IMPACT OF COVID COVER 12 COMPRESSED - John Kakungulu Walugembe

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IMPACT OF COVID-19 ON MICRO , SMALL & MEDIUM ENTERPRISES IN UGANDA AND POLICY RESPONSES LEAD AUTHOR OF THE REPORT John Kakungulu Walugembe is the Executive Director of the Federation of Small and Medium Enterprises-Uganda (FSME), the umbrella body for all SMEs in Uganda. The organization boasts of a membership of over 112,000 small and medium sized businesses, all over Uganda. He possesses a Master of Business Administration (MBA)-Finance and Economics from the University of Oxford (Saïd Business School), a Master of Public Administration (MPA)- Development Economics and Public Policy from Harvard University (John F. Kennedy School of Government) and a First Class Honors bachelor’s degree in Science, from Makerere University. 1 ABOUT FSMEU The Federation of Small and Medium Enterprises-Uganda (FSME) was established as an umbrella body for Micro, Small and Medium Enterprises in Uganda to play a pivotal role in creating a robust and conducive business environment for small and medium businesses in Uganda. It is a not-for-profit membership association for Micro, Small and Medium Enterprises in Uganda, registered as a company limited by guarantee. It was pioneered by a group of entrepreneurs in 1990 and formally incorporated as a company limited by guarantee in 2017. Since its founding, it has grown from strength to strength. Presently, it has an excess of 112,500 members nationwide. What makes our association unique, is our independence from Government, special interest groups and big business. We only speak for the MSME owners/Managers; whose interests we represent. That is why our Board of Directors is made up of MSME owners/managers from all over the country. The Federation works with both the public and private sectors to ensure that there is a conducive and fair environment for running Small and Medium sized businesses in Uganda, through amplifying their voice on different issues. We do this through lobbying on their behalf. In addition, we provide them with opportunities for networking, offer them business advisory services and training. In this way, we unlock their potential and ensure that they contribute to employment creation, innovation and economic growth. VISION MISSION CORE AREAS To be and remain the largest To equip SMEs for success and Business Advocacy, Entrepreneurship, apex organisation promoting growth through ensuring that there Start up advisory services, Business and protecting the interests of Incubation, Business Networking, is a conducive environment for small and medium sized SME Online Market Portal’ Trade business and access to quality Missions, Trade fairs and Exhibitions. business owners in Uganda. business development services. 2 ACKNOWLEDGEMENTS This study was prepared by the Federation of Small and Medium-Sized Enterprises-Uganda’s research unit, under the leadership of Mr. John Kakungulu Walugembe, the Executive Director. The survey design and data analysis was carried out by the following team members: Phillip Nsenge, Saad Kalule, Doreen Nuwamanya, Racheal Ninsiima Kagoro, John Mutebe, Nobert Oola and Emma Abibi. The authors of this report would like to express their gratitude to the over 4,500 Micro, Small and Medium Enterprise owners and managers who agreed to take part in this survey. 3 FOREWORD The COVID-19 pandemic is negatively impacting both the supply side (production of goods and services) and the demand sides of the economy (consumption and investment). According to the Ministry of Finance, Planning and Economic Development of Uganda, close to 2 million Ugandans may slip back into poverty, as a result of the severity and unknown duration of the coronavirus pandemic. MSMEs have been disproportionately affected by the COVID-19 pandemic due to: their being labor intensive, their possession of very thin liquidity reserves and their lack of assets to use as collateral to access quick credit. The quarantine and lockdown measures imposed by the Government of Uganda on 18th March 2020, and the 18th of June 2021 led to a decrease in demand, supply chain disruptions, raw material shortages, transporta- tion challenges and cash flow disruptions. As the backbone of Uganda’s economy, the plight of MSMEs should concern all stakeholders. As the umbrella body representing the MSME sector in Uganda, the Federation of Small and Medium-Sized Enterprises considers it important to assess the impact that this pandemic is having on our members. Although in past year, various studies were conducted to assess the impact of the pandemic on the MSMEs sector in Uganda, none of these has specifically focused on the members of the Federation of Small and Medium-Sized Enterprises. as a result of a drop in demand for their Our findings paint a very grim picture. First, products and services. On average, 34% of all MSMEs interviewed, particularly women owned businesses reported in the tourism and hospitality sectors experiencing more cash flow challenges, reported closing their businesses, due to the than male owned businesses. 53% of the lockdown and quarantine measures imposed surveyed MSMEs, especially in the to curb the spread of the virus. Additionally, manufacturing sector, reported 78% of all MSMEs surveyed reported experiencing supply chain disruptions experiencing cash flow challenges, and difficulties in accessing inputs. The Federation of Small and Medium-Sized Enterprises-Uganda has been at the forefront of working with the Government of Uganda to design and implement a stimulus package for the MSME sector. The stimulus package was aimed at resolving the liquidity challenges that MSMEs faced as a result of the pandemic and related measures. The package includ- ed: tax deferrals, payment of domestic arrears, lowering the Central Bank Rate (CBR), loan restructuring and recapitalizing the Uganda Development Bank, among others. However, the sad reality is that many MSMEs have failed to benefit from the stimulus package due to various reasons. Going forward, FSMEU hopes that this report will