What research reveals about Covid on businesses in Kenya

The Covid-19 pandemic has been with us for almost two and half years and like most countries, Kenya has not been spared. From international trade performance to finance and commodity markets, and macroeconomic indicators, the adverse impacts of Covid-19 on Kenya’s health system were severe.

The International Monetary Fund (IMF)’s statistics show that the global economy shrank by 3.2 percent in 2020, while the Gross Domestic Product (GDP) of developing countries contracted by 2.1 percent.

After the first case of Covid-19 was reported on March 13, 2020, the government enforced a lockdown and social distancing measures to curb the spread of the virus and took steps to limit the economic impact on businesses in Kenya.

A World Bank Business Pulse Survey of Kenyan firms in 2020 indicates that 93 percent of firms experienced a decline in sales and the pandemic disproportionately affected small and female-owned businesses.

Kenya has a very dynamic private sector with a high entry rate. Our study looks through the lens of a firm-level survey of businesses from five trading hubs to assess the impact of Covid-19 on businesses in Kenya: the eighth most affected country in Africa in terms of the number of infections and deaths as of July 2022.

Research Findings

A total of 646 firms were surveyed, of which 34 percent were located in Mombasa, 32 percent in Nairobi, 14 percent in Nyeri, 12 percent in Kisumu, and 8 percent in Busia.

Slightly over a half of the firms were either small or micro, with 29 percent of firms being medium-sized and 19 percent large-sized. A third of the firms were in the retail sector, followed by those in the food services and drinking places. Categories such as manufacturing were 5 percent of the sample.

About two-thirds of firms were male-owned with 60 percent and 25 percent of them being sole-proprietorships and partnerships, respectively.

The pandemic’s impact on Sales

When asked about the effect of Covid-19 on their revenues, 81 percent of firms indicated that their 2020 revenues were lower than those of the pre-Covid period. Of the remaining firms, 12 percent indicated their revenues grew, while 8 percent noted that their revenue remained unchanged.

The Covid-19 pandemic mainly led to revenue losses in female-owned businesses and firms that are located in Nairobi, Nyeri, and Busia. Compared to 2019, about 60 percent of firms had experienced upto 30 percent drop in revenue while 27 percent had experienced at least a 50 percent fall in revenues.

Most male-owned, medium and large firms experienced revenue drops of no less than 50 percent. Firms that are located in Kisumu, Mombasa and Busia also fell in this category.

The Covid-19 containment measures were costly to businesses, forcing them to implement cost-cutting policies. The reduction of working hours and layoff of full-time employees were the prevalent approaches by businesses; each was done by 31 percent of firms.

The layoff of full-time and part-time staff was mainly in the manufacturing, entertainment, business services, and communication sectors.

Work schedules were primarily reduced in the mining, quarrying, and oil and gas extraction, entertainment, business services and information (publishing, telecommunications, and broadcasting) sectors. The hiring of new staff was postponed in 15percent of the firms.

Operations of about 32 percent of businesses in metal processing, education, and wellness sectors remain unchanged due to Covid-19.

Business Model Adjustment Mechanism

On business coping strategy, a third of the businesses have not changed their business model to reduce the direct physical proximity with customers.

However, 48 percent of firms adopted the use of phones for activities such as marketing and placing orders, while the use of internet, online social media, specialised apps or digital platforms has been implemented by 47 percent.

In addition, establishing new strategic partnerships with other businesses has been embraced by 20 percent of businesses while nine percent of them have switched products.

Business recovery expectation post Covid

When asked about their performance after the crisis, most businesses (46%) anticipate a low growth and long recovery, suggesting that it will take time to reach their pre-Covid levels.

This belief is high among businesses that are located in Busia, micro or small, and in the sectors of agriculture, food processing, information (publishing, telecommunications, and broadcasting), and communication.

Nearly 35percent of firms believe that growth will be low, but recovery will be fast while 17percent expect to grow and recover faster. Around 2percent of businesses expect to collapse, especially those in the financial sector.

Policy Intervention

Regarding policy intervention, 7 out of 10 businesses advocate for tax cuts, particularly those in Nairobi and Kisumu, large firms, and those in the manufacturing sector.

Business loans (58percent) and loan payment deferral (40percent) are the next top two sought intervention by businesses, especially by firms that are located in Kisumu, and those in the utilities (electric power, natural gas, water, sewage, etc.) and agriculture, forestry, fishing and hunting sectors.

These most preferred interventions highlight the importance of having post-Covid interventions that target the reduction of the costs of business operations and enhance access to finance.

Maximilian Huppertz (University of Michigan), Socrates Majune (University of Nairobi & World Trade Organization) and Yewande Olapade (Federal Reserve Bank of Minneapolis and University of Houston).