How small businesses can survive the pandemic

Coronavirus is projected to wipe out about 10 per cent to 20 per cent of the world’s Gross Domestic Product (GDP) this year.

Already, the Organisation for Economic Co-operation and Development has reduced the global GDP growth estimates from the initial 2.9 per cent to 2.4 per cent. Worse still, it is unclear how long the pandemic will take.

Kenya has over 600 cases - leading to a mild lockdown of Nairobi, Mombasa, Kilifi and Wajir and a 7pm to 5am curfew.

These measures, coupled with the fear around the virus, have resulted in notable economic consequences. Tourism is on its death bed with several hotels closed down and others sending their staff on unpaid leave.

Airlines have grounded their planes as the world remains in lockdown with minimal or no travelling. Restaurants and bars remain closed with a few operating take away services.

Most agricultural produce meant for export will remain unsold as demand in the international markets has reduced with no flights to carry them.

Banks are expecting a default rate of 12 per cent to 18 per cent in the year as small businesses remain closed and unable to service their debts.

Local goods

Further, manufacturers are struggling in the absence of inputs. China comprises of 21 per cent of all imports used in the manufacturing of local goods.

With China having reduced its production, local manufacturers may not get their inputs - affecting their production in the year.

As the pandemic bites, Kenyans are adopting a wait and see attitude, leading to subdued purchases. But perhaps the most observable reality is that government revenues will reduce due to economic underperformance and fiscal measures meant to reduce effects of the pandemic.

VAT has been reduced from 16 per cent to 14 per cent and PAYE removed altogether for low earners of up to Sh24,000.

In the face of these challenges and shifts, how can small businesses survive the turbulence?

Naturally, the first response is to ensure safety by following the guidelines by the Ministry of Health and World Health Organisation. This could mean closing the office or shop and working from home where possible.

But beyond the safety measures, have a safe cash float.

Reduce or eliminate secondary expenditure to save your cash holdings. Negotiate with suppliers for more time to pay up.

This will give you room to pay primary costs like rent and salaries. It will also enable you meet your obligations should your lenders refuse to give you a grace period in repaying your loans.

Remember that little or no sales are coming in at this time thus manage every available financial resource prudently.

Keep reminding clients that you exist either by giving offers through email, text messaging, doing charity work and close engagements via social media.

Think creatively of new solutions and communicate to your market. During crises like this, the ground shifts significantly.

Societal changes

There will be major changes in society and the economy when things go back to normal.

Ensure you do not lose your market share in the process of change and where possible, gain some ground. A total lull will definitely work against you.

Externally, it would add value to partner with others. Major economies are driven by small businesses. Many are startups.

Sadly, however, these small businesses are most vulnerable to economic shocks.

Yet the businesses that partner with others always survive the shocks, coming out stronger from every turbulence. There would be an opportunity to seek partnerships from other businesses in the same line with strengths where your business is weak.

If your business involves importing, cautiously measure your engagements with the suppliers beyond the borders.

Many businesses in the source countries are closed up, thus sending money to purchase items may work against you given the global logistical challenges.

Exports are however affected by low demands as populations stay indoors in traditional markets. Avoid overproduction and try and gauge demand before purchasing or producing any goods for these markets.

However, business is expected to boom after Covid-19.

The globalisation philosophy, popularised by capitalists after the economic recession of 2009, is on its deathbed. Most governments will be looking inwards to improve health services, education systems and improve living conditions to avert public anger.

Further, the crisis has revealed the need to be self-reliant. I foresee many governments investing in the local production of health equipment and drugs. With that, nascent industries will bloom as they seek meet market needs.

-The writer is the Managing Director of Elim Capital Ltd