Agricultural enterprises hardest hit by COVID-19- EPRC report

A survey conducted by the Economic Policy Research Centre (EPRC), a leading independent policy think tank, indicates that agricultural enterprises in Uganda have been “worst hit” by the impact of the COVID-19 pandemic on the national economy. 

The report, published May 12, shows that the COVID-19 pandemic and subsequent national lockdown have resulted in a 50% drop in overall business activity, with agricultural enterprises hardest hit due to challenges of accessing inputs arising from “transport restrictions” and the “ban on weekly markets”.

Of the 147 businesses surveyed across different regions in Uganda, 71% of agricultural enterprises experienced “severe decline in demand” compared to a 49.4% score on the same metric for all sectors. 

The survey’s findings will be cause for concern to government, a key part of whose COVID-19 response was premised on the assumption that Uganda’s mostly rural, subsistence-oriented agriculture sector would remain largely unscathed by the restrictions related to the lockdown.

Hence, President Museveni permitted farmers to continue working their fields during the lockdown, and ordered that agricultural input stores remain open. Transportation of agricultural products was also allowed.

In adopting this stance, the president hoped to minimise the toll of the pandemic and its related restrictions on a sector that employs more than 70% of Ugandans and constitutes the heart of what Museveni refers to as Uganda’s “real economy”.

Perhaps due to these measures, the survey found that inputs for businesses in the agricultural sector have become relatively cheaper during this period, while 55% of businesses in other sectors reported an increase in input costs.

“…majority of the businesses in agriculture (43%) reported having experienced a decline in the price of input during the period. This could have been as a result of a fall in demand, which coincided with a buildup of inventory,” the EPRC report reads, in part.

This, the survey attributes to COVID-19 containment policies that include transport restrictions, quarantine, social distancing and ban on weekly markets, which hinder farmers’ access to input and output markets while also undermining their capacities to produce.

As such, whereas business activity was negatively impacted across the board, “sectoral analysis shows that businesses in agriculture experienced the largest decline in business activity with 76% of the firms reporting severe decline and 12% reporting moderate decline,” according to the report. 

Hard times for small businesses

Micro, Small and Medium Enterprises (MSMEs) seem to be most adversely affected by the current business climate. In the EPRC’s estimation, majority of these small businesses have struggled to implement the mandated Standard Operating Procedures (SOPs) like provision of on-site accommodation for employees, in addition to having the mobility of their workers hampered by the March 25 ban on public transport.

Additionally, majority of these businesses (83%) are dogged by an acute decline in domestic demand for goods and services, a fact the policy researchers blamed on loss of income-earning opportunities. 

Consumption of agricultural products was especially affected as demand for them is more “income elastic”, the report says.

Worker woes

76% of businesses under survey reported reducing their workforce size, due to risks presented by COVID-19 and subsequent lockdown measures. Of this, 29% reduced their employees by more than half. 

Even here, businesses in the agricultural sector undertook the largest workforce restructuring, with 37% of the enterprises reducing their workforce by at least 50%, and another 44% by at least 26%.

Many private employers also reported implementing salary reduction measures for employees as part of efforts to stay afloat during this time. 

EPRC warns that in the event of temporary closure, businesses in the agriculture and service sectors are less likely to compensate workers as these two sectors remain “more susceptible” to the adverse impact of COVID-19 on business operations compared to the manufacturing sector. 

Explore regional markets

The Economic Policy Research Centre has advised local firms to explore regional markets within the East African Community (EAC) and the Common Market for Eastern and Southern Africa ( COMESA) for their current input needs, rather than depending solely on international suppliers for raw materials. 

The policy experts hold that such disruptions present Uganda with a clear opportunity to develop its domestic value chains in order to ensure that businesses have stable sources of inputs while saving scarce foreign exchange.

Proposed interventions

Although government has started a phased but careful partial lifting of the lockdown, the EPRC report expressed fear that majority of Uganda’s SMEs face collapse should the current situation persists for 1-3 months more.

The think tank therefore suggested several interventions that the government can take to offer relief to distressed businesses, including cuts on tax rates, reducing taxable income, offering tax credits and tax refunds. They further advise that government pay all its outstanding arrears to suppliers and either put in place or strengthen existing export financing and credit insurance mechanisms.

”The support should target the most affected firms to preserve scarce fiscal resources and help to ensure that firms receive an adequate level of support in line with their immediate needs, given the short-term effect of the shock,” the EPRC report reads, in part. 

Projections by the International Monetary Fund’s (IMF) Global Economic Outlook indicate that the world economy will contract sharply by 3% in 2020 as a result of the COVID-19 pandemic, while Sub-Saharan Africa’s economy is expected to contract by 1.6%.