provide stakeholders, particularly policy makers, insight on the situation and could, perhaps, help develop programmes that can enhance the resilience of MSMEs to this pandemic. Daniel Musiitwa Ssubi CHAIRPERSON 4 TABLE OF CONTENTS 1. OVERVIEW OF THE MSME SECTOR IN UGANDA 5 Definition of Micro, Small and Medium-Sized Enterprises (MSMEs) 5 Location of MSMEs 5 Size of MSMEs 6 Gender of MSMEs 6 Nationality of MSME owners 7 Sectors of MSME business activity 7 Age of MSMEs 8 2. INTRODUCTION 9 3. METHODOLOGY 11 4. PROFILES OF THE RESPONDENT MSMEs 17 5. IMPACT OF COVID-19 ON MSMES 15 5.1 IMPACT ON SALES AND REVENUE 15 Impact of the COVID-19 pandemic on sales and revenue 15 Impact of the pandemic on sales of MSMEs by geographical location 16 Impact of the pandemic on sales of MSMEs by Gender 16 Impact of the pandemic on sales of MSMEs by Sector 17 5.2 IMPACT ON OPERATIONS AND BUSINESS CONTINUITY 18 Production capacity and logistics 19 Reasons for Reduction in operations or business closure 19 Status of business premises 20 Change in rental agreements with landlords after the lockdown 20 Risk of Business Failure 21 Expected length of business survival 21 Expected length of business survival by sector 23 Additional operating expenses 23 5.3. IMPACT ON LIQUIDITY 27 Financial performance of MSMEs 27 MSMEs experiencing cash flow constraints 30 Sufficient liquidity to continue operations in the next six months 30 Most effective financial support to mitigate the liquidity crisis 31 Financing needed to revive operations in the next six months 31 5.4. IMPACT ON EMPLOYMENT 33 Employee levels 33 Salaries and wages 33 Earnings of women and youth 37 6. SPECIFIC FINDINGS ON THE IMPACT OF THE SECOND LOCKDOWN ON THE MSME SECTOR 39 Ability to make ends meet 39 Use of savings to make ends meet 39 Sale of business assets 40 Fear of defaulting on tax obligations 40 7. BUSINESS RESPONSES TO COVID-19 41 Digitalization 41 Remote working 41 Laying off employees 41 Diversifying into domestic or regional supply chains 41 Business closure 41 8. POLICY RESPONSES TO THE PANDEMIC 43 The Government of Uganda’s Stimulus Package for MSMEs 43 Monetary policy and credit Relief Measures 43 Deferral Measures (tax and social security payments) 43 Financial Support for MSMEs 44 Reactions of MSMEs to the government’s stimulus measures 45 MSMEs that have benefitted from Government’s stimulus measures 45 Awareness of government relief measures 45 Which stimulus support measure was accessed by most MSMEs? 46 9. OPPORTUNITIES 47 Digitalization 48 Access to new markets 48 Green and sustainable recovery 48 Repositioning youth and women owned MSMEs 48 10. RECOMMENDATIONS 49 Access to low-cost credit and financial support 49 Build MSMEs’ resilience capability 49 Prioritize MSMEs as suppliers 49 Reform the business environment 50 Promote the digital transformation of MSMEs 50 Embrace sustainability 50 11. CONCLUSION 51 TABLE OF FIGURES Figure 1 Location of MSMEs in Uganda 5 Figure 2 Size of MSMEs in Uganda 6 Figure 3 Gender of MSME Owners 6 Figure 4 Nationality of MSME Owners 7 Figure 5 Sectors of MSME Activity 7 Figure 6 Age of MSMEs 18 Figure 7 Study Framework 11 Figure 8 Firm size of respondent MSMEs 12 Figure 9 Years in Business of Respondent MSMEs 12 Figure 10 Gender of MSME Respondents 13 Figure 11 Geographical distribution of respondent MSMEs 13 Figure 12 Sector Distribution of Respondent MSMEs 14 Figure 13 Impact of COVID-19 pandemic on Sales and Revenue of MSMEs 15 Figure 14 Impact on Sales by Geographical Location 16 Figure 15 Impact of pandemic on Sales of MSMEs by Gender 16 Figure 16 Impact of the pandemic on sales of MSMEs by Sector 17 Figure 17 Impact of the Pandemic on Production Capacity and Logistics 19 Figure 18: Reasons for Closing or Reducing Operations 19 Figure 19: Ownership Status of business premises 20 Figure 20: Changes in rental conditions after the lockdowns 20 Figure 21: Perceived Risk of Business Failure 21 Figure 22: Expected Length of Business Survival without support 21 Figure 23: Expected Length of Business Survival by Sector 23 Figure 24: Additional operational expenses due to lockdown measures 23 Figure 25: MSMEs reporting supply chain challenges 24 Figure 26: Size of MSMEs and impact of supply chain disruptions 26 Figure 27: Financial Performance of MSMEs in 60 day period preceding the survey 27 Figure 28: Financial Performance of MSMEs per Sector 27 Figure 29: Financial Performance of MSMEs Per Gender of Owner 28 Figure 30: MSMEs Experiencing Cash flow Constraints 30 Figure 31: Sufficiency of Liquidity to continue operations 30 Figure 32: Most effective financial support to mitigate the financial crisis 31 Figure 33: Financing required to revive operations 31 Figure 34 Changes in employee levels due to the impact of the pandemic 33 Figure 35: Change in Employee Levels per Sector 33 Figure 36: Changes in salaries and wages due to the pandemic by size 34 Figure 37: Changes in salaries and wages by sector 36 Figure 38: % of Women and Men laid off by MSMEs due to COVID-19 37 Figure 39: % of youth laid off by MSMEs due to COVID-19 38 Figure 40: Ability of MSMEs to make ends meet during the second lockdown 39 Figure 41: % of MSMEs who sold business assets during the second lockdown 40 Figure 42: % of MSMEs who fear defaulting on tax obligations 40 Figure 43: Responses by MSMEs to the COVID-19 pandemic and the lockdowns 41 Figure 44: % of MSMES who benefitted from the stimulus measures 45 Figure 45: % of MSMEs who are aware of Government's stimulus measures 46 Figure 46: Relief measures accessed by MSMES 46 1. OVERVIEW OF THE MSME SECTOR IN UGANDA 1.1 Definition of Micro, Small and Medium-Sized Enterprises NO. OF EMPLOYEES TURN-OVER ASSET BASE Micro < = 1m & < 12 million <1 & <4 <1 & < = 12 million Small <5 & < 50 < 12m & < 100 million < 12m & < 100 million < 50 & < 100 < =100 & < 360 million < 100 & < 360 million Medium According to the Uganda Bureau of Statistics: MSMEs count for 95% of the total enterprise population Uganda MSMEs employ around 2.5 million people of Uganda’s workforce MSMEs contribute 85% of Uganda’s GDP 1.2 Total number of MSMEs Estimated to be 1,500,000 1.3 LOCATION OF MSMES 35% of all MSMEs are located in Central region, 23.4% are in Western Uganda, 18.2% are in Kampala, 13.9% are in Eastern Uganda and 9.4% are in Northern Uganda. Within the various regions, the composition of the MSME sector varies. MSMEs in Kampala are predomi- nantly in trading, while those in Central region are predominantly in Agriculture. MSMEs in the Eastern region are predominantly in food processing, transport and storage, while those in the North are concentrated in the Health and Education sectors. Figure 1 Location of MSMEs in Uganda 40% 35% 35% 30% 25% 23.40% 20% 18.20% 13.90% 15% 9.40% 10% 5% 0% 30% Central region Western Kampala Eastern Northern 5 Source: Census of Business Establishments, Uganda Bureau of Statistics, 2010/11 1.4 SIZE OF MSMES Uganda’s MSME landscape is dominated by Micro businesses, which have less than five employees (71%). 