COVID-19 Implications on Private Investment and Markets in East Africa: A Rapid Assessment

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Mwesigye, Francis
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African Economic Research Consortium
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.