Researchers project bleak future over long lockdowns

Micro and small businesses face a bleak future with a new report warning that should the current lockdown persist, majority would close or have serious financial difficulties.

The report authored by Economic Policy Research Centre (EPRC) says majority of businesses have already fallen below 50 per cent of operations while a number have ground to a virtual halt.

This is attributed to measures such as transport restrictions, stay home, social distancing and ban on weekly markets, which have hindered farmers’ access to input and output markets.

The report results indicate that small and medium businesses in the country have experienced the largest effects of the risks associated with Covid-19 compared to larger businesses.

“Specifically, nine out of ten businesses report experiencing an increase in operating expenses due to preventive measures instituted by government to curb the spread of the virus,” the report notes.

For example, due to border closures, the economy has suffered from supply chain disruptions and reduction of visitors who contribute to revenue in the tourism sector, the country’s biggest foreign exchange earner.

The multiplier effect of this has been significant for all hospitality related providers.

Disrupted chains
Access to inputs used by micro and small businesses particularly in the manufacturing and service sectors has also been greatly affected, reducing production while measures such as availing sanitiser, soap, hand washing facilities, and social distancing at work premises have resulted in a slight increase in operating expenses for businesses.

The country’s agriculture enterprises have been worst hit due to challenges of accessing inputs arising from transport restrictions and the ban on weekly markets where farmers usually sell produce. Prices of agricultural outputs have subsequently declined due to lost demand.

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 600,000 would lose their employment permanently.

STIMULUS PACKAGE
“Reliance on international rather than regional supply for raw materials and intermediates may be adversely affecting businesses in Uganda. This calls for firms, especially the micro and small companies, to explore the East African Community and Comesa market to get their supplies,” the report notes.

The EPRC report says that there is a need for a stimulus package to help firms address liquidity challenges, reduce layoffs, and avoid closures and bankruptcies. This should be kept as simple as possible during the lock down, and gradually after the lockdown targeting the most affected firms

To address immediate cash flow challenges, the government is being asked to consider tax rate reduction, reducing taxable income, offering tax credits, and offering tax refunds although there has not been any commitment on the matter from the government.