18% were small businesses (5-10 employees) and 11% are Medium-Sized businesses (ten or more employees). Figure 2 Size of MSMEs in Uganda 11% Microbusinesses 18% Small businesses Medium businesses 71% 1.5 GENDER OF MSMES The majority of business owners (76%) are Female . Figure 3 Gender of MSME Owners Male 24% 76% Female Source: Financial Sector Deepening Uganda. (2015). National Small Business Survey of Uganda 2015. 6 1.6 NATIONALITY OF MSME OWNERS Most owners of MSMEs are Ugandans (98%). 1% are Asians, 0.2% are Kenyans, 0.1% Rwandans, 01% Ethiopians and 0.6%-other nationalities. Figure 4 Nationality of MSME Owners 120% 100% 80% 60% 40% 20% 0% Ugandans Asians Kenyans Rwandans Ethiopians Others 1.7 SECTORS OF MSME BUSINESS ACTIVITY Most MSMEs (16%) are involved in Agriculture, 10.8% are in food and beverages, 10.6% are in retail trade, 7.20% are in the creative, arts and entertainment sector, 5.20% in the textiles and apparels etc. Figure 5 Sectors of MSME Activity 15.50% 10.80%10.60% 7.20% 5.20% 5.20% 3.30% 2.60% 2.50% 2.30% 2.20% 1.80% 1.70% Agriculture Food & Beverage Retail trade Crea�ve, arts & entertainement Tex�les and apparel Financial services Computer programming & consultancy Health Rental servics Personal services Video, Sound and TV Accomoda�on Courier services Repair of equipment Construc�on Insurance 7 Source: Financial Sector Deepening Uganda. (2015). National Small Business Survey of Uganda 2015. 1.8 AGE OF MSMES 69% of all MSMEs are less than 10 years old. Figure 6 Age of MSMEs 16% 31% 1-5 years 15% 6-10 years 11-15 years Above 16 years 38% 8 2. INTRODUCTION In December 2019, the first cases of the Coronavirus were reported in Wuhan City, Hubei Province in China . Thereafter, this virus spread rapidly across the globe. As of 6 August 2021, there have been 200,840,180 confirmed cases of COVID-19 including 4,265,903 deaths reported to the World Health Organization . By August 2021, Uganda had recorded 95, 723 cumulative cases and 2783 deaths . this virus spread rapidly across the globe. As of 31 December 2020, more than 102 million confirmed cases had been reported worldwide, as well as over 2.2 million deaths. This COVID is therefore among the deadliest diseases to have emerged in recent history. In order to curb the spread of the virus through “flattening the curve” and preventing the “overwhelming of health care systems”, governments all over the world instituted very strict lockdown and quarantine measures. On 18th March 2020,and 18th June 2021, respectively, the Government of Uganda instituted stringent lockdowns banning cars, public gatherings, shutting down shopping centers, places of worship, schools,entertainment centers and instituting a night curfew . Although the Government started to relax most of these measures in June 2020, most of these measures later, most schools and places of worship remain partially closed, while gyms and bars, remain closed. Mask wearing is compulsory in all public spaces, while public transport operators are only allowed to carry half of their usual capacity. MSMES have been particularly affected by There are several ways the coronavirus the pandemic, on both the demand and pandemic and containment measures supply sides. On the supply side, many are affecting the Ugandan economy. The MSMEs are experiencing a reduction in the Ministry of Finance, Planning and supply of labor due to transport Economic Development estimates that disruptions, unwell employees and the the Uganda GDP growth rate could need for parents to take care of their decline by between 7-10% in the children due to school closures. According Financial Year 2020/21, 2-3 million to a study by the United Nations Capital formal and informal jobs are at risk Development Fund, 74% of the especially in retail, wholesale, respondent companies indicated that 30% manufacturing, education, health and of their employees were unable to come to tourism sectors. work due to the lockdown. Moreover 62% of these companies confirmed that they were considering or had started cutting jobs . The lockdown, in particular, led to a huge drop in capacity utilization in the manufacturing sector. Many small scale manufacturers also experienced difficulties in accessing inputs and intermediate goods, as a result of global supply chain disruptions. On the demand side, the loss of income by many consumers due to redundancy and sackings and the heightened sense of certainty are negatively impacting their willingness and ability to spend. A study by the Economic Policy Research Centre confirms that 50% of the businesses interviewed had experienced a reduction in demand of 50% . Risk aversion due to the fear of contracting COVID-19 and the closure of schools and health centers has particularly contributed to the demand for agricultural products. The impact of COVID-19 on MSMEs greatly concerned the Government of Uganda due to the important role that they play in employment creation and overall economic growth. The Government of Uganda therefore designed a Stimulus Package to alleviate the negative impact of the pandemic on the sector. This Stimulus Package was motivated by the desire to: to maintain the economic welfare of households