The Effect of Corona Outbreak on Small Businesses

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During the census, intake and diary research of the Small Firm Diaries project, respondents revealed the negative effect of the pandemic on their business. However, some firms have felt the effect of the pandemic much worse than others.

Cultural clothes firms were hit very hard by the Corona outbreak. According to them, most of Ethiopian people buy or order cultural clothes for weddings or other celebrations. But, after the announcement of the covid-19 prevention measures on gatherings and physical distance, most of the celebrations including wedding, baptism and other celebrations were either cancelled or attended by few people. As a result, the demand for cultural clothes sharply decreased.  From our field work we learned that many cultural clothes firms were either at breakeven or loss. To minimize their loss, firms took different actions like reducing their workers either permanently or temporarily, and renting smaller premises or sharing premises. 

For instance: one of the Small Firm Diaries respondents said that she had two employees before coronavirus. However, during the pandemic her sales sharply decreased and could not cover her expenses for workers and for rent. Thus, she laid-off all of her employees and rented out some portion of her premises to minimize her cost. Another census respondent also had employees and also rented a premise solely. However, after the corona outbreak, he laid-off most of his employees and rented another premise with his friend to minimize his cost. 

Like cultural clothes firms, carpenters were also affected by the pandemic outbreak. During the outbreak, most people were afraid there would be a lock-down and many tried to accumulate food. As a result, the demand for furniture products sharply decreased and carpentry firms were at loss or at breakeven. 

For instance: one respondent, who has owned a carpentry business for more than seven years, said the pandemic was the most challenging experience in her business life. She lost more than half her customers and her business was under loss until September 2020. After September, things got slightly better as her number of customers had increased again and her business profitability had improved.

Another respondent who owns a carpentry business said that he mainly produced and supplied wooden handicrafts for tourists before the pandemic. These products took the highest share of his business profits. However, after the pandemic, the number of tourists had extremely decreased. Thus, he stopped producing these products and was forced to switch to production of home and office wooden furniture to sustain his business.

A respondent who owns laundry in Addis Ababa also shared her experience with us regarding the pandemic. When she first heard about Covid cases in Ethiopia, she thought she could easily be exposed to the virus since her business involves lots of physical contacts. Thus, she decided to close her business for a few months. But then, she said that she realized the disease won’t go away in the near future. So, she decided to re-open her business by taking the appropriate safety measures. However, when returned to the market, she lost most of her former customers and struggled for some time. But now, she said, her business is back to normal.

The above stated experience is shared by other respondents as well. To get an overview, in the intake stage, respondents were asked whether they had to lay-off workers during the pandemic. At that stage (intake took place in February/March 2021), only 25 percent of the respondents laid-off workers (14 percent had to lay-off 2-3 workers; 5 percent laid off 1 worker and another 5 percent laid off 4 or more workers). However, since that time, the Covid-19 effects have worsened and the number of workers laid off has certainly increased amongst our respondents.

At the time of intake, when comparing by industry, a slightly higher proportion of light manufacturing firms laid off workers (28 percent) as compared to agri-processing industry firms (21 percent) and other (service) industry firms (18 percent). There is some difference when we compare the number of laid off workers by each industry. Light manufacturing and agri-processing industry firms had to lay off more workers (4 or more workers and 2-3 workers). Other (service) industry firms had fewer firms who laid off staff, they also were more likely to lay off only one person.

Figure 1: Laid off workers due to pandemic by industry

By gender of the owners there is a surprisingly large difference. Women-owned firms were least likely to lay off workers (just 7 percent), and these only laid off one worker. On the contrary male owned firms were most likely to lay off workers (30 percent) and these were also the larger number of workers 2-3 and 4 or more workers). The firms that were owned by both men and women had almost the same incidence as male owned firms (28 percent) but a substantial portion of them only laid off one staff. 

Figure 2: Laid off workers due to Covid by Gender