Forget China, think local

New report by EPRC echoes global procurement experts on post-COVID business

| THE INDEPENDENT | Businesses in Uganda should build new supply chains following the disruption to their old ones caused by the outbreak of the coronavirus disease, COVID-19. That is one of many takeaways from a business climate survey titled ` How has the COVID-19 pandemic impacted Ugandan businesses?’ by the Economic Policy Research Council (EPRC).

It notes that there has been widespread disruption in supply chains due to factory closures in China and other main suppliers of intermediate inputs for many manufacturers.

A high percentage of businesses in the manufacturing sector reportedly experienced severe reduction (26%) or no access at all (24%) to raw materials or inputs.

The EPRC report from the survey examines the effects of the COVID-19 pandemic on various indicators of businesses performance and assesses future expectations of the businesses in the event the current pandemic and containment measures persist.

For businesses looking to re-open as the government gradually eases the lockdown, the third strand of the EPRC report which offers possible policy options to revive businesses in Uganda in the post-COVID-19 era, could be the most critical.

The EPRC found that reliance on international rather than regional supply for raw materials and intermediates adversely affected businesses in Uganda.

“This calls for firms, especially the micro and small companies, to explore the East African Community and COMESA market to get their supplies,” the EPRC says.

It adds: “In addition, the COVID-19 related risk is a clear opportunity for Uganda to develop a critical domestic value chains and supply chains so that businesses, particularly MSMEs, can have a stable source for their inputs, while saving on the scarce foreign exchange”.

The EPRC message is one that is increasingly being sounded around the world by value chain and supply chain experts.

“COVID-19 illustrates how many companies may not fully appreciate their vulnerability to global shocks through their supply chain relationships,” says a report by Deloitte titled ‘COVID-19: Managing supply chain risk and disruption’.

“Companies should multi-source strategic commodities or key components to reduce their dependence on one supplier. This recommendation held true before the impact of the pandemic and has been strengthened by it” said another report by Efficio, the world’s largest procurement consultancy.

It notes that apart from major outbreaks of communicable diseases, like COVID-19, becoming highly likely in the future, businesses are likely to experience additional disruptions to supply chains that result from climate change and political instability.

Devastating effect

The EPRC notes that the pandemic is projected to have devastating effects on the global economy. According to the IMF global economic Outlook, the world economy is projected to contract sharply by 3% in 2020 as a result of the pandemic.

The Sub-Saharan African economy is expected to contract by 1.6% and African businesses are being severely impacted by the COVID-19 crisis with 80% of business in Africa significantly affected. The proportion of severity is relatively uniform across the size of enterprises and the sector of business.

Containment measures to curb the spread of the virus in the Uganda have included closure of schools, keeping social distance, restrictions on internal and international travel, wearing of protective gear, use of hand sanitiser and stay at home orders in the lockdown have affected the economy.

Border closures and international travel restrictions have caused supply chain disruptions and affected many importers and exporters. Tourist visits are at nil, and consumer demand has plummeted.

In Uganda, small scale businesses and traders who are the majority have been the most affected. As sources of raw material and demand for their products dried up many SMEs have resorted to laying-off and cutting the salaries of those that remain.

Approximately three-quarters of the surveyed businesses report reduction in the number of employees. Overall, 76% of the businesses reported to have reduced the size of the workforce due risk presented by COVID-19 and subsequent lockdown measures. Of these, 29% reduced their employees by more that 50%, and 27% of surveyed businesses reduced their employees by a range of 26 to 50%. Only 21% of businesses reduced the workforce by a range of 1 to 25% (Figure 6). Businesses in agriculture have undertaken the largest restructuring in the workforce, with 37% reducing their workforce by at least 50%, and another 44% by at least 26%. This is probably due to severe decline in agricultural demand and revenues highlighted earlier.

Similarly, a significantly high percentage of manufacturing businesses have laid off employees, with 41% reducing employees by more than 50%.