and prevent individuals from becoming unemployed, to help MSMEs to survive the crisis and not collapse due to liquidity constraints and to maintain the 9 stability of the financial system. The stimulus measures included: Providing credit to micro and small enterprises through SACCOs and Microfinance Institutions, establishing a Microfinance Recovery Fund targeting Small and Medium-Sized enterprises, expediting the payment of domestic arrears, deferring Pay as You Earn (PAYE) for SMEs and Corporations, waiving interest on tax arears and expediting payment of outstanding VAT refunds. Although these measures have alleviated the pain of MSMEs, to a certain extent, more needs to be done to sustain these businesses. The negative impact of the pandemic notwithstanding, COVID-19 has presented a range of opportunities, particularly, in the area of digitalization which could lessen the cost of doing business and improve business operations. Morens, David M et al. “The Origin of COVID-19 and Why It Matters.” The American journal of tropical medicine and hygiene vol. 103,3 (2020): 955-959. 10 doi:10.4269/ajtmh.20-0849 The Telegraph. (2020, August 26). How Uganda's tough approach to Covid-19 is hurting its citizens. Ayebare, J. (2020). Uganda's Recovery Program. Ministry of Finance, Planning and Economic Development. United Nations Capital Development Fund. (2020). Impact of COVID-19 on Ugandan MSMEs. 3. METHODOLOGY This study was conducted using an exploratory methodology by reviewing existing literature, including research reports and policy documents. In addition, we collected primary data from 4,500 MSMEs in 130 districts of Uganda. The data was collected through the administering of both an online and physical questionnaire. The research team relied on a purposeful sampling technique in order to target MSMEs in those sectors and districts, who were more likely be most affected by the pandemic. Primary data collection was aimed at investigating the following key issues: • The impact of the pandemic on: sales, operations, employment and Liquidity, among others • MSME response measures during and after the pandemic • Expectations about the future and the required financial and non-financial support • The perception of existing government stimulus package and other policy interventions • Impact of the pandemic on gender roles, mental health and other social metrics. The assessment framework for this study is as follows: Figure 7 Study Framework Short-term impact Medium-term impact Long-term impact •Impact of COVID-19 on MSMEs • Effectiveness of • Business existing relief opportunities •MSME response 1 measures 2 • MSME recovery and 3 strategies resilience Participation in the survey was voluntary and no financial compensation was offered on completion of the survey. Each respondent was requested to sign the informed consent letter to voluntarily participate or withdraw from the study, at any stage. Before formally launching the survey, the questionnaire items were pretested among a small sample of MSMEs to evaluate the clarity and relevance of the questionnaire items to identify and eliminate any misunderstandings. 11 4. PROFILES OF THE RESPONDENT MSMEs 4.1 FIRM SIZE Figure 8 Firm size of respondent MSMEs 2% 7% Micro enterprises (1-5 employees) Small enterprises (5-50 employees) Medium enterprises (50-100 employees) 91% 91% of all the respondent MSMEs were micro businesses with less than 5 employees.. 4.2 YEARS IN BUSINESS Figure 9 Years in Business of Respondent MSMEs 30% 38% 1-5 yrs 6-10 yrs 10 yrs and above 32% About 70% of all the respondents were still in their first ten (10) years since establishment. This finding indicates that many businesses may have collapsed before their 10th birthday. 12 4.4 GENDER DISTRIBUTION Figure 10 Gender of MSME Respondents 32% Male Female 68% 68% of all the respondent MSMEs are women-owned or run, compared to 32% male male owned or run enterprises. 4.5 GEOGRAPHICAL DISTRIBUTION Figure 11 Geographical distribution of respondent MSMEs 12% 13% 19% 15% 41% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Northern Eastern Western Central Kampala More than 50% of the respondent MSMEs are located in Kampala and Central region. This was followed by 19% in Western region, 13% in Eastern region and 12% in Northern region. 13 4.6 SECTOR DISTRIBUTION Figure 12 Sector Distribution of Respondent MSMEs 31% 20% 7% 8% 8% 3% 2% 2% 6% 3% SECTORS Trading & low level services Agriculture ICT Manufacturing Personal care Tex�les U�li�es Construc�on Hotels, bars and restaurants Financial & professional services 31% of the profiled MSMEs were engaged in trading and other low level services. This was followed by 20% in Agriculture, 8% in textiles, 8% in financial & professional services, 7% in manufacturing, 3% in ICT, 3% in Utilities, 2% in Personal care and 2% in construction, among others. 14 5. IMPACT OF COVID-19 ON MSMES This chapter discusses the impact of the COVID-19 pandemic on the operations of MSMEs in Uganda. Specifically, it discusses the impact of the pandemic on sales, operations, liquidity and employment. 5.1 IMPACT ON SALES AND REVENUE 5.1.1 Impact of the covid-19 pandemic on sales and revenue The COVID-19 pandemic has had an adverse impact on the operations of the surveyed MSMEs. The majority of both formal and informal MSMEs confirmed that they had experienced a reduction in their sales due to the COVID-19 pandemic. However formal businesses which tend to have a higher turnover than informal businesses reported being more negatively impacted, as a result of reduced sales. The majority of businesses surveyed reported that their sales had declined by more than 50% in the 6 months following the lockdown on 18th March 2020. Figure 13 Impact of COVID-19 pandemic on Sales and Revenue of MSMEs Sales have completely stopped Sales/Revenue have decreased by more than 50% Sales have decreased by less than 50% FORMAL 12% 82% 6% INFORMAL 22% 73% 5% 82% of formal MSMEs reported 22% of informal businesses reported ceasing experiencing reduced sales of more than operations due to no sales, compared to 12% 50% compared to 73% of informal of formal businesses. businesses. As earlier indicated, this may be due to the fact that these formal businesses Moreover, formal businesses appear to be make more sales than their informal more resilient that their informal counterparts, counterparts. Moreover, informal as 6% reported a decrease in sales of less than businesses are much more likely to break 50%. The link between the formality of an lockdown and curfew rules to make a sale, as enterprise and its resilience to COVID-19 is an compared to formal businesses. interesting one and it should be further 15 Interestingly, researched. 