Low demand, supply chain disruptions affect MSMEs 

Mr John Walugembe, executive director, Federation of Small and Medium-Sized Enterprises. Photo | File

What you need to know:

  • Signs of recovery have strengthened, underpinned by improved business and trading conditions as Covid-19 restrictions ease. Despite demand slightly picking up, Micro Small and Medium Enterprises (MSMEs) are still reeling from the negative effects of the pandemic.

Due to rapid disruptions, the business community is looking for innovative ways of doing things differently to remain relevant despite the devastating effects of the Covid-19 pandemic and its lockdowns. Signs of recovery have strengthened, underpinned by improved business and trading conditions as Covid-19 restrictions ease. Despite demand slightly picking up, Micro Small and Medium Enterprises (MSMEs) are still reeling from the negative effects of the pandemic. Prosper Magazine’s Racheal Nabisubi talked to Mr John Walugembe, executive director, Federation of Small and Medium-Sized Enterprises (FSME) on how the Micro Small and Medium-Sized Entreprises (MSMEs) are coping with the effects of the Covid-19 pandemic.

Can you paint a picture of the economy now?
The economy is in a state of moderate recovery. Although demand is picking up in certain sectors of the economy, the performance of the private sector, particularly, MSMEs is still reeling from the negative impacts of the Covid-19 pandemic. Certain sectors of the economy like education, entertainment among others that are still under some form of lockdown and are yet to start on the road to recovery. Although the government of Uganda has indicated that most schools will be reopened in January next year, this will be a little too late, as most privately owned schools have gone under.

Covid-19 has reshaped the global economy. What should government do to protect jobs and businesses?
The government needs to keep implementing a range of fiscal and monetary policy measures to cushion the economy and Micro Small and Medium s Enterprises (MSMEs) from the shocks of the pandemic. For instance, the Small; Business Recovery Fund should be rolled out soonest to address the liquidity challenges faced by small businesses, the Emyooga scheme needs to be scaled up and combined with awareness to ensure that micro businesses are able to better benefit from it. Uganda Development Bank (UDB) needs to target Medium-sized businesses with financial products that meet their short-term financial needs. The government also needs to expedite the payment of all domestic arrears. Priority should be given to arrears of SMEs and VAT refunds.

What are the long-term consequences of the pandemic in Uganda’s labour market?
Long-term, the pandemic will lead to unprecedented job losses, particularly in sectors that have been severely affected by social distancing and movement restrictions, such as education, tourism and entertainment among others. In addition, Uganda has been externalising a lot of its labour, particularly to the Middle East. This will be further disrupted and will lead to a reduction of remittances from abroad.

The pandemic has made it difficult for poor economies to compete with rich ones. What outstanding hardships are businesses faced with?
The Covid-19 pandemic has made rich countries look inwards. Therefore, countries that previously imported a lot of things are starting to look at domesticating their supply chains, as a coping mechanism. 
This new state of affairs will disadvantage poor countries like Uganda that sought to grow their economies through export promotion. Furthermore, those rich countries that previously extended development aid to poorer countries will be at a less favourable position to do so. This will affect the ability of poor countries to raise the revenue that they need to support their economies to recover. Businesses at this time, are still struggling with low demand from consumers, cash flow and liquidity challenges and supply chain disruptions, among others.

What role can the private sector play in reviving the economy after the second lockdown?
The private sector can play a role in employing people, thus contributing to increased consumption. It can contribute to the tax base by paying their taxes on time, thereby enabling the government to implement its recovery measures and innovating in new sectors of the economy.

Are SMEs benefitting from these stimulus packages? If so, how? 
The government has so far announced one stimulus package after the first lockdown and a Small Business Recovery Fund after the second. The first stimulus package has only benefitted a few SMEs. Majority of SMEs are not aware of the procedures for accessing this money. According to a survey done by the Federation of Small and Medium-Sized Enterprises (FSME) corroborated by the recent Economic Policy Research Centre (EPRC) titled: “Building Resilience and Recovery of MSMEs from the Covid-19 Lockdown” indicates that more than three-quarters (75 per cent) of the 2,754 surveyed MSMEs were not operating during the lockdown.
It further indicates that without some stimulus package, about half of the surveyed number fear that they might not resume operations should the Covid-19 induced environment continue to take a toll on them. This is because by the time the second lockdown had been announced on June 18, 2021, a number of MSMEs had still been trying to find footing after emerging from another longer eased shutdown. So, more needs to be done to ensure that SMEs have a say in conceptualising and rolling out of these packages. 

How exactly will Uganda’s economy work after the second lockdown?
The economy will take a while to recover from the demand and supply-side shocks of this pandemic. My estimate is that we shall have a modest economic growth rate of between 3-4per cent for the next one to two financial years, as compared to the pre-pandemic expectation of 6 per cent.  However, if we encourage innovation, entrepreneurship and remove the hurdles in the way of businesses, the economy could do better.

What policy changes are required to boost economic activity?
First, the government needs to ensure that all sectors of the economy are reopened soonest and immunisation needs to be ramped up to aid this reopening. Government also needs to promote procurement from local MSMEs as a stimulus strategy and tax relief should be offered to struggling businesses.

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