Impact of COVID-19 on SMEs: 4 Strategies to Improve Kenyan SMEs’ Recovery
COVID-19 sent shockwaves throughout the business community, forcing many small and medium-sized businesses to either slow down their operations or stop them altogether. Prolonged periods of lockdown and the disruption of non-essential activities as measures to contain the pandemic have negatively impacted global economies.
This has affected SMEs in emerging economies due to their limited resources, vulnerable supply chains, and business-to-business relationships. MicroSave Consulting reported that SMEs in non-essential sectors faced an average decline in customer footfall by 62%. 33% of these businesses struggled to replenish their stock due to disruptions. Many saw an increase in the cost of supplies (on average; 26% in urban areas, 15% in rural areas).
Since the onset of the pandemic, governments and financial institutions have stepped in to help by granting loan repayment holidays. However, SME Finance Forum states that these payment referral programs have blurred the lines between illiquid and insolvent borrowers making credit risk assessments more difficult.
The adverse effects of the pandemic also made many businesses wake up to the realisation that finances were just one of the many aspects that kept an organisation healthy and thriving. While funding remained critical even after an ease in COVID-19 restrictions, WYLDE International reported that its significance had lessened as more business owners sought other ways to make their operations more resilient.
60% of SMEs believe that funding and grants are important, a drop from the 80% who reported the same between March and April 2020. Other non-funding needs such as business strategy went up from 23% to 65% in the same period. Interest in business skills development and management training went up 17% while tax reliefs/waivers/discounts increased by 11%.
Action Areas for Smes to Mitigate Challenges From the COVID-19 Pandemic
Many Kenyan businesses will require changes in their organisational and infrastructure management to survive in this “new normal”. There’s a crucial need for SMEs to review and revise what they know about business management, strategic planning and innovation in order to come up with solutions that reinforce their business models in various markets and restrictions.
We’ve put together four recommendations:
1. Leveraging technology and digital channels to reach new customers and demonstrate a unique value proposition
SMEs can enhance their reach and improve their efficiency at much lower costs using new and digital technologies. Technology is additionally creating opportunities for these smaller businesses to overcome the scale disadvantage and compete with relatively larger players.
Digitisation has infinite benefits. It can help SMEs streamline their operations, strengthen their consumer and supplier networks, increase their forecasting capabilities, reduce transaction costs — all things that are essential in surviving and adapting to external crises.
2. Driving efficiency as much as sales
Many Kenyan SMEs put their business focus on boosting sales and managing cash flow. But those that choose to also prioritise operational efficiencies can further push competitiveness and increase capacity in the business.
Tracking and reporting on tasks, processes and systems can help SMEs identify areas of improvement as well as provide a better ability to focus team efforts during problem-solving.
3. Investing in the teams’ skills and capabilities and empowering leadership
Often SMEs on a fast growth track struggle to scale up. This is why investing in capacity building, especially at the leadership level, can help SMEs develop a focus on growth and strategy that ensures sustainability.
Capacity building can help improve effectiveness at the granular level. It furthers a business’s ability to do new things while improving on what they already do. And most importantly, capacity building enables a business to function and stay relevant in an ever-changing environment.
4. Establishing clearer market access strategies
Kenyan SMEs need to be more holistic and structured when it comes to developing their go-to-market strategies — this can help boost their market share while also reducing the inherent risk of concentrating sales on one to three large customers.
Businesses looking to thrive in this new normal will need to have a better understanding of shifting demand and new potential customer bases. Better access strategies will allow SMEs to focus on a value proposition that can be leveraged when positioning themselves in new markets.