5.1.2 Impact of the pandemic on sales of MSMEs by geographical location Figure 14 Impact on Sales by Geographical Location Sales have completely stopped Sales have decreased by more than 50% Sales have reduced by less than 50% 16% 22% 39% 51% 53% 39% 40% 39% 33% 37% 45% 38% 22% 18% 16% KAMPALA CENTRAL WESTERN EASTERN NORTHERN Interestingly on 22% in Western Uganda, 18% in Eastern Uganda and 16% in MSMEs in Kampala and Central region Northern Uganda reported closing their appear to have been worst affected by businesses as a result of the pandemic. This the pandemic. 45% and 38% of MSMEs in might be attributable to the strict Kampala and Central region, enforcement of lockdown and curfew rules respectively, reported closing business as in Kampala and surrounding areas. a direct consequence of the pandemic. Moreover, the negative impacts of COVID-19 in Uganda, have been primarily urban.. 5.1.3 Impact of the pandemic on sales of MSMEs by Gender Figure 15 Impact of pandemic on Sales of MSMEs by Gender Sales have completely stopped Sales have decreased by more than 50% Sales have decreased by less than 50% 6% 24% 49% 37% 45% 39% 16 MALE FEMALE Female owned MSMEs were This gender gap in the contraction of business disproportionately impacted by the activities due to COVID-19 can be explained by: COVID-19 pandemic, than their male the fact that women are concentrated in sectors counterparts. 45% of female MSMEs like trade and tourism that were worst hit by the reported their sales completely stopping pandemic. Secondly, many women compared to 39% male owned MSMEs. entrepreneurs and managers had to take on domestic and care responsibilities during the lockdown, such as: taking care of children who Furthermore, 24% male owned MSMEs are out of school or family members who had reported experiencing a decrease in sales of fallen ill. less than 50% compared to 6% female owned MSMEs. 5.1.4 Impact of the pandemic on sales of MSMEs by Sector Figure 16 Impact of the pandemic on sales of MSMEs by Sector Sales have completely stopped Sales have decreased by more than 50% Sales have decreased by less than 50% TOURISM, HOTELS, BARS & RESTAURANTS 89% 9%2% C O N S T R U C T I O N 2% 13% 75% TEXTILES 17% 50% 14% U T I L I T I E S 0% 62% PERSONAL CARE 21% 46% 33% FINANCIAL & PROFESSIONAL SERVICES 9% 18% 27% I C T 0%4% 51% MANUFACTURING 12% 37% 51% AGRICULTURE 5% 16% 21% TRADING AND LOW LEVEL SERVICES 28% 57% 15% This was followed by the trading and low level services sector, in which 28% of the MSMEs reported completely stopping sales, particularly The tourism sector including: hotels, bars during the lockdown. MSMEs in the Utilities, and restaurants was worst hit by the Agriculture, Manufacturing and ICT sectors pandemic. 89% of the respondents reported more resilience. The tourism sector was confirm that sales have completely hardest hit due to the various travel warnings stopped. issued to people travelling to and out of the country. In addition, despite opening up other sectors of the economy, bars and entertainement venues are still under lockdown. 17 Covid stories Kenneth Ouma-Ken Travel Tours Ken Travel Tours is an accredited member of the Uganda Tourism Association and is a licensed tour operator. The company specializes in arranging a variety of vacation tours and packages in Uganda, and curates circuits through Uganda and the neighboring countries of Kenya, Rwanda and Tanzania. However, when the lockdown Initially, Kenneth decided to was imposed and all travel to focus on local tourism. The company employs a and from Uganda halted, this However, this was not managerial team of 4 working made this aspiration lucrative enough and the full time, as well as, a team of impossible. No new business second lockdown complicated 40 tour guides who operated came in and most existing the ability of local tourists to on a part-time basis, before bookings were cancelled, move. Kenneth has resorted the lockdown. The company immediately. to operating a small internet owns a small fleet of tourist café, as he waits for things to mini-vans. The company rents stabilize. a small office both in Kampala and at Entebbe International The lockdown, particularly Ouma believes that even with Airport. It also cooperates hurt the business since the the reopening of the Airport with a range of local bulk of its clients were and the easing of the 2nd restaurants, handicraft shops coming from Western lockdown restrictions, and several overseas agents. countries such as: USA, UK, government should devise Germany and Belgium. means of helping business Before the lockdown, Kenneth people in the tourism sector had decided to concentrate on to recover from the financial this business, since it was shocks caused by COVID-19. highly profitable. 18 5.2 IMPACT ON OPERATIONS AND BUSINESS CONTINUITY 5.2.1 Production capacity and logistics Figure 17 Impact of the Pandemic on Production Capacity and Logistics 11% Opera�ng below 50% 25% Opera�ng at 50% capacity Opera�ng above 50% capacity 64% 89% of all the surveyed MSMEs confirmed operating below 50% capacity. This may be partially attributable to the pandemic’s disruption of MSMEs access to raw materials and inputs and the Government’s lockdown. 43% of all Micro businesses interviewed mentioned lack of access to raw materials, as compared to 26% of Small businesses. This disruption in supply chains was particularly highlighted by the manufacturing sector. 87% of MSMEs interviewed in the sector mentioned experiencing challenges in accessing critical raw materials. 