{UAH} Impact of coronavirus on supply chain in Uganda, explained

Trucks carrying goods. Image credit: Ktpress.rw.

It is now clear economic activity has slowed down.

With the president planning to unveil more restrictive measures, the curve will slant further.

Just a week ago, in the face of coronavirus, the Ministry of Finance, Planning and Economic Development was forced to revise the FY2019/20 projections.

At the start of the financial year, the ministry envisioned growth of 6.0 percent, now the ministry expects growth between 5.2 and 5.7%.

But these projections were made before the country registered its first case of Covid-19.

Right now, there are twenty-three cases and more are likely to be announced since those that are positive had already mingled in society.

Conservatively, the ministry said 780,000 could be pushed into poverty.

However, the ministry, unfortunately, said, in case the virus fans out rapidly, over 2.6 million Ugandans would be pushed into poverty.

Economic growth for this financial year, in the worst-case scenario, would decline to between 4.6% and 5.1%. percent.

Consumer behavior

No matter what happens, there are factors that are constant, for instance, eating, sheltering, healthcare.

That means manufacturers have to produce medicines, food, drinks, and all the other necessities mankind needs to survive.

But to follow the recent measures, most manufacturers were forced to temporarily lay off workers to easily facilitate movement.

Today, a car can only transport three people at a ago.

This includes a driver.

For companies that employ thousands of workers, even if they wanted to transport everyone, it would slow down activity.

Even when some workers own cars, most don't use public means and the cost of movement has also dramatically escalated since the only options are ride-hailing firms and special hire cars.

Loss of jobs means reduced disposable income, which cuts the country's spending power.

As of 2018, consumer spending in Uganda was at more than Shs800 billion.

The vast majority of the population earns just enough to cater for a day.

Even the vast majority of those employed in the corporate sector earn enough salary to affording a quasi-middle class life with little left for savings.

That means with no money coming in at the end of the month, their spending power will also drop.

Production

The country remains open to cargo.

The only challenge for manufacturers or farms that produce what we need is labour and means of transport.

Simon Kaheru, a public relations officer at Coca-Cola Beverages Africa, told me the manufacturing sector can still operate but sour times are in the offing.

"Local Manufacturers, at this point, can sustain manufacturing only for a couple of months before this disruption becomes critical," he said.

According to Kaheru, who is also a board member of the Uganda Manufacturers Association (UMA), the distribution chain is already suffering.

"To start with, we are all adhering with the government guidelines on public transport but that means an integral part of our workforce has to stay at home," he said.

"Social distancing also affects some factory operations if they are not automated because people have to be spread out on factory floors – which is a design issue."

To prevent the importation of the virus, there are numerous check points.

And this, according to Kaheru, is slowing down transit.

"Logistics, though, is a big element and right now whereas the governments have allowed cargo movements there are already signs that speeds are going to be lower because of the increased checks along the way and fears of cross-border contramination," he said.

Transport issues are likely to grow, especially when fuel prices tick up.

While across the globe fuel is becoming cheaper due to a decline in consumption, in Uganda, the challenge is that the shilling is weakening against the dollar.

"Globally, the oil price is dropping but that is being countered by the fact that the dollar rate is decreasing and we buy in dollars," Angella Ambaho, a public relations officer at Uganda National Oil Company, said in a phone interview.

"So, of course, if I had like Shs40 million to buy, my contribution has now decreased by the fact of the dollar rate… so of course everything will be affected."

Though it seemed quite obvious, I asked Aga Sekalala, the founder of Ugachick Poultry Breeders Ltd — what would happen in the event of total border closure.

"They [manufacturers] will produce till the stocks of imported components runs out," he said.

The chances of this happening are highly unlikely since China, which is Uganda's main source of imports, is easing on coronavirus controls.

Even Wuhan, which was the epicenter of the virus and underwent a 2-month lockdown, has reopened for business.

In November of last year, India, China and Japan supplied 80.7 percent of the imports to Uganda, according to the Ministry of Finance.

Compared to other developed countries, Japan has recorded few cases of coronavirus and has not restricted movement.

For instance, with a population of 126 million people, Japan has reported 1.499 cases and 49 deaths while U.K., which has a population of 66m people has registered over 14500 cases and over 750 deaths.

