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Year ender: How coronavirus brought economy to its knees
Closed. A section of closed retail shops in Kampala during the lockdown that started in March. The Covid-19 pandemic has led to a severe contraction in economic activity due to a combination of global supply chain disruptions and sudden decline in demand. PHOTO/ RACHEL MABALA
What you need to know:
- The World Health Organisation in March declared it a pandemic as it quickly morphed into a global crisis.
- The virus has in months spread across the world, leaving death in its wake.
- A global strategy of locking down countries quickly became the norm.
When the first case of coronavirus was detected in the Chinese city of Wuhan in 2019, it was too early to ell that this virus would bring the global economy to a standstill. A few months later, the coronavirus victims increased to millions of people.
The World Health Organisation in March declared it a pandemic as it quickly morphed into a global crisis.
The virus has in months spread across the world, leaving death in its wake.
A global strategy of locking down countries quickly became the norm.
When Uganda’s largest source of imports, - China, went into lockdown occasioned by coronavirus, the country’s economy took a downward turn. It was not so long after, when President Yoweri Museveni also instated a partial lockdown in March, which after weeks escalated into full lockdown.
No one was spared. The once vibrant country - both by day and nigh, was hushed. Movement was barred for the greater community including businesses, save for those dealing in essential services. The lockdown went on for about three months.
Economic shutdown
Economists predicted that the magnitude of damage from coronavirus infections would be worse that the 2008 financial economic crisis that did not cause people to stay home, cancel mass gatherings and travel and shut down schools for weeks/months.
Closure of the airport and limitation of movement in and out of the country shot down tourism numbers which directly had an impact on the service industry such as resorts and hotels among others.
A report by Ministry of Tourism notes that foreign tourist arrivals are projected to fall by 1.4 million and the sector has lost earnings of $1.06b (Shs3.9 trillion).
Jobs were lost as businesses scaled down operations in a quest to stay afloat through cutting salary expenses.
There was no business activity since most malls and offices were closed in a bid to mitigate the spread of the virus. Electricity sales dropped by about 10 per cent in just one month.
Exports drop
Exports dropped from $386m in January to $299.4m in March while imports dropped to $1.3b in the second quarter of 2020 from $1.6 in the first quarter. Schools to date are still closed as some bars gather cobwebs because they are still under lockdown. Real estate suffered as tenants vacated due to closure, others failed to pay for the arrears while new buildings sit vacant, waiting for potential tenants.
Demand for products equally slouched as people’s purchasing power diminished. Federation of small and medium enterprises reported that 28 per cent of SMEs reported that lack of demand for their products was one of their main challenges this year.
Straddled on a stool directed at the entrance of his store in Ham shopping mall, Mr Moses Bagonza, managing director Bridge textiles, a dealer in textiles was one of those considered non-essential. He is an importer of textiles from which clothes are designed and produced.
Tenants battle rent arrears
Having suffered with a closed store for nearly three months, he was welcomed by a demand notice by the landlord to pay the rent arrears before any business resumed.
“Imagine our business was closed, but the landlord wants you to pay for three months’ rent in one month,” he lamented.
Being an importer, Mr Bagonza could not travel to China to order for goods. As a result, he resorted to digital services to make orders.
“I started using WeChat to order for goods. They send you pictures and you respond to them letting them know what to send. The experience has been good because the quality is maintained. In fact, now I rarely travel, I merely order online so I have cut my expenditure,” he narrates.
However, due to restricted movement and slow resumption of business activity globally, his goods which once took about two weeks to get into the country were spending over a month in transit. The same can be said about Ms Zulfa Lunkuse, a textile dealer in the same building. To cope with the effects of Covid-19, she learnt to cut her expenses to survive.
“The sales dropped during lockdown and this had an impact in my life. If I used to make Shs7m a day, it has dropped to about Shs1m which has forced me to cut my expenditure both in the business and at home. If I was spending around Shs300,000 per month, now am spending about Shs100,000,” she says.
Economic cycle
When Ms Lunkuse reduced her expenditure, she affected sales of another business especially retail stores from which she purchased consumer goods. The retail store because of low demand reduces procurement from the wholesale shop that either imported or bought from a local factory. The reduction cuts across the entire value chain. It also spills to other sectors such as energy and banking among others.
Commercial banks in an effort to allow businesses maintain cash flow; have restructured loans worth Shs2 trillion by June, across sectors. The bankers, however, say increased loan restructuring amid slow economic growth poses risk of increasing non-performing loans in the industry.
The common denominator is the taxman. Reduced business activity signifies reduced taxes for Uganda Revenue Authority (URA) whose target was about Shs21 trillion before being revised to Shs19 trillion.
However, the taxman has since financial year 2020/21 recorded a surplus in tax collection, which Mr John Musinguzi, the Commissioner General URA attributes to the revision of target downwards.
He nonetheless noted recently that tougher times are expected in the second half of 2020 requiring them to plug any leakages through deploying technology and growing the tax base if the country is to achieve its revenue collection targets.
Failure to attain the country’s revenue collection targets pushes Uganda into debt which economists fear is drawing closer to being ‘unsustainable.’
The country whose economy was projected to grow at 6 per cent was revised lower to only 3 per cent by the International Monetary Fund.
According to Bank of Uganda, the economy’s outlook is nonetheless promising premised on global economic recovery and immediate distribution of the vaccine.
Covid-19 vaccine
But some countries are reinstating lockdown measures especially around Europe and the vaccine is only expected in Uganda in the second quarter of 2021.
The pro to this situation in addition to saving travel expenses by government, was perhaps placing the spotlight on manufacturers to boost local production and promote import substitution. The beneficiaries from the silver lining from covid-19 are; technology and innovation, health sector and telecommunications.
Low purchasing power
Demand drops
Demand for products equally slouched as people’s purchasing power diminished. Federation of small and medium enterprises reported that 28 per cent of SMEs reported that lack of demand for their products was one of their main challenges this year.