5.2.2 Reasons for Reduction in operations or business closure Figure 18: Reasons for Closing or Reducing Operations Lockdown restric�ons Fear of COVID-19 infec�on Very few customers FORMAL 6% 1% 93% INFORMAL 5% 5% 90% 19 Regardless of location, sector or size, most MSMEs mentioned the sudden decrease in customers to be the primary reason for closing or scaling down their operations. 5.2.3 Status of business premises Figure 19: Ownership Status of business premises I rent my premise My business has no business premise I own my premise 1% 6% 92% 92% of all MSMES surveyed rent their business premises. Only 1% of surveyed MSMEs own their premises. 5.2.4 Change in rental agreements with landlords after the lockdown Figure 20: Changes in rental conditions after the lockdowns My landlord has decreased my rent or given me more �me to pay up My landlord has not made a change in our arrangements My landlord has increased my rent 1% 2% 89% 93% 10% 5% INFORMAL FORMAL 20 5.2.5 Risk of Business Failure More than half of MSMEs expressed their fear that their business is at high risk of failure. However, the perceived risk of failure is higher for formal businesses than informal businesses. On the other hand, 30% of informal businesses do not consider themselves at risk of failure. Figure 21: Perceived Risk of Business Failure 67% 43% 30% 27% 19% 14% YES, HIGH RISK YES, LOW RISK NO, NOT AT RISK Formal Informal 52.6 Expected length of business survival However difficult the challenges faced by MSMEs since the lockdown due to COVID-19 are, 63% of the MSMEs believe that they can get through this pandemic. That said, 37% of the MSMEs interviewed are worried that they cannot survive for more than 6 months. Figure 22: Expected Length of Business Survival without support 80% 72% 70% 65% 60% 50% 40% 30% 20% 15% 9% 8% 10% 5% 3.50% 1.80% 0% Less than 6 months More than 6 Months I do not know Indefinitely Formal Informal 21 Covid stories Aidah Ssegonga Aidah Ssegonga runs a small retail shop in Seeta. However, she resides in Mukono. During the first and second lockdown, when transport was suspended and boda bodas could not carry passengers, During the first and second lockdowns, the , Aidah experienced difficulties in moving to her curfew started at 7:00pm. This meant that place of work. She says, “At times I would walk to the working hours of the shops were greatly work. However, I would often reach the shop late, reduced. The resultant reduction in the when most of my customers had already shopped number of daily customers led to a elsewhere.” In the end, she got someone to significant loss of income. transport her to her workplace during the lockdown, however this was very expensive and Furthermore, some walk-in customers they would often be stopped by Policemen still refuse to wear masks or to sanitize demanding for movement permits. their hands. This exposes Aidah to contracting the virus. In the end, she decided to sleep at the shop, on top of food stuffs, which was very uncomfortable. In addition, the closure of “Kikuubo” made it Aidah urges government to consider issuing difficult for her to acquire stock during this movement permits to retail traders, in case period. Indeed, the prices of food stuffs and other of a lockdown, to make it easier for them to commodities skyrocketed during this time. operate. Furthermore, she requests that Unfortunately, even with the lifting of the micro business owners like herself be lockdown, the prices of some commodities are supported with low cost loans and training. still very high, plus transport. 22 5.2.7 Expected length of business survival by sector Figure 23: Expected Length of Business Survival by Sector Less than 6 months More than 6 months I donot know Indefinitely TRADING AND LOW LEVEL SERVICES 25% 50% 5% 15% AGRICULTURE 15% 5% 80% MANUFACTURING 45% 35% 15% 5% ICT 15% 85% FINANCIAL & PROFESSIONAL SERVICES 10% 20% 70% PERSONAL CARE 65% 25% 10% UTILITIES 5% 10% 85% TEXTILES 55% 35% 10% CONSTRUCTION 15% 70% 10% TOURISM, HOTELS, BARS & RESTAURANTS 85% 15% As shown in the figure above, 85% of operators in the tourism sector including hotels, bars and restaurants believe that they will not survive beyond six months. This is followed by 65% of operators in the personal care, 55% in manufacturing and 35% in the trading and low level services sector. Conversely, 85% of MSMEs in the utilities sector, 85% in thee ICT sector and 70% in the financial services sector expect to survive indefinitely. These findings are consistent with a study by PWC Uganda which predicts that the Tourism sector would be worst hit by the pandemic . 5.2.8 Additional operating expenses Figure 24: Additional operational expenses due to lockdown measures 120% 100% 80% 60% 40% 20% 0% Micro enterprises Small enterprises Medium enterprises 23 Increase in opera�ng costs No change in opera�ng costs Decrease in opera�ng costs MSMEs reported incurring additional operating expenses due to the measures by the Government of Uganda to combat the spread of the virus. These measures include: having handwashing facilities, ensuring social distancing and ensuring the use of sanitizer. The majority of MSME respondents experienced an increase in their operating expenses. However, it is not worthy that many MSMEs did not experience an increase in operating costs. 