The world is still reeling from the effects of the various COVID-19 variants; socially and economically, things have dramatically changed in the last 2 years. In this article, we shall analyze the specific impact of coronavirus on employment, salaries &MSMEs in Kenya and how some MSMEs have coped.

Employment

Employment by private sector firms fell by 16% between March and April of 2020 as the Government enforced containment measures to stop the spread of the virus. Of all the big economic sectors in Kenya i.e manufacturing, trade, agriculture, finance, hospitality and transportation, the most severe impact has been felt in the hospitality and transportation sectors.

The private sector was first impacted by disruptions of the supply chain and trade with China in early 2020. The most significant logistical challenge reported by firms in a Kenya Association of Manufacturers’ report was an increase in sea freight costs followed by delays in the supply of imported raw and intermediate materials used in local production. The increased demand for imported goods by the United States economy, particularly from China meant supply chain processes elsewhere experienced significant delays and increased costs. This led to 41% of the surveyed KAM membership including Chief Executive Officers, Managing Directors, Chief Operating Officers, Operations and Finance Directors downsizing their workforce.

In mid-March, the Kenyan Government closed national borders, restricted domestic travel, banned public gatherings, closed schools, and later imposed a night-time curfew. Additionally, strict lockdown measures were put in place for the most at-risk counties in April.

By April 2020 overall formal employment fell by 16% and the overall payroll dropped by 10% between March and April 2020. After April, employment numbers in all sectors experienced a steady decline as the financial impact of Covid-19 was felt across most companies’ bottom lines.

Employment in the hospitality and tourism sector started to decline in March and by April 2020, employment levels across all sectors also dropped. Companies in accommodation, food services and tourism activities on average saw a decline in the number of employees of close to 10% in April 2020. By May 2021, the employment level in Kenyan hotels was at 57% of the number of employees in February 2020, when the level was at 100%.

Without international tourists due to travel restrictions the tourism sector mostly catered to domestic activity which was also limited as a result of lockdowns in the country and reduced appetite for luxury spending on non-essential items by most Kenyan families.

According to the Kenya National Bureau of Statistics (KNBS), 1.7 million jobs were lost in the formal sector in 2020. A year later, a May 2021 Federation of Kenyan Employer’s report found that over 5 million people lost their jobs in the informal sector. This growing statistic has been devastating for many households who have seen the primary bread-winner get laid off work.

Salaries

Companies raised average monthly pay by 3.82% to Sh67,490 in the year ended June 2020, a steep drop from the 8.16% raises to Sh65,006 the year before. That was the slowest rise in earnings since 2011 when firms raised average pay by 3.48% and nearly half the average 7.41% in the decade before last year.

Employers warn that it may take years for pay raises to return to pre-pandemic levels, with firms struggling with elevated costs largely due to uncertainties brought about by Covid-19. The Federation of Kenya Employers (FKE) said persisting instability in global supply chains and increasing global oil prices had saddled firms with a high cost of materials and further raised the cost of operation.

A survey, commissioned by the Kenya National Chamber of Commerce and Industry (KNCCI), suggests 67.2% of surveyed traders faced challenges in paying workers at the end of 2020 compared with 35.3% before the pandemic hit. Over 37.9% of small businesses were having trouble retaining workers at the end of 2020 compared with 20.9% at the beginning of the year.

The survey, done in partnership with the Center for International Private Enterprise (CIPE), is based on feedback from 153 businesses with monthly sales of between Sh500,000 and Sh5 million in 40 counties. Small businesses with a turnover of between Ksh500,000 and Sh5 million per month provide the majority of employment opportunities which keeps the cash flowing in all sectors. When these businesses are hurting, the impact is felt in all areas of the economy according to KNCCI president Richard Ngatia.

MSMEs

The MSME sector has been severely impacted by COVID-19 with early containment measures by the Government. Work has become quite difficult for people unable to perform their normal functions while abiding by social distancing and other public health practices. Small retailers who were unable to conduct business without the risk of exposure and infection faced reduced demand for their services and goods, shrinking the industry further. One of the biggest challenges of MSMEs was that most of their processes were manual and that employees were required to appear in person in their areas of work exposing themselves to the risk of covid.

In the wake of increasing financial difficulties faced by MSMEs in accessing credit and keeping business afloat, the Central Bank of Kenya stepped in to provide borrowers with various restructuring options including extensions of the repayment period, a moratorium on principal or interest and waivers on interest or fees. These provided space to borrowers to ride through the pandemic, mitigate job losses and pivot their business models to the new normal.

