The COVID-19 pandemic disrupted normal operations around the globe. The world was unprepared for the impact that has left many countries trying to pick up the pieces. The situation has been especially hard on Micro, Small, and Medium-sized Enterprises (MSMEs). Small businesses have been detrimentally affected because they have fewer resources and cash reserves compared to larger corporations. According to a survey by the International Trade Center (ITC), nearly two-thirds of micro and small firms reported that the crisis strongly affected their business operations. One-fifth of SMEs said they risked shutting down permanently within three months, according to the report by the ITC. COVID-19 strongly affected 64% of women-led firms.
In Africa, the impact of the crisis bears heavily on MSMEs. In Nigeria, the FATE foundation’s report on the impact of MSMEs noted that 94.3% of respondents said COVID-19 impacted their business. Grow Liberia in its COVID-19 impact report stated movement and operations alongside the global economic fallout due to the pandemic would have an impact on Liberia’s businesses. In Uganda, the Economic Policy Research Center (EPRC) revealed that three-quarters of surveyed businesses laid off employees due to COVID-19. The lockdown measures reduced business activities by more than half.
In light of COVID-19, it is crucial to provide support to MSMEs because they account for seventy percent of total employment. MSMEs in Africa play a critical role in employment and job creation. According to the World Bank, most formal jobs are generated by SMEs, making small businesses crucial to Africa’s economic recovery and development. The International Trade Center SME competitiveness outlook notes that one-fifth of SMEs are at risk of shutting down permanently. African governments must step in to assist these enterprises so that they do not fail.
The Informal Business Sector
The informal sector is a large part of small businesses in Africa. The International Labor Organization estimates that more than sixty-six percent of total employment in Sub-Saharan Africa is in the informal sector. In Nigeria, the Small & Medium Enterprises Development Agency of Nigeria (SMEDAN) notes that micro-entrepreneurs make up ninety-nine percent of businesses with most operating in the informal sector.
Because informal businesses are unregistered, there is limited data and information regarding them, making the ability to assist these businesses more difficult. The SME competitiveness report states that the productivity gap between registered and unregistered firms in African countries is estimated at 120%. The report advises that informal businesses can improve productivity by registering.
Governments must ensure development policies and support include the informal sector because this sector is a lion share of small businesses in Africa. Registering this sector could help with data collection and the provision of specific support to them. Being registered would also enable them to receive support during crisis periods like these. The ITC advises that encouraging informal businesses to register would promote investment. The informal business sector can benefit from similar support formal small businesses receive from the government.
Recommendations for Support
Micro, Small, and Medium-sized Enterprises owners currently need support to sustain their businesses. Small businesses have low cash reserves, and unexpected events like the COVID-19 pandemic can leave businesses struggling for cash. Most MSMEs surveyed by the FATE Foundation stated they need financial support. Few African countries like Nigeria and Ghana announced palliatives for small businesses. Some countries removed the rigid qualifications that were in place to help small businesses apply for loans. These measures have helped some small businesses. The economic effects of COVID-19 make business growth difficult currently. Provide financial and technical support to MSMEs to sustain them so that they can survive this period. The assistance should target keeping workers employed and receiving some pay. This way, they can continue feeding their families. The World Bank has warned that COVID-19 could push people into extreme poverty. A paycheck protection program, with financial support to MSMEs from the government, could help with this. We recommend providing support in the form of mentoring and training to support business continuity and zero-interest loans or grants.
Mentoring & Training
The current lockdown period is financially difficult for MSMEs. The pandemic was unexpected; small businesses were—and still are—unprepared in other ways. The COVID-19 and subsequent lockdown are comparable to a black swan event. Small businesses need to learn how to operate and change their business model during a crisis period. Small businesses also need to learn how to manage employees when disaster hits. Mentoring and training provide technical assistance, which would enable MSMEs to learn business continuity skills.
Mentoring provides small business owners with one-on-one sessions with a business professional or executive who can guide the entrepreneur or business owner to operate their business during the lockdown efficiently. Training provides capacity building. Long-term training, which we have proposed, would come in handy during crisis periods like the current COVID-19 crisis. Support in the form of training provides business continuity knowledge to navigate the effects of the crisis and lockdown.
Funding
MSMEs need funding to help manage cash flow loss and employees’ salaries. The Secretary-General at UNCTAD, Mukhisa Kitoyi, stated, “MSMEs and their workers are hard-hit by COVID-19 pandemic and related economic downturn.” MSMEs are the top employer in Africa. In South Africa, small enterprises employ between fifty and sixty percent of the workforce. In Nigeria, SMEs make up eighty-four percent of employment. SMEs provide sixty to seventy percent of Ghana’s employment.
Informal businesses also need funding assistance to survive the crisis, but due to their informal nature, financial assistance programs do not include them. Nonetheless, they are still part of the businesses in Africa, and governments must endeavor to assist them. It is, therefore, important to find a way to formalize these businesses, so they can receive assistance from the government during normal and crisis periods.
Funding will help MSMEs survive during the pandemic. It will help keep employees receiving income instead of none. Whereas in some developed countries, employees are receiving paycheck protection support, in the least developed countries in Africa, that privilege is not available. The recovery effort from COVID-19 would mean African governments would have to make a concerted effort to provide support to MSMEs in the form of mentoring, training, zero-interest loans, deferred payments, and cash grants.
Supporting MSMEs during this period will help African countries recover from the economic impact of COVID-19. The support methods discussed would work together to help MSMEs survive. To survive and recover from the noble coronavirus lockdown impact, we need the participation of small businesses. MSMEs are the backbone of African economies, and they contribute to job creation, which aids economic recovery. Supporting small businesses now will help ensure Africa’s economic recovery from the pandemic lockdown.