5.2.9 Access to raw materials and flow of goods to the market The COVID-19 pandemic Indeed, of the 4,500 has led to supply chain respondent MSMEs, 58.6% Many local factories confirmed that the closure of disruptions and severely experienced challenges in affected access of raw suppliers’ businesses affected accessing credit insurance the flow of raw materials for materials by MSMEs in the from banks and dealing manufacturing and service their manufacturing and with suppliers who were processing. This was followed sectors. With the majority invoking the force majeure of raw material and by transportation and clauses in their contracts. delivery problems at 21.4% machinery imports coming in from countries such as: and lack of supplies at 20%. China, Businesses reporting supply chain challenges Figure 25: MSMEs reporting supply chain challenges 20% Closure of supplier's businesses Transporta�on and delivery 59% 21% challenges Lack of supplies 24 Size of business and impact of supply chain disruptions Figure 26: Size of MSMEs and impact of supply chain disruptions No Access to inputs at all Moderate decline in access to inputs Severe decline in access to inputs 18.10% 15.10% 17% 17.50% 26.20% 35.70% 64.40% 58.70% 47.30% MICRO SMALL MEDIUM 64.4% of Micro enterprises reported accessing no access to inputs at all, due to 80.1% of MSMEs in the manufacturing the supply chain disruptions, as compared sector have been affected by the to 58.7% and 47.3% among the Small and business closure of their suppliers and Medium-Sized enterprises, respectively. or logistical challenges. Similarly, 17.5% Micro businesses reported a moderate decline in access to When asked about the prices that they paid inputs, in comparison to 26.2% and 35.7% for their raw materials, 64.6% of all Small and Medium-Sized businesses. businesses reported an increase in the In terms of sectors, price that they pay for their inputs or raw materials. 26 5.3 IMPACT ON LIQUIDITY MSMEs are severely constrained by limited financial resources and borrowing capacity. Therefore, MSMEs are less resilient to demand and supply shocks. 92.4% of all respondent MSMEs reported that they had posted a loss in the 60 days preceding the survey. 5.3.1 Financial performance of MSMEs Financial performance of MSMEs in the 60-day period preceding the survey Figure 27: Financial Performance of MSMEs in 60 day period preceding the survey 4% 8% Making Profit Making losses Breaking even 88% Financial performance of MSMEs per Sector Figure 28: Financial Performance of MSMEs per Sector Making Losses Breaking even Making profit TOURISM, HOTELS, BARS AND RESTAURANTS 91.60% 7.50% 0.90% CONSTRUCTION 32% 27.60% 40.40% TEXTILES 46% 48% 6% UTILITIES 10% 15% 75% PERSONAL CARE 73% 19% 8% FINANCIAL & PROFESSIONAL SERVICES 9.20% 27.10% 63.70% ICT 23.60% 20.40% 56% MANUFACTURING 82% 11.40% 6.60% AGRICULTURE 42% 12% 46% TRADING AND LOW LEVEL SERVICES 67% 30% 3% 27 followed by manufacturing (82% loss making), personal care (73% loss making), trading (67% The Tourism sector including loss making) and textiles (46% loss making). hotels, restaurants and bars is The Agriculture sector (46% profit making), among the worst hit sectors the ICT sector (56% profit making) and the (91.6% loss making), utilities sector (75% profit making) appear to be more resilient. Financial performance of MSMEs per Gender of Owner Figure 29: Financial Performance of MSMEs Per Gender of Owner Making Profit Breaking even Making losses 84.50% 68.30% 28% 13.60% 3.70% 1.90% MEN OWNED MSMES WOMEN OWNED MSMES 84.5% of women owned MSMEs reported making losses in the 6 months’ period preceding the survey compared to 68.3% of men owned MSMEs. 28 Covid stories Robert Ebwalu-Agape Fabricators Robert Ebwalum runs a metal fabrication workshop called Agape Fabricators in Soroti town. Robert looks at himself primarily as a designer. He develops beds for schools, gates for households, windows and doors for various contractors, among others. Robert has worked in the metal fabrication and designing business for over 19 years. He This affected his business income. Additionally, however only started this business 10 years the lockdown period was characterized by high ago after apprenticing with big fabrication transportation costs. Not only couldn’t he companies in Kampala for 9 years. He transport materials easily to his workshop, his employs 16 staff and had been planning to workers found it difficult to travel to work expand the business to Kumi before the without movement permits. pandemic struck. Consequently, he has had to use his capital to When the first lockdown was announced and survive during the first and second lockdown. all learning institutions closed, Robert said that he lost close to 45% of his client base. Robert is not sure that his business will remain Schools had been his biggest client for many afloat without financial support. He advises years. Many schools that had already made the government to consider reopening orders failed to make payments, , while schools, in order to stimulate their businesses. others cancelled the orders all together and requested for their deposit back. 29 5.3.2 MSMEs experiencing cash flow constraints Figure 30: MSMEs Experiencing Cash flow Constraints Experiencing cashflow problems Not experiencing cashflow problems MEDIUM ENTERPRISES 71.40% 28.65% SMALL ENTERPRISES 79.50% 20.50% MICRO ENTERPRISES 87.10% 12.10% 87.1% of Micro enterprises indicate that they are experiencing cash flow problems, while 79.5% of Small sized enterprises and 71.40% of Medium-Sized enterprises are experiencing cash flow challenges, respectively 5.3.3 Sufficient liquidity to continue operations in the next six months Figure 31: Sufficiency of Liquidity to continue operations Sufficient Partly sufficient Not sufficient 83.40% 71.50% 92.10% 19.60% 11.90% 5.30% 4.70% 8.90% 2.60% MICRO SMALL MEDIUM 92.1% of micro enterprise owners surveyed indicated that they had insufficient liquidity to continue operations over the next six months. Only 83.4% of small enterprise owners and 71.5% of medium sized owners, respectively, highlighted this challenge. 30 5.3.4 Most effective financial support to mitigate the liquidity crisis Figure 32: Most effective financial support to mitigate the financial crisis 5% Grants and low interest loans 3% Moratorium on loan repayments 18% Tax holidays 41% Reduc�on of charges for water, electricity and other u�li�es Rent payment subsidies or holidays Reduc�on of mobile money charges 21% 12% Most MSMEs interviewed (41%) report that grants and low interest financing would be the most effective financial support mechanism to mitigate the crisis. 12% suggest a moratorium on loan repayments, while 21% propose tax holidays. Others (18%) propose a reduction in the charges for water, electricity and other utilities. Some highlighted the issue of providing rent payment subsidies or holidays. 