The COVID pandemic has for almost two years now continued to wreak havoc across the globe. The pandemic has not only brought a health crisis but also a total disruption on how we live. The experience has been incredibly humbling given that no country or section of society, regardless of its wealth or status, has been spared.
When the first case of covid-19 in Kenya was announced on 13th March 2020, the government, with the help of international health organizations, enforced several measures to slow the spread of the virus and to address its health effects. These measures include dawn to dusk curfew, restrictions on public gatherings, closure of all educational facilities, recommendations to work from home, and social distancing.
Despite the measure put in place, the pandemic has had its adverse effects on Kenya’s core sectors including the financial and commodity markets, international trade performance, and the entire macroeconomic environment. As a result, the business world bears the burden of all this, and below are ways in which the COVID-19 pandemic has impacted small businesses in Kenya.
Business Operations
Soon after the pandemic hit the country, over half of the businesses across the country were forced to permanently close or temporarily cease operations as compared to larger established businesses. Most larger businesses have remained open, indicating that they coped better with the aftermath of the pandemic. A larger drop in sales for micro and small businesses further underpinned.
While small businesses have sent home a smaller number of workers and/or reduced more hours of their employees, almost all large firms were able to cover running costs for longer periods.
Small businesses based in Nairobi were more operational as compared to the ones in other regions across the country.
Sales
According to a survey done by World Bank, More than 9 out of 10 firms have experienced a decline in sales as a consequence of the pandemic. To be exact, Ninety-three percent of small businesses across Kenya reported a reduction of sales while only 2 percent reported an increase. Businesses in the tourism sector, which consists of accommodation and food services, have experienced the largest decreases in sales and are not often fully operating.
The report also shows that small businesses anticipated employment to decrease at a slightly lower rate than sales while ventures in the agriculture, information and communication, financial, and real estate, and the social services sectors have experienced the smallest declines in sales.
When accounting for the country, size, sector, and timing of the survey, businesses in Kenya experienced a 65 percent reduction in sales. The magnitude of the change in sales is large when compared with other African countries.
High Operating Costs
The pandemic brought about an overall increase in costs involved in operating a business. A report by MicroSave Consulting shows that over half of business owners across the country reported an increased cost of supplies. A high turn-around time is a major concern that has led to the loss of business and an increase in costs.
The report also suggested that about half of the entrepreneurs mentioned that transportation costs had increased by about 17% on average. The rise in transportation cost was both due to increased use of personal vehicles and fare hikes by transport services since public service vehicles were allowed to ply with only 50% of the capacity to comply with social distancing.
Small businesses owners had also expressed concerns about managing rent. Many of the entrepreneurs had tried to re-negotiate rent with the property owner. The government and policymakers have urged property owners to take a humanitarian view considering the outbreak and its economic impact on people
Public Health Measures
There were a number of measures put in place by the government in an attempt to curb the spread of the virus. However, some of them proved to be detrimental to the business sector. With a dusk-to-dawn curfew, most small enterprises faced disruptions in their operating hours which resulted to 21% of enterprises closing down.
Businesses that have closed include retail shops, small grocery kiosks, fast food joints, restaurants, travel agencies, tourism operators, and educational institutions. These types of businesses have suffered the most during the pandemic due to directives of restricted movement and closure orders.
Further, businesses that deal in other non-essential products and services face greater business interruptions and reduction in demand with an average decline in customer footfall of 62% as against a 34% decline for businesses in the essential category.
Access to Credit
Along with the lower demand and higher costs of operations and safety measures, businesses have shared other worrying concerns that include lessened production and productivity, reduced supply of inputs, and credit and liquidity constraints. Indeed, risks associated with COVID-19 have exacerbated preexisting credit and liquidity constraints among MSMEs. Thus the pandemic resulted in a 69 percent decline in access to credit by SMEs, with 34 percent experiencing a severe decline.
This trend may be because lending institutions already consider them highly risky, and those businesses are more likely to become insolvent if COVID-19 persists and restrictions are maintained. So far, Kenyan banks have restructured loans worth KES 176 billion since the onset of the pandemic.
Most MSMEs do not have financial reserves to meet expenses during emergencies. Only 39% of Kenyans have set aside funds to manage emergencies that arise from loss of income.
Adoption of Digital Technology
Digital transformation is the use of information and communication technologies (ICT) along with their benefits to change how a business operates, products, services, and organizational structures to obtain a competitive advantage.
Digital adoption triggers changes in business operation models, customer experiences, business growth, customer luck, and so on.
According to the COVID-19 CEMEA Impact Tracker, 39% of consumers surveyed indicated that COVID-19 led to their first online grocery purchase.
The initial surge in online shopping witnessed at the onset of the COVID-19 pandemic in April 2020 introduced business owners to a new outlook on how to conduct business aside from the traditional brick-and-mortar model.
Post-pandemic, e-commerce purchases from new or low-frequency users has increased by 169% globally. 15% of interviewed Kenyans intend to shop for packaged food online post-COVID-19, compared to 5% before the onset of the pandemic and 10% during the pandemic.
A number of small and medium enterprises mostly in urban centers reported that they have started developing websites and apps as well as advertising their products and services online and on different social platforms for alternate business channels.
With consumers acclimating to the convenience of online shopping, e-commerce platforms can improve consumer retention by offering their products and services in line with the recent changes in consumer preference. Additionally, e-commerce platforms need to build up their logistics and delivery structures and capacities to maintain stocks and timely order fulfillment.
The pandemic has also led to increased adoption of digital payments across urban and rural areas. Concurrently, there has been a sharp decline of over 60%
in the proportion of cash transactions across the country.
International Business
The spread of the coronavirus has disrupted the global supply chains.
Kenya’s imports from China account for approximately 21% of total imports and with the pandemic, activities within the manufacturing sector have been disrupted. The low supply of imports from China as well as South Korea has resulted in an increase in prices. Local traders have already indicated that the prices of electronics, clothes, and furniture many of which are imported from China have significantly increased.
Furthermore, the pandemic has already affected the country’s exports of horticulture and agricultural goods mainly because of shutdowns in major markets as well as reduced consumer spending.
According to the Kenya Flower Council (KFC), out of the 150,000 employees, flower firms have sent home 30,000 temporary workers and 40,000 permanent employees on compulsory leave as there is no demand for flowers in Europe which absorbs 70-75% of the exports.
The country’s fresh produce export market dropped by 46% in 2020 following the lockdown in some European markets. The lower consumer demand for flowers and other horticulture exports has affected mostly women who account for 75% of the workforce in the horticulture sector in Kenya.
