Nasty Flu Season Takes Toll on Economy, Hammers Small Businesses

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Joanne Mwangi – Yelbert, Founder and CEO of PMS Group Africa Ltd.

By Joanne Mwangi – Yelbert

A ruthless flu season, or if you wish, Covid-19, has flattened millions of businesses globally. This may barely give Kenya’s economy a case of the sniffles, but it’s crimping productivity, delaying product innovation and launches and battering sales for many businesses is causing real losses for companies. The outbreak of illnesses is especially vexing for small and medium sized businesses that can’t offload work to other staffers.

Continentally, Africa may lose half of its GDP with growth falling from 3.2% to about 2 % due to a couple of reasons which include the disruption of global supply chains. The Continent’s interconnectedness to affected economies of the European Union, China and the United States is causing ripple effects.

The Economic Commission for Africa (ECA) for instance estimates COVID-19 could lead to Africa’s export revenues from fuels falling at around USD 101 billion in 2020.

Remittances and tourism are also being severely affected as the virus continues to spread worldwide, resulting in a decline in Foreign Direct Investments (FDI) flows, capital flight, domestic financial market tightening and a slow-down in investments hence job losses.

 Shares and stock values have been falling sharply raising severe concerns about the economic impact of the outbreak even within the most successful and well-established firms. SMEs in Africa and Kenya are some of the most affected by the pandemic.

Already a vulnerable demographic, most of Africa’s SME’s are women and youth owned and a majority have no safety net to cushion from the shocks of an adverse global pandemic. Indeed over 80% SME’s in the formal and informal sector fall in this category. For the African continent, the SME sector is critical. According to World Bank data, SMEs contribute up to 60% of all employment and as much as 40% of all GDP in emerging economies. The survival is a critical factor in the bounce back of the continent.

Helping African SME’s to flourish after this storm shall be crucial, not only for Africa but for the global economy, because it creates a growing middle class with disposable income in tandem with market opportunities for new investors.

Tourism and Hospitality sector on the other hand contribute significantly to Africa’s economy with tourism being among the top ten contributors to GDP and job creation in about 30% of African states. The coronavirus epidemic is putting up to 50 million jobs in the global travel and tourism sector at risk, with travel likely to slump by a quarter this year.

With governments across the world enforcing a clamp down on immigration and a universal ban on all public gatherings, many SME’s have had to shut down especially as the ‘take out” and “drive by” culture is not established. Most hotels and restaurants have the allure of being the social engagement fora in Africa with vibrant debate both intellectual and pedestrian.

The arbitrary closure of all bars, discos and clubs as well as religious congregations, all avenues of revenue generation and psychological solace for SME’s in this sector are effectively blocked. In nations where a curfew or lockdown has been imposed, disallowing movement of all persons except those in essential professions, paints a bleak picture for any SME and especially family owned and run enterprises where the community impact is felt with immediacy.

The tourism sector and symbiotic businesses are massively impacted with hotel occupation noting a nose dive as a result of the restrictions. International conferences and sporting events are canceled striking a low blow to the industry and to the psyche of many entrepreneurs whose investments have come a cropper.

The only respite came to the few establishments that governments contracted for temporary conversion into mandatory self-quarantine centers offering accommodation at a reduced price.

The foreign exchange market has been volatile due to the uncertainties on the impact of the coronavirus and a significant strengthening of the US dollar.

Most Africa’s currencies have dropped to all-time lows. In Kenya, the Shilling is trading at 105.0971- against the US dollar – its lowest since September 2015. Whereas the central bank reserves will provide adequate cover and a buffer against short term shocks in the foreign exchange market, these buffers do not cushion the SME when needing to import raw materials or supplies.

Due to rapid spread of the virus, a lot of foreign exchange businesses have been forced to shut-down. While the extent and adverse effect of the corona virus are still evolving the impact on SMEs and its overall outcome will heavily depend on its duration and its intensity. But even if it were to end today, the bounce back will be painful and in the absence of Government support and donor interventions, many SME’s will close and the already dire youth unemployment challenge become critical.

There is no easy way out, Central banks could cut interest rates. This might not do much good, as uncertainty will restrain consumer spending and business investment even if cheap loans were available. Government spending might be more potent. Any assistance that reaches small businesses and allows them to stay afloat or goes directly into the hands of low-income consumers will help. But consumers and businesses are as likely to stash away any extra cash as they are to spend it.

Governments cannot eliminate uncertainty, but they can ensure the transparent and accurate flow of information. Even if the news is bad, consumers, businesses and investors need to know that they have a reliable picture of the facts. That, along with knowing that governments are doing all they can, might be the ointment that everyone needs.

The writer is the Founder and CEO of PMS Group Africa Ltd, an award-winning