5.3.5 Financing needed to revive operations in the next six months Figure 33: Financing required to revive operations Ushs 100,000-Ushs 20,000,000 Ushs 20,000,000-Ushs 360,000,000 Above 360,000,000 MEDIUM ENTERPRISES 12% 85% 3% SMALL ENTERPRISES 65% 31% 4% MICRO ENTERPRISES 89% 11% 0% 31 89% of all microenterprises, 65% of small enterprises and 12% of medium enterprises reported that they require less than twenty million Uganda shillings (UGX 20,000,000) to revive their operations in the next six months. 11% of micro enterprises, 31% of small enterprises and 85% of medium enterprises required less than three hundred and sixty million shillings (UGX 360,000,000) only to sustain their operations for the next six months’ period. 32 5.4 IMPACT ON EMPLOYMENT 5.4.1 Employee levels Changes in employee levels due impact of COVID-19 by size Figure 34 Changes in employee levels due to the impact of the pandemic Reduced no. of staff by more than 50% Reduced no. of staff by less than 50% Did not reduce staff Increased no. of staff MEDIUM ENTERPRISES 74% 20% 4% 2% SMALL ENTERPRISES 60.50% 29% 10.50% 0% MICRO ENTERPRISES 46% 41% 13% 0% Overall, most businesses surveyed reported reducing their staff by more than 50% as a result of the negative impacts of the coronavirus pandemic and the lockdown. More Medium-Sized enterprises (74%) reported laying off more than 50% of their staff, than small enterprises (60.5%) and micro enterprises (46%). More micro enterprises reported laying off less than 50% of their staff (41%), than small enterprises (29%) and medium enterprises (20%). Changes in employee levels due to the impact of COVID-19 by sector Figure 35: Change in Employee Levels per Sector Reduced no. of staff by more than 50% Reduced no. of staff by less than 50% Did not reduce no. of staff Increased no. of staff 0% 1% 2% 0% 0% 1.50% 1% 0% 0% 1% 5% 3% 3% 5% 5% 8% 13% 9% 38% 36% 40% 98% 59% 39% 63% 89% 91% 86% 54% 57% 61% 18% 19% 0.8 47% 22% 18% 3% 3% 1.20% 33 In terms of sectors, more enterprises in the tourism (91%), Trading and low level services (86%), Personal Care (61%), Textiles (57%) and Construction (54%) reported laying off more than 50% of their staff, as a result of COVID-19. On the other hand, more firms in ICT Agriculture and Utilities reported not laying off staff or even recruiting new staff, as a result of increased demand for their products and services. 5.4.2 Salaries and wages Changes in salaries and wages due to the impact of COVID-19 by size Figure 36: Changes in salaries and wages due to the pandemic by size Reduced salaries and wages by more than 50% Reduced salaries and wages by less than 50% Did not reduce salaries or wages Increased salaries or wages MEDIUM ENTERPRISES 63% 16% 19% 2% SMALL ENTERPRISES 62.00% 18% 20.00% 0% MICRO ENTERPRISES 49% 21% 30% 0% Most businesses interviewed also reported changing the salaries and wages of their employees, in response to the impacts of COVID-19. 63% of all Medium-Sized enterprises reduced the salaries and wages of their employees by more than 50%, as compared to 62% small enterprises and 49% micro enterprises. 2% of Medium sized enterprises interviewed reported increasing salaries and wages of their employees. These are mainly businesses in ICT, Agriculture, Manufacturing and Trade that experienced increased demand, as a result of the pandemic. 3134 Covid stories Lydia Batuuka-Jabez events Lydia Batuuka runs an Events Company called, Jabez events. This company was founded in 2006. The company employed 10 full time staff and 30 part-time staff before the COVID-19 pandemic. she pivoted her business and started addressing the new needs of customers. Unfortunately, the company’s decoration services were not able to When the first lockdown was announced on 18th pick up. This greatly affected the company’s March 2020, in person events like: weddings, revenues, since decoration was one of its leading birthday parties, graduation parties, concerts, earners. among others were cancelled, because of the concern of spreading the virus. In this period, she Just when her business was starting to pick laid off all her staff, except two and resorted to up, the second lockdown was imposed. small scale poultry farming, at home. Consequently, her business is only operating at 5% capacity compared to its pre-COVID-19 When the lockdown was lifted and events were situation. made “scientific”, Lydia had to find new ways of keeping her business running. Due to the increasing demand for virtual funerals, Lydia requests for support in terms of business resilience training, grants and soft loans in order to acquire the necessary ICT equipment she needs to thrive as a virtual events provider. 35 Changes in salaries and wages due to the impact of COVID-19 by sector Figure 37: Changes in salaries and wages by sector 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Reduced salaries or wages by more than 50% Reduced salaries or wages by less than 50% Did not reduce salaries or wages Increased salaries or wages Again, more businesses in trading and tourism reported reducing the wages of their employees by more than 50%. Most businesses surveyed in the Agriculture, ICT, Finance and professional services, utilities sectors reported either not reducing the salaries or wages of their employees or even increasing them 36 5.4.3 Earnings of women and youth Figure 38: % of Women and Men laid off by MSMEs due to COVID-19 Percentage of women and men who were laid off by MSMEs due to the pandemic 33% Female Male 67% The MSMEs interviewed reporting laying off more female employees (67%), than male employees (33%). This may be explained by the fact that more women tend to be employed in the sectors of the economy that were worst hit by the pandemic, such as: tourism bars, restaurants and trading. Moreover, women tend to hold the low-paid and low skilled jobs that were most affected by the lockdown. In addition, the outbreak and worsening of the pandemic and the closure of education institutions, may have led to a spike in unpaid domestic work, which is usually performed by women. 37