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Introduction, objectives and study approach This paper is part of a broader project designed to provide country-specific evidence for Uganda on the immediate, medium and long-term impacts of the COVID-19 pandemic and related mitigation measures and policy responses on Micro, Small, and Medium-sized Enterprises (MSMEs). It is the first wave of a planned panel study aimed at tracking the operations of MSMEs during COVID-19 and post-COVID-19 periods to unpack the short, medium, and long-term impacts of the COVID-19 pandemic. In this wave, the paper sets out to produce evidence to inform strategies to mitigate the socio-economic impacts of the COVID-19 pandemic on MSMEs (during and in the post-COVID-19 era). Specifically, the paper generates evidence to assess and monitor the impact of the pandemic on MSMEs. It examines the effect of the COVID-19 pandemic and related mitigation measures on MSME’s operations and coping mechanisms adopted by the MSMEs. It also finds out the level of business resilience among MSMEs in Uganda, given that resilience is fundamental for the survival of enterprises during shocks and recovery from shocks, such as the COVID-19 pandemic. The analytical approach is based on the business pulse framework, a method used for unmasking the impact of COVID-19 on businesses by checking the pulse of businesses to measure the effects of COVID-19. We implemented a nationally representative survey of MSMEs covering three sectors of manufacturing, hospitality (tourism), and education, using a total sample size of 1,536 firms. We computed the business resilience index using quartile ranking (scores) of 26 resilience indicators. Study findings Evidence confirms that the MSME sector is a central driving force behind economic participation, including employment creation for the youth and women, and thus provides an opportunity to foster gender equality, livelihood, and recovery of the economy. The effect of COVID-19 on MSMEs is enormous across the different episodes of COVID-19 analyzed. Some enterprises in the MSME space experienced permanent business closure because of COVID-19 and related restrictions. Direct and indirect COVID-19-related factors accounted for over 60% of the permanent business closures. The COVID-19 episodes are also characterized by intermittent business closure of complete and partial nature. The intermittent business closure rate in the first COVID-19 lockdown period was 78%, majorly driven by complete business closure (rate of 67%) - partial business closure rate was 11%. At least half of the MSMEs that had complete business closure in the first lockdown fully recovered between July and December 2020. The recovery rate increased to 58% between January and May 2021, and the fastest recovery was in the manufacturing sector and medium-sized and male-owned enterprises. However, there was a reversal in the progress of business or economic activity recovery in the second COVID-19 lockdown. The pandemic and related containment measures also caused difficulty accessing inputs and supplies across all COVID-19 episodes - increase in input (supplies) cost majorly explains the difficulty in input access. There was a sales revenue reduction for all enterprises in all sectors. The hardest hit were enterprises in the hospitality (tourism) and education sectors and small and micro-level enterprises. COVID-19 significantly weakened the business turnover and profitability of MSMEs throughout the pandemic. Combined factors of increase in input cost and constant or reduced prices charged by MSMEs inevitably lowered MSME profitability. MSME’s insolvency level was adversely affected because of disruptions in business operations, exacerbated by the severely reduced sales revenue, cash flow, and profitability. There was marked gender differential in insolvency, with female-owned enterprises in the most disadvantaged position. The effects on employment among MSMEs primarily manifest through job loss and wage cuts. Overall, 41% of jobs (representing 425,000 jobs) were lost among the MSMEs under the study over the reviewed COVID-19 episodes. We associated the first lockdown with a 24% job loss; the job loss between the first and second lockdown was 23%. Job losses were more prevalent among youth and female workers, and the magnitude of wage cuts was also higher for female and youth employees. In the manufacturing sector, the Capacity Utilization Rate diminished, with some improvement in the second lockdown, albeit less than the pre-COVID-19 rate. Pertaining to enterprise (business) resilience, the overall resilience score (index) is below the threshold of robust business resilience—we associate the MSMEs with an average level of resilience classified as weak. Concerning coping mechanisms, the evidence suggests substantial adaptability challenges among the MSMEs, which may be because of inadequate capacity to harness technology to support working remotely or in digital mode. Several enterprises were non-compliant with the government directive on COVID-19 SOPS in workplaces and discontinued safety measures after the first lockdown. Finally, there was limited outreach to the MSMEs through MSME support interventions, including government responses (only 11% of the MSMEs received support). The needs presented by the MSMEs based on preferred support suggest that, during a shock-like COVID-19, interventions should emphasize supporting business survival. Policy considerations Responses should pay particular attention to the cost of doing business during a shock like the COVID-19 pandemic - this is crucial for controlling input costs and abating disruptions in supply chains. Strengthen structures for better organization and coordination of MSMEs, including reinforcement of district commercial departments. Effective coordination structures are essential for mobilizing MSMEs to support their survival and recovery during and in postCOVID-19 periods. Institute gender-responsive social protection policy responses to support job and income security of women and youth, given the gender differential on impact. During a severe economic shock or crisis, government and development partners should focus on support interventions critical for ensuring or supporting business survival. Interventions that curtail the level of MSME insolvency during a crisis should be emphasized. We identified the following from the evidence gathered as essential for MSME survival – supporting MSME employee mobility through staff movement permits; and tackling MSME financial stress through interventions such as loan rescheduling and tax deferment, among others. Rescheduling loans provides an important lesson for devising interventions to cushion MSMEs during shocks like the COVID-19 pandemic. However, the gap that needs to be addressed is inadequate awareness by most MSMEs on the operations of loan rescheduling and how to harness such a window of opportunity. Sensitize the business community and impart basic skills required to implement safety measures for COVID-19 prevention in workplaces. Efforts toward business resilience building are necessary for enterprises in all three sectors, regardless of the size. However, micro and small enterprises and those in hospitality/tourism require more effort and urgency. Resilience-building efforts should focus on enhancing; adaptive ability, leveraging knowledge and information as well as external business resources for enterprise growth and development, MSME planning and preparedness capability; and innovation and diversification capability. In addition, incorporating business resilience building in Business Development Services is key for enabling enterprises to stay afloat. Resuscitating businesses can be approached through tracking the entrepreneurs of the closed firms. Lastly, as the COVID-19 situation evolves from peak to a lesser level of severity of the pandemic, it is paramount to intensify interventions for supporting MSME recovery processes and the growth and development of the MSMEs. In the medium term, including the post-COVID-19 era, policy responses can shift the emphasis from supporting business survival to supporting the enterprises’ recovery, growth, and development. [ABSTRACT FROM AUTHOR] |