44% of the 2,739 respondents in a Georgetown University survey reported that someone in their household had lost a job due to the pandemic. Of these, two-thirds reported the loss as temporary, while one-third said the loss was permanent. 86% of the retailers reported that the curfew had affected their source of income because they were forced to close their shops early or open later than normal.

65% of respondents reported that cessation of movement had negatively affected their commercial operations. The impact of the pandemic was felt in households across the country as nearly half of the respondents reported small increases and an additional 9% reported large increases to prices of essential commodities. 38% of retailers reported having taken out formal loans from financial institutions, while 29% accessed informal loans from relatives and friends to deal with the effects of the pandemic. 18% of respondents took out both informal and formal loans with the credit crunch biting most MSMEs. Very few families received any form of relief from the government with measures like tax relief for individuals earning a gross monthly income of up to KSh 24,000, a reduction in personal income tax rate from 30 to 25% and a reduction in the corporate income tax rate from 30 to 25% not impacting most MSMEs.

NGOs, religious organizations, family or friends and private individuals supplemented efforts by the Government to give cash relief bailouts by buying household commodities for affected communities.

Braving the Storm

Kenyan MSMEs showcased their resilience and innovation by making use of digital technology to survive and thrive in the tough business environment caused by the pandemic. MSMEs with higher digital maturity reflected lower levels of negative impact on income. The use of fintech has been key for marketing products and services, development of products and services, procurement, financial management and customer care. The use of tools such as social media, e-commerce platforms and websites have enabled MSMEs to access wider markets.

Covid fatigue has affected many people in Kenya over the last two years with doom and gloom being the only outlook but hope is on the way. The World Bank predicts that the Kenyan economy could grow by 5% by the end of last year. This projection is based on firms boosting industrial production and investments as lockdown measures are lifted, a slight recovery in the services sector due to vaccinations, and adequate crop harvests. Kenyans are resilient people and though knocked down, we are not knocked out. We look forward to a brighter 2022 and hopefully an end to the Covid pandemic.

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Meet Naomi Kiiru, Project Manager and Operations lead at dijITali, a digital innovator creating new, sustainable jobs to positively impact the economy. dijITali strives to innovate by empowering hundreds of cybercafés across Kenya to provide the youth with sustainable jobs, at the same time giving other youth access to government services, education and job opportunities, and economic participation through e-commerce.

dijITali is also one of PesaKit’s super partners, they are our Brand Ambassadors for M-Pesa Agents in the community. We sat down with her as part of our “Partnerships with a Purpose” series, to talk about driving digital inclusion and innovation through digital centers.

 

Please tell us a little about yourself:

I work as the Project Manager and Operations Lead at dijITali. When you see a cyber café, you see them as a means to attaining a service, which is the internet. We see them as digital translators enabling entrepreneurs’ businesses and dreams every single day. I ensure that cyber cafes in our network are able to seamlessly join our programs, get equal access to our offerings and opportunities and provide them opportunities to actively participate in the network.

Our mission is to empower the youth and create employment through digital inclusion and of course, improving the quality of the service experience..

What are some of the challenges the cyber cafes face in their daily operations?

There lacks a structure which enables them to better manage their finances , ability to identify opportunities near them, limited access to business credit and lack of business management skills, among others. Their sector is not properly defined making it difficult for them to have a voice.

What is the kind of support small businesses in Kenya need?

Resilient financial management, mentoring small business owners on capacity building, training them to recognize opportunities to grow and secure their businesses, upskilling them to capacity building. They must also be trained in bookkeeping, business development, legal issues, human resource management, and marketing. It is also of utmost importance to upskill them in order to enhance revenue streams.

 

Why did you partner with PesaKit and how has it helped?

Not to mention, their importance in bridging the inclusion gap in the nation. Agent networks have always been a core part of the mobile money industry, but during the pandemic they proved critical as there was an increase in the demand for both cash and digital services. It is a well known fact that there are more mobile money agents than ATMs in Kenya thus, we’re all extremely dependent on them for our day-to-day transactions.

We felt Pesakit’s value proposition would be beneficial to the cyber cafes in our dijITali network, as it would give them another way to grow and secure their business especially through the challenges that the pandemic has brought. Our agents have been able to earn an additional income by selling services to their customers, they have been able to apply for the PesaKit loans to grow their business and they also now have the option to secure their business using PesaKit’s micro insurance services.

