COVID-19 Implications on Private Investment and Markets in East Africa: A Rapid Assessment
Date
2021-10-08
Authors
Mwesigye, Francis
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
The COVID-19 pandemic coupled with government measures to contain it, has
affected many economies and exposed the level of economic vulnerabilities across
countries. This study uses macro- and firm-level data to examine the implications of
COVID-19 on private investments and markets in East Africa. Specifically, the report
used stock market performance data, Foreign Direct Investment (FDI) and remittances
flows, revenues from tourism, imports of capital and intermediate goods, and the
enterprise survey data in the analysis. The findings indicate that COVID-19 has affected
investments and businesses in East Africa. For instance, the study found that the
stock price dropped from March 2020 and had not recovered by the end of 2020. In
addition, inflow of FDI and remittances declined during COVID-19, and that revenues
from foreign tourists dropped to zero in the second quarter of 2020 largely due to
lockdown. The value of imported capital and intermediate goods declined during
the lockdown but later started recovering albeit at a slow rate when the lockdowns
were eased.
On the business performance implication of COVID-19, the study found that several
businesses closed during the lockdown, especially those in entertainment and arts,
wholesale and retail trade, and those providing accommodation services. Business
turnover reduced during the lockdown especially for businesses that closed for a
longer time. The findings indicate that many businesses resorted to cost-cutting
techniques, diversification of sales channels, prudent financial management,
reduction of the pay roll, and use of PPEs to ensure continuity. However, these
measures affected employment as many businesses laid off staff. Moreover, reduction
of the payroll affected the lowest ranking staff who are also the lowest earners,
suggesting that COVID-19 could have had other socio-economic effects such as food
insecurity.
The study found that most businesses have not benefited from any government
support. Indeed, only 10% of the businesses reported that they received any form of
support from the government. Support came in different forms such as promotion
of use of personal protective equipment, financial subsidy, debt restructuring, and
government payment of its arrears. The study found, however, that support mainly
targeted manufacturing businesses and mining but not those that had been worst hit
by the pandemic such as entertainment and art, and those in the hospitality industry.