Mergers: How small businesses survived pandemic

Mergers and buyouts were the leading survival tactic for businesses in the country as the economy got ravaged by the effects of the Covid-19 pandemic.

A report by a private sector body drawn from the East African Community (EAC) member States also lists reduced sales volumes as the major challenge faced by Kenyan businesses over the pandemic.

The report further recommends policies that prioritise vulnerable micro and small enterprises (MSMEs) if the east African region seeks a faster economic recovery.

The report by the East African Business Council (EABC) notes that the lack of a disaster recovery plan partly contributed to how disastrous the effect of the pandemic was on MSMEs.

EABC is a regional body whose membership is made up of private sector associations and corporates.

The report analyses how businesses in the region performed during the pandemic while giving recommendations on how governments should react to recover the lost milestones in the economy.

Reduced sales

The top three challenges across the six countries include lack of customers (14.48 per cent), lack of finance (13.69 per cent) and reduced sales volume (13.16 per cent).

Kenya, Uganda, Tanzania, Burundi, Rwanda and South Sudan are the countries that participated in the report.

The Democratic Republic of Congo (DRC), the latest entrant is missing as it was admitted into the EAC this year.

In Kenya, reduced sales volumes, lack of mentors to guide businesses and unfavourable laws and policies were the top three challenges during the pandemic.

"While overall, lack of customers was the biggest challenge to businesses in EAC during the pandemic, it was most pronounced in Rwanda, followed by Kenya and Uganda respectively," says the report.

In Kenya, Uganda and Burundi, the Council reports, the biggest challenges included reduced sales volume, unfavourable laws, policies and regulations and the inability of meeting contract terms respectively.

"This shows that there was diversity on key challenges for each country in the EAC partner states," adds the report.

As a result of the pandemic, businesses employed several tactics to stay afloat even as the measures issued by respective governments such as restrictions on movement and curfews made it difficult to operate.

New ways to connect with customers, online or remote work, new delivery ways of products and services, changed operating schedules and temporary closure were the top five strategies used across the region to navigate through the pandemic.

Others included the implementation of a robust cash flow structure to keep business going, improve employee welfare, and creation of new networks while enhancing old ones.

Connecting with customers

"The findings showed that the most utilised survival strategy during the pandemic was new ways to connect with customers, followed by remote or online work and new delivery ways of products and services," the report reads in part titled Barometer on the state of business and investment in EAC amid Covid-19 pandemic and outlook 2022 to 2023.

New ways to connect with customers were mentioned the most by respondents from Rwanda, followed by Burundi and Uganda respectively.

"The most prominent survival strategy adopted by businesses in Kenya was merging and buyouts followed by change operation hours," says the report.

"For Uganda, most prominent survival strategy was relocation, while in Tanzania businesses utilized restructuring of loans most, in Burundi the most mentioned survival strategy was utilizing government stimulus packages."

In Rwanda, the most mentioned was salary pay cuts while in South Sudan, it was more about restructuring.

The respondents targeted in this report were businesses involved in trade and investment, business support associations, policymakers and government officials, ministry of trade partner countries, statistical bureaus, ministries of health, investment authorities, scholars and trade economists, development partners, revenue authorities and other relevant stakeholders.

Policy change

In order to aid the quick recovery process of MSMEs, the business council recommends that the respective EAC governments should put up effective strategies and policies that will ensure support for start-ups and existing companies.

The governments should also reboot start-up policies to enhance the potential of innovative new ventures and ensure that support measures are inclusive and reach vulnerable segments of the SME population, including women and minority entrepreneurs.

"Rethink policy approaches with regard to self-employed entrepreneurs," the recommendations read in part. "Avoid MSME over-indebtedness and an MSME solvency crisis by exploring equity, quasi-equity and other non-debt support."

The governments should also put a strong focus on the digitalisation of MSMEs and new firms as a cornerstone of recovery while strengthening the forward-looking capacity, resilience and responsiveness of MSME and entrepreneurship policy frameworks.