How easy or difficult was it to register as a Super Agent. Kindly take us through the process.

The process to register as a Super Agent with PesaKit was very easy and smooth. We decided on coming aboard as a Super Agent as it felt like a seamless way to bring more benefits to our network of cyber agents.

There is an option to register our interest in becoming a PesaKit Super Agent on the website, which we did. We followed the next steps with ease and once the PesaKit team had verified all the information provided, we received a Super Agent certificate from PesaKit along with our unique credentials to begin operating.

 

According to you, is enough being done to encourage gender inclusivity in the finance and business sector?

Strides are being taken in the right direction, but, we still have a very long way to go to attain gender inclusion. Sometimes, the importance of focused gender inclusive products is lost under the large umbrella of financial inclusion. Organizations and the government alike need to look at their opportunities, their schemes, their policies etc. under different lenses for different inclusion priorities.

Businesses can gain infinitely more when they choose to participate in strategic partnerships. No matter how successful your business is, the right partnership can take it to even greater heights. Whatever your business is, it is important to look for the right partnership agreement that benefits both parties. At PesaKit, we strive to build such relationships with like minded businesses that are, at the heart, working tirelessly to build an inclusive nation.

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In the face of a crisis, resilient organizations remain stoic and steadfast instead of being overpowered by it. The COVID-19 pandemic has had a catastrophic effect on people, businesses and economies around the world. Many companies have realized that having a resilience plan in place helps them to better mitigate, prepare for, respond to, and recover from emergencies.

Micro, small and medium enterprises (MSMEs) are widely recognized for their important contributions to development by stimulating economic growth, creating decent jobs, eradicating poverty and improving livelihoods, especially in developing countries.

Although it is estimated that formal SMEs contribute up to 40 per cent of the national income (GDP) in emerging economies, the International Finance Corporation (IFC) estimates that globally, 74 per cent of MSMEs are informal. In Kenya, there are currently 8 million MSMEs, employing at least 15 million Kenyans. Additionally, 80% of all businesses in Kenya are MSMEs, highlighting the crucial role MSMEs play in Kenya’s economy.

The pandemic has had a devastating impact on MSMEs globally as they are vulnerable to economic shocks linked to reduced access to credit, reduced customer demand among other challenges they currently face. There also exist other factors that exacerbate their vulnerability in the midst of a raging pandemic

Both recovery and business continuity are important elements to ensure that the impact from the crisis on MSMEs is minimized and that resilience is enhanced. It is critical now more than ever to support MSMEs as they often lack the support they need to resist prolonged disruptions.

 

MSMEs happen to be more vulnerable to disruptions than larger firms, as they may have limited access to effective risk management frameworks. Furthermore, MSMEs in emerging markets or developing nations deal with more constraints in the event of a major disruption such as

• an abrupt drop in demand
• working capital issues
• logistics disruptions
• medium-long term disruption of business models in certain sectors, and
• a significant loss of livelihoods and income

MSMEs have been facing unprecedented income losses and uncertainties about their future because of business disruptions due to the outbreak of COVID-19. The Central Bank of Kenya warned a major collapse of these businesses as they do not have the liquidity needed to continue operations and do not have financial reserves to meet expenses during emergencies. According to a BFA Global study, Only 39% of Kenyans have set aside funds to manage emergencies that arise from loss of income.

MSMEs often don’t have a business continuity framework in place like bigger companies. However, understanding the disaster risk and taking precautionary measures could help to mitigate many of the risks and help the MSMEs to bounce back after a disaster strikes.

 

At PesaKit, we continue to support mobile money agents in various ways to assist these MSMEs adapt their operations to the new environment. These methods not only strengthen their odds of surviving the crisis, but will ensure they emerge more resilient in a sustainable and inclusive manner.

We enable mobile money agents to maintain regular and consistent cash flow by diversifying the financial products and digital commerce services at agents’ locations. Additionally, mobile money agents can use the PesaKit platform to access a “Float Exchange”. This allows agents to purchase float remotely from their shops, reducing their need to frequent banks, and build their capacity to meet their customers deposit/cash-in needs. By providing agents with access to credit, we facilitate business growth, increased income, decent job creation and catalyze entrepreneurship.

 

We also launched a safety and misinformation campaign on the best practices to prevent the spread of COVID19 at agent shops using communication materials such as posters, pamphlets, SMS and videos. Through these materials we aim to educate mobile money agents and their customers on best practices to prevent spread of COVID-19 at agent shops ensuring safe and secure DFS locations.

