As COVID-19 pandemic pushes the world into a brink of collapse, millions of small-business face closures temporarily even permanently.
Consequently, from allocating emergency funds to ease loan interests, countries are tabling a new mitigation mechanism for businesses to stay afloat.
In Ethiopia, small business has been most vulnerable to revenue disruptions due to the pandemic. And, economists signal suspension of utility costs, tax relief, and provision of low-interest emergency funds could help rescue small businesses that contribute a lot to the national economy.
With the global economy entering dramatic fall, jobs have been lost, industries remain shut while trade and transaction hitting an all-time low in some cases.
Caught at the heart of the crisis are small businesses and countries are coming up with different schemes to help the business cope up with the impact.
Small-and medium-sized businesses represent 90% of employment worldwide and are described as the engine of global economies, according to the World Bank. And economic impact is mounting and caught at the heart of the crisis are a small business.
From social distancing to curfews and state-mandated closures and lockdowns, businesses are going through extreme hardships seeing their incomes plummeting unprecedentedly.
In some case, the countermeasures such as lockdowns, restriction of mobility are driving economies to plunge into the worst-case scenarios feared to escalate the social crisis.
In Ethiopia, though the government so far has not introduced mandated business closures and lockdown, yet small businesses face uncertainty as more and more people continue to stay home.
To help businesses cope up with the economic impact, different banks are extending repayment periods and also slashing debt interests.
And economists also advise for suspension of expenses like rents, utilities, and provision of an emergency fund for the businesses to get over the emerging economic slump.
The impact of COVID-19 is crushing big companies let alone the low capital small business. Millions of people are dependent on small business. In Ethiopia, small businesses are fragile and financially weak.
So, the impact is unprecedented and it paints a grim picture, says Dr. Hailu Elias, Assistant Professor of Economics at Addis Ababa University.
For that matter the economic impact of the virus in small businesses will stay longer than anticipated, it will have a permanent effect crushing the business entirely.
“For example, the lives of close to four million people hangover coffee sales. From producers to retailers and vendors who brew and serve coffee at street corners, COVID-19 is resulting in severe economic constraint which consequently trickles down to the national economy.”
The effect in the small business also affects the biggest companies which depend on the former’s input supply.
Small business, in fact, is of various kinds, they might be categorized in terms of size, financial strength, and business type, and so on. These identifications help to design the required intervention policies, he adds.
“We have seen that Banks are relaxing debt interests, but this would not help the small business. Usually, the major financial sources of small business are micro-finance enterprises. Accordingly, the government should embolden the enterprises to cut interest rate and relax repayment period.”
He is also an optimist that tax relief could support the business besides cost minimization of rents and other operational services. Also, an important approach is finding the means to repair export disruption.
The government needs to fix some problems so that export is improved and small businesses can provide inputs to the exporters.
Some of the sectors, which are in the line of the imminent corona impact, are the service sectors including small business, says Kibur Gena, an economist.
It is not only the virus that would put economies into an edge of collapse, but it is also the must-do measure of governments that take a toll in the different sectors.
Lockdown of cities means no production or movement of goods and people; this will inevitably lead to economic slowdown if not a complete recession.
The countermeasures rely on the financial strength of the government and the intervention depends on the intensity of the pandemic and its duration time.
The Ethiopian government cannot underwrite the bankruptcy of the private sector. The government has already taken measures such as extending loan payment period, relaxing reserve, and increasing the liquidity of small manufacturers, states Dr. Getachew Diriba, Chief Executive Officer of Ethiopian Economics Association in his previous interview with The Ethiopian Herald.
“The National Bank of Ethiopia indeed has taken a combination of emergency fiscal and monetary policy actions by cutting interest rates and providing extraordinary liquidity assistance as there is no one-size-fits-all solution, it requires continuous recovery and mitigation interventions of economic impacts.”
He noted that some economic sectors are most vulnerable to the virus’s impact and some should continue to operate in this very trying time as Ethiopia has limited resources and cannot inject unlike the developed nations’ huge sum of money to stimulate the economy.
Recently, the Ethiopian Economic Association said that depending on containment efforts and pandemic duration, the pandemic will slow down economic growth and exacerbate poverty in Ethiopia.
Delays in the containment of the virus will lead to a large reduction in economic growth (up to 10 percent reduction in the gross domestic product).
Similarly, the Jobs Creation Commission’s modeling also projects that about 1.4 million jobs could be lost in the manufacturing, construction, and services sectors for the next three to six months due to the COVID-19 pandemic. The figure could also jump to 2.5 million in the worst-case scenario.
The Ethiopian Herald April 24/2020
BY DESTA GEBREHIWOT