Italy, with a population of over 60 million has over 86000 cases and over 9000 deaths.

India is closed to international flights until April April 14.

However, it has not registered several cases when you consider its population.

India has a population of over 1.3 billion people and it has registered only 933 cases.

But with some key markets open, it can still keep the manufacturing wheels rolling, since factories and producers will also consider scaling back because of decline in consumer expenditure.

Meg Hilbert Jaquay, a general manager at Jakana Food Ltd, told me they are still exporting, only that they are experiencing delays due to multiple checkpoints as countries are continuously wary of coronavirus.

There is also an issue of insecurity.

"I'm worried that someone who doesn't have what to eat in this period could hijack my goods," she said on a call.

Jakana process natural foods and exports to the US, the UK, Europe, the Middle East and the rest of Africa.

Most of their products are exported since Africans can easily access fresh products.

Now, she said, the foreign market will be hard to reach because of logistical issues.

Secondly, farmers from which they buy fruits are starting to face challenges of transportation.

That's why in most villages right now, products like milk which have limited local market or are produced in larger quantities than the local market can consume — are seeing a decline in prices.

While in Kampala, a liter of milk is Shs2,000, in places like Kiruhura district, you can buy a liter at Shs200.

Decline in international trade means reduced tax collection.

About 42% of all the tax collected in Uganda is from international trade.

This tax is mainly in the form of VAT and import duty on imports and excise duty on the importation of petroleum products.

"A slowdown in international trade as a result of the coronavirus is likely to have a massive negative impact to tax collections this year," Francis Kamulegeya, a partner at PwC Uganda, says.

"The situation will be made worse by the reduced economic activity in the retail and trade, services, hotels, tourism and manufacturing sectors which will translate in both reduced VAT remittances and corporation tax payments to the URA."

The other part of the economy that is being hugely hurt by the coronavirus scourge is the Small And Medium Enterprises (SMEs).

According to the Uganda Investments Authority (UIA), the sector makes up over 70% of the economy and contributes more than 20% of the country's GDP.

"Most of the small businesses work with customers on a day to day basis, that is how they earn a living," said Beatrice Alyanata, the executive director of Uganda Chamber of Commerce for SMEs.

"So any proposal that is directed towards removing that distance of connecting customers directly affects their businesses."

Since most of these SMEs aren't digitized, she went on, it further impacts their reach in such a period.

What can the government do

Experts have suggested several measures that the government can consider to cushion businesses from the economic shock engendered by coronavirus.

For instance, business owners have asked the government to reduce utility bills, offer tax amnesty and defer bank loans.

Importers have also urged the Ministry of Trade, Industry, and Cooperatives to lobby for a reduction in demurrage, especially on the Nothern corridor, which is the transit for over 97% of goods into Uganda.

I asked Alyanata, who is also a board member of African Growth and Opportunity Act (AGOA), to contribute.

"… offering interest-free loans… but we also know very well that our current government is not in the business of lending money," she said.

"If the government maybe can license some members of the private sector to be able to loan money… it would help keep businesses in operation and revive those that have been affected."

She also said this is the time for the government to pay its debts to the private sector.

Uganda spends over 55% of its budget on public procurement and SMEs supply significantly to government.

However, according to her, most of them are not paid in time.

"You find that they have money that is held by the government but they can't use it," Alyanata said.

On the side of businesses, she said, they should also consider revising their business models.

For instance, restaurants can consider takeaways and deliveries or promoting themselves digitally.

"Find a way of getting closer to your customer," she said.

Speaking on supply chain sustainability, she said, purchasing power will be the determining factor.

"You can't supply what is not being demanded," she said.

Because our economy is now well-regulated, she offered, price standardization will remain a challenge.

"Most of the private sector sets its own prices, except for just a few sectors like Oil and Gas," she said.

"It is sad that most of the people now start taking advantage of the situation."

In her latest public statement, the Minister of Trade, Industry and Cooperatives Amelia Kyambadde said she would present all issues affecting the sector to the government and will be announcing "the way forward."

Uganda Revenue Authority has also announced a number of tax relief measures.

To facilitate trade, Kampala Capital City Authorities has introduced online means to help traders reach customers.

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"When a man is stung by a bee, he doesn't set off to destroy all beehives"

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