Businesses barely surviving after eased lockdown - Survey

Many micro, small and medium businesses were battling for survival while others had collapsed by the time President Museveni eased the 42-day lockdown last week, a survey conducted by the Federation of Small and Medium-Sized Enterprises-Uganda (FSME) has revealed.

The findings show that more than three quarters (75 per cent) of the 2,754 surveyed micro, small and medium enterprises (MSMES) were not operating during the lockdown.

Without some stimulus package, about half of the surveyed number fear that they may not resume operations should the Covid-19 induced environment continue to take toll on them.

This is because by the time the second lockdown was announced in June 18, many MSMES were still trying to find their footing after emerging from another longer but eased shutdown.

This development, although necessary and logical, according to the government, left businesses struggling and placed the economy in dire need.

The FSME analysis is corroborated by the recent Economic Policy Research Centre (EPRC) report titled: “Building Resilience and Recovery of MSMEs from the Covid-19 Lockdown”.

Another study by the EPRC launched last week notes that many MSMEs are just “hanging-in there” as they struggle with the effects of pandemic and its containment measures, including the 42-days lockdown 

The report also indicates that MSMEs are now severely strained due to low revenues, erosion of savings, and lack of affordable credit options. 

MSMEs are also struggling to find reliable sources of credit for working capital. 
Compared to the formal MSMEs, the survey showed that those that operated informally were the worst affected by the second lockdown. 

Even businesses (MSMEs) that were earmarked for continued operation during the lockdown didn’t do any better as earlier anticipated due to the severity of the restrictions.

For example, many MSMEs that continued to offer essential services such as in manufacturing, healthcare services, construction, retail shops reported 71 per cent operating below capacity. 

Those that offer non-essential services lost opportunities as customers and demand declined, which resulted in reduced income and profits.

The study also notes that MSMEs are now struggling to repay loans they took during the pandemic to pay penalties on old ones due to delays in installments, or both. 

Some entrepreneurs cited an increase in interest payments because of an extension of the repayment terms of their loans, which is an extra burden.

Additionally, MSMEs also incurred    rental arrears for their business premises and about four out of 10 MSMEs surveyed anticipate the threat of business failure.

According to the EPRC report, focus on sciences in the Covid response misses the complex “non-science” dimensions, thus urging the government to adopt a multipronged approach.

The EPRC study also suggests that government should build the capabilities of MSMEs before taxing them. 
The researchers also cautioned against closure of MSMEs, which although may be inevitable, they say it costly to the economy. 

This is because revenues, which will be needed in service deliveries, are generated when the economy is functioning and not lockdown, adding that closure is not only disruptive, but should be the last option

The report recommends supporting MSMEs by the government to ensure business continuity, restructuring of loans without an increase in interest, as a key support measure that will help them to navigate financial hardships.

This should be in addition to the government continuing with the social protection programmes, (especially the cash grants of Shs100,000 to provide a safety net to vulnerable households who suffered job and income losses.

What experts say about businesses

According to the FSME executive director and the author of the research, Mr John Walugembe, more than two million jobs is at stake, with tourism, entertainment, education and transport sector being the most affected. 

His Uganda Manufacturers Association counterpart Daniel Birungi said business across sectors are not being ran the normal way anymore. “We are operating business in unusual way. This is why we cannot afford any new tax measures that will be taking away from us revenues that should be ploughed back into the business.

Speaking at the unveiling of the EPRC report, Mr Joseph Enyimu, a development economist at the Ministry of Finance, said for MSMES to get the kind of help they deserve, they need to operate formally, otherwise it becomes difficult for them to attract structured assistance.

How research was carried out
The research team of FSME used purposeful sampling techniques in order to target 2,754 MSMEs in those sectors and districts, which were more likely to be adversely affected by the pandemic, namely Kampala, Wakiso, Gulu, Tororo, Mbarara, Masaka, Jinja, Mbale, and Busia.