aversion due to fear of contamination, as well
as reducing visits to food markets that were allowed to operate. Also,
the restrictions on vehicle movements reduced purchases by the urban
middle class.
Furthermore, the closure of institutions such as schools and hotels has highly contributed to decline in demand in the agricultural food stuffs. In response, consumers have stocked dry rations, which has reduced demand for other fresh agricultural produce.
Furthermore, the closure of institutions such as schools and hotels has highly contributed to decline in demand in the agricultural food stuffs. In response, consumers have stocked dry rations, which has reduced demand for other fresh agricultural produce.
Overall,
nine out of ten businesses have reportedly experienced increase in
operating expenses due to preventive measures instituted by government
to curb the spread of the virus. However, the report reveals that
majority of them (62 per cent) reported an increase of less than 25 per
cent, with only 38 per cent of the businesses reported an increase in
operating costs of more than 25 per cent.
Also
approximately three-quarters of the surveyed businesses report reduction
in the number of employees. Overall, 76 per cent of the businesses
reported to have reduced the size of the workforce due risk presented by
COVID-19 and subsequent lockdown measures.
Outlook
With respect to the future outlook, report analysis shows that the major concerns highlighted by businesses—in the event that the COVID-19 situation persists for more than six months—relate to reduced product demand and potential inability to meet costs of operations.
Outlook
With respect to the future outlook, report analysis shows that the major concerns highlighted by businesses—in the event that the COVID-19 situation persists for more than six months—relate to reduced product demand and potential inability to meet costs of operations.
“In
particular, majority of micro and small businesses indicate that they
would exit business in 1 to 3 months in the event the current situation
persist. On the other hand, majority of the medium and large firms do
not foresee closure,” reads part of the results from the EPRC’s business
climate survey.
Importantly, there is a slightly higher resilience among agriculture and manufacturing firms compared to service sector firms.
The
report projects that in the event that Covid-19 persists for the next
six months, about 3.8 million workers would lose their jobs temporarily
while 0.6 million would lose their employment permanently.
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