And finally, we introduced a COVID-19 insurance scheme that mitigates the adverse outcomes associated with COVID-19 related health shocks supporting them to rebuild when disaster hits. The scheme offers agents a 12-month hospitalization cash insurance cover that provides them with an income safety net in the event they test positive, are quarantined or admitted to a hospital due to COVID-19.

The MSME pillar in Kenya is recognized as a key driver of growth and the lack of resilience in these businesses is a cause of great concern. Therefore, it is imperative that MSMEs be equipped with the tools and know-how on how to survive a sudden and abnormal disruption of this magnitude and its business models should be retailored to enable adaptation, mitigation and continuity.

PesaKit serves a network of mobile money agents across Kenya (and soon Tanzania), the majority of whom run microbusinesses of their own in addition to their mobile money businesses. We understand the importance of building their financial resilience and their financial health, especially because of the interconnectedness between their household finances and the businesses themselves. Our goal everyday is to empower mobile money agents to be at their most effective. Because, when mobile money agents thrive, we all thrive.

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Micro, Small and Medium Enterprises (MSMEs) play a significant role in Kenya’s economy and in many other emerging markets. MSMEs represent a core pillar of the global economy and play a key role in driving sectoral competitiveness, business innovation and wealth creation. They are one of the strongest drivers of economic development and employment, particularly in developing countries.

Access to finance has been identified as a key barrier to growth for MSMEs in emerging economies. Worldwide, MSMEs represent a core pillar of the economy and play a key role in driving sectoral competitiveness, business innovation and wealth creation. In Africa and other emerging economies they play a crucial role in creating decent jobs and improving livelihoods.

According to the World Bank, the finance gap for formal MSMEs in these developing countries is estimated at USD 5.2 trillion. Additionally, it has been estimated that 41% of formal MSMEs in developing countries or 131 million MSMEs are credit constrained. In Sub-Saharan Africa, the potential finance gap for MSMEs is estimated at USD 331 billion while in Kenya, it is estimated at USD 19 billion.

In Kenya, MSMEs already constitute a very important segment of the economy and employ about 14.9 million Kenyans. However, the sector hasn’t fully achieved its full potential because of a series of challenges, among which is limited access to financial services.

Today, most MSMEs claim that access to finance remains crucial to their continued growth, but a large part of them still face difficulty in accessing the amounts they need, mostly because of collateral requirements.

There are approximately 235,168 mobile money agents, a majority of whom operate as micro and small businesses, providing essential and critical financial services to underserved and unbanked populations.

The PesaKit e-float loans lending service enables small businesses across Kenya to serve more customers, increase their revenue and keep their businesses running. At PesaKit, we strive to ease an agent’s daily liquidity and operations pressures by providing working capital in the form of e-float loans so that they do not struggle with unpredictable fluctuations due to in-client demand or incur travel expenses on rebalancing activities.

 

Our app uses insights into their cash flow, to make predictions about how much business a particular agent might conduct in one day. These predictions can then be used to help agents manage their businesses, and for credit scoring for the provision of e-float. If the prediction indicates the agent’s income might be low that day, for instance, they will not extend the agent a loan. This helps prevent agents from entering a debt spiral, and through insights and financial planning tools, furthers their understanding of how to balance their own cash and float.

PesaKit aims is to build a network of resilient small businesses across the continent, united via a single platform which will serve as a local distribution channel for digital financial services, reaching underserved populations on the ground. This not only improves their access to financial services, but increases their exposure to fintech innovations that can greatly improve their financial health, via trusted sources in the form of their local agent businesses.

Beyond business management tools, the PesaKit app transforms agents into digital merchants, offering additional revenue sources through the sale of digital services (such as airtime and electricity tokens) and micro-insurance.

As part of our disruption in last mile distribution of financial services, PesaKit is improving agent viability in rural areas through greater service aggregation. In rural areas, sparse populations lead to lower transaction volumes thus unattractive financial incentives for businesses to serve as agents. By diversifying the range of services offered by mobile money agents, PesaKit is improving the agents’ ability to generate more CICO transactions per customer thus enhancing sustainability of agents in underserved areas.

Our supply-side intelligent platform creates new markets for financial and ecommerce service providers. It enables them to expand their reach, consumer base and expand last mile distribution through our API.

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