COVID GIVES COMPANIES IN REGION CHANCE TO INNOVATE
The economic shock caused by Covid-19 has affected companies around the world. A year on, their recovery remains uncertain. But the impact on Mena companies differs from other regions in a few ways.
To gather timely information about how companies are navigating through the pandemic, the World Bank, often in partnership with national statistical offices, has been carrying out Covid-19 Business Pulse Surveys.
Since May 2020, the surveys have covered more than 100,000 businesses in more than 50 countries, including Algeria, Djibouti, Morocco, Tunisia, Jordan and the Palestinian territories of the West Bank and Gaza.
Other Mena countries could still benefit from participating in the survey and generate timely information for policymakers to help companies recover.
The Mena BPS findings highlight that the ways in which the pandemic affected companies include revenue loss, financial distress and job losses. However, despite drastic declines in sales and business activity, most Mena companies have held on to their workers while their adoption of technology has been slow.
The surveys also show that Mena companies remain highly uncertain about the recovery and fear a decline in demand, production and work hours. Many also worry about further pandemic waves and movement restrictions.
While most companies have reopened at some capacity, a non-trivial share (10 per cent to 20 per cent) across surveyed countries in the region remain closed. A significant share of Mena companies – 14 per cent in the West Bank and Gaza and 17 per cent in Algeria – have cut the number of permanent staff. Nonetheless, the share of companies in the region that laid off workers seems to be less than in other regions.
Most companies have tried to hold on to their permanent workforce by offering leave, often without pay, and reducing work hours, salaries and the number of temporary workers.
Nonetheless, the persistent decline in sales and a prolonged pandemic threaten to result in permanent job losses for Mena companies.
Between July and August last year, 26 per cent of companies in Jordan had cut permanent workers. However, this increased to 39 per cent between November and January.
The pandemic has negatively affected 92 per cent of companies in the West Bank and Gaza and 89 per cent of companies in Djibouti, Tunisia, and Jordan.
For most of these businesses, sales have declined by more than 50 per cent from preCovid levels. This magnitude of revenue loss is in line with that experienced in developing markets.
Across the developing world, the loss of sales appears to be persistent, which is also likely to be the case in Mena countries. For instance, in Jordan, 601 companies were surveyed between May and November 2019 (pre-Covid-19), between July and August 2020 (Covid-19, round 1) and again between November 2020 and January 2021 (Covid-19, round 2).
The average decline in sales seems to be persistent at about 50 per cent in both Covid-19 survey waves.
Smaller businesses and companies in the service sector seem to be the hardest hit. Unable to cope with the persistent decline in sales, a significant share of businesses across Mena countries, particularly smaller companies, have permanently closed. For instance, 17 per cent of companies in Jordan went out of business between November and January – up from 11.6 per cent during the early stages of the pandemic.
In Morocco, 9 per cent of companies closed, but the percentage of smaller companies shutting their doors was much higher (at 11 per cent) than for larger businesses (2 per cent).
Declining revenue has also left most companies, particularly small businesses, in financial distress. About nine in 10 businesses in the West Bank and Gaza, 93 per cent in Jordan, 78 per cent in Tunisia and 72 per cent in Morocco reported a fall in cash flow.
Delaying payments to suppliers, landlords or tax authorities and being overdue on obligations to financial institutions have been the methods by which most companies have coped. Besides the financial distress, disruptions in transport and logistics and the supply of inputs appear to be some of the key impediments Mena companies face.
Despite its several adverse impacts, the Covid-19 pandemic has motivated companies across the developing world to take advantage of digital technology.
Building a stronger digital presence also seems to be an essential coping mechanism for a significant share of companies (between 20 per cent and 30 per cent) across surveyed countries in the Mena region. Increased internet use, online social media, specialist apps and digital platforms have been ways through which companies have continued business operations.
Nonetheless, Mena companies have considerable scope to catch up with their peers on digital solutions. Moreover, the gap between micro and small businesses and larger companies in digital technology adoption is higher in the Mena region than anywhere else.
Several structural impediments in Mena countries are likely to inhibit companies’ technology adoption and innovation.
These include a high degree of informality, particularly among micro and small businesses, a lack of digital payment solutions, underdeveloped and costly digital infrastructure and a lack of domestic competition and export competitiveness that reduce the incentive to innovate.
Most Mena companies said they need policymakers to prioritise deferrals or subsidies covering utility and rent payments, salaries, tax exemptions and deductions to help them through the pandemic. Policy support in different Mena countries has allowed companies to avoid falling into arrears and cope with uncertainty.
However, based on surveys in different Mena countries, it appears that policy support is only reaching a few companies
A well-targeted, time-bound and effective policy support programme is much needed to keep Mena companies afloat and navigate the turbulent waves of Covid-19 shocks.
Nadir Mohammed is director for equitable growth, finance and institutions in the Mena region at the World Bank, Djibrilla Issa is practice manager for finance competitiveness and innovation in the Mena region at the World Bank and Aminur Rahman is lead economist in the World Bank’s finance, competitiveness and innovation global practice in the Mena region
Several structural impediments in Mena countries are expected to inhibit the adoption of technology and innovation by companies