Insights on African businesses’ reactions and outlook to COVID-19
New ECA-IEC report takes stock of the impact of COVID-19 on businesses and trade
The African Trade Policy Centre (ATPC) of the United Nations Economic Commission for Africa (ECA) and International Economics Consulting Ltd., jointly carried out the first comprehensive survey on the COVID-19 pandemic and its economic impacts across Africa in mid-April. There were 210 respondents, made up of a mix of micro, small, medium and large enterprises from across the 54 African countries. The results have highlighted the major challenges that firms are facing due to the current crisis.
Many companies have expressed their concern about the direct impact on company turnover, with the smallest firms expecting to be hit the hardest. The lack of operational cash flow, lower capacity utilisation, disruption in supply chains and decrease in demand may force some businesses to close down, with obvious adverse effect on workers, finds the survey.
The survey also finds that access to credit is elusive to businesses of all size, with less than two fifths of requests being granted, while one to two thirds of loan requests are not even offered a response. The hardest hit, again, being the smallest companies. Across the board, enterprises have also signalled their disappointment with their own government responses to the crisis.
However, the lack of external support has forced companies to come up with novel ways of conducting business. A number of effective measures have been adopted by businesses to mitigate the effects of operating in this new environment, such as adopting technology, working remotely and using e-commerce. Generally, while firms judge the short-term outlook on revenues to be severe, they are more optimistic over a longer time horizon (one year or more).
What the results mean for Africa going forward
ECA recently published its forecast of growth for Africa, suggesting between 1.8% and negative 2.6% for the continent in the year ahead.
The survey results for mid-April, covering all African countries, highlight the major challenges faced by businesses. Four fifths of companies expect a direct impact on their turnover, with the smallest firms hit the hardest. Concerns surrounding cashflow rank highest in the minds of small business owners, while larger businesses are more concerned by reduced opportunities to meet customers and the need for diversification of product and service offerings. Workers are directly impacted by the crisis, particularly in smaller-sized companies, and often forced to work remotely when not laid-off.
Trade has been impacted and those businesses relying on overseas suppliers express challenges in accessing supplies. Greater difficulties are faced by manufacturing than service industries, whose production is more fragmented and more affected by physical barriers arising from the pandemic. While African supplies seem more readily available, they appear underutilised, pointing to opportunities for boosting intra-regional trade.
Access to credit during COVID-19 has proved elusive for all businesses, regardless of size, but once again small businesses have been hit the hardest. The main use of credit is to finance working capital and between just one sixth to two fifths of requests for financial support are positively responded to by the financial institutions. More troubling is that between one third to two third of loan requests are not even offered any response.
The disappointment expressed by respondents to government responses has forced initiative from businesses. A number of effective measures have been adopted by businesses to mitigate the effects of operating in this new environment, such as adopting technology, working remotely and using e-commerce. Despite this, businesses would like to benefit from postponed tax payments, working capital, subsidised wages, access to low interest loans as well as seeing assistance to workers in the informal sector.