The effects of the Covid-19 pandemic and the subsequent containment measures continue to haunt businesses, particularly Micro, Small, and Medium Enterprises (MSMEs), as revealed by a recent investigation by a local business magazine. Even after the full reopening of economies, the repercussions persist, with significant challenges faced by businesses, especially those reliant on physical interactions, informal in nature, and highly vulnerable.
Despite global appearances of recovery, the economic landscape remains far from normal, marked by rising prices at the fastest pace in decades. According to recent investigations by Prosper Magazine, corroborated by a study commissioned by the Economic Policy Research Centre (EPRC) in December, MSMEs are grappling with the enduring effects of the pandemic and the stringent measures implemented to curb its spread.
Enforcement of curfews, movement restrictions, and the lockdown of significant economic sectors for approximately two years have left many MSMEs severely impacted, with some even folding. A study tracking businesses between 2020 and 2022 found that around 440 out of 1,666 surveyed enterprises were either closed or untraceable, with the central region witnessing the highest share of closed enterprises at an estimated 72 percent.
Before the pandemic, MSMEs contributed at least 90 percent to the country’s private sector, with over 70 percent operating informally. However, this informality, highlighted in a report titled “Dynamics of the Covid-19 pandemic effect on MSMEs in Uganda: 2019 – 2022,” limits their access to government support and financing opportunities, increasing the risk of business mortality.
Trouble Accessing Capital
One of the early measures imposed by President Museveni was movement restrictions, resulting in reduced economic activities and mobility. The EPRC study revealed that the first lockdown in March 2020 led to a substantial reduction in sales and profitability for MSMEs, with business costs increasing by more than 40 percent. Challenges accessing inputs and credit further compounded the situation, affecting the majority of enterprises.
Most Affected Sectors
The tourism sector experienced massive closures, with 89 percent of enterprises reporting a complete stop in sales. Sectors like utilities and ICT, and financial services managed to survive as they were deemed essential during the pandemic. Conversely, tourism, manufacturing, and trading suffered significant losses, with at least 91 percent of businesses in the tourism sector reporting huge losses.
Job Losses and Global Shocks
After the full reopening of the economy, MSMEs continued to report reductions in sales and profits, leading to job losses. Small-sized enterprises bore the brunt, losing an estimated 184,000 jobs, followed by micro-businesses at 178,000 and medium-sized enterprises at about 4,000. Education, tourism, and manufacturing sectors reported the highest job losses, with challenges in job recovery persisting.
Government Response and Business Frustrations
Despite expectations, the government’s intervention fell short of hedging businesses against high lending rates, offering financial subsidies, and waiving taxes, leading to frustrations among business owners. MSMEs express disappointment with the lack of support, with calls for patient capital and enabling policies to aid recovery.
Stakeholder Views
Stakeholders in the business community echoed these sentiments. Ms. Victoria Sekitoleko, Chairperson of Uganda Agribusiness Alliance Ltd, highlighted the omission of the creative sector in the report and emphasized the negative impact of government policies like shutting down Facebook on businesses. Ms. Hope Katwiine, Vice Chairperson of Kampala City Traders Association Uganda, stressed the need for patient capital, while Mr. Stephen Obbo, Commissioner, Ministry of Trade, emphasized the importance of MSMEs developing commercializable products.
