As Egypt remains caught in the battle against the global coronavirus pandemic, the country’s small and medium-size businesses (SMEs) are bracing for open-ended economic turmoil. Many entrepreneurs argue that the SME sector may not survive without government intervention.

“SMEs will be the most affected by the coronavirus crisis in Egypt and around the globe,” said Hassan El Shafei, the head of the SME committee at the Egyptian Businessmen’s Association. “These enterprises have limited financial reserves. If their economic cycle gets interrupted, they use these limited reserves to pay salaries and cover other costs.” Shafei went on to warn that most Egyptian SMEs reserves would dry out in just two months, after which companies would go bankrupt.

So far, Egypt has 1,450 confirmed infections and 94 deaths. The government’s measures to contain the virus include shutting down schools and malls, curfew in the nights and full suspension of economic activities on weekends.

Last month, a $ 6.3-billion stimulus package was announced, a third of which will be directed to Egypt’s stock market, which has endured severe losses in recent weeks. Whether SMEs can avail a share of the package is not yet clear.

Additionally, the Central Bank of Egypt has reduced the lending rate by 3 percent and provided corporate as well as individual borrowers a six-month grace period for installment payments. “The Central Bank has taken a lot of positive steps, but we still need more initiatives that would target SMEs exclusively,” said Shafie.

SME relief model

Shafei has put forward a roadmap to rescue Egypt’s SMEs, which he says represent 20 percent of the private sector and employ at least 15 percent of the country’s labor force. His roadmap envisages complete tax exemption and the allocation of low-interest or interest-free loans to allow firms to pay salaries and other operational costs as long as the crisis persists. “This way, we will be giving SMEs the kiss of life,” he said.

The CBE has capped rates for SME lending at low levels, ranging from 5 percent to 12 percent, depending on the firm’s size.  Shortly before the pandemic hit, the CBE’s governor, Tarek Amer, had announced that the initiative would be extended for another four years.

Running on a tight budget

One of the victims of Egypt’s partial lockdown is LUNA Perfumes & Cosmetics, an Egyptian medium-size enterprise with more than 400 different products.

Rania George, the company’s CEO, told Zawya that sales have decreased significantly since modern trade outlets began reducing their working hours to observe the government-imposed curfew; revenues have been halved compared to the same time last year. “Any initiative that helps inject cash flow into SMEs at the moment will be the best move that can ever happen,” she said.

LUNA’s production hours have decreased. The make-up and skin care products production lines have been brought to a complete halt, she added.

To keep themselves afloat, last week LUNA launched a wide range of hand and surface sanitizers as well as moisturizing self-care products that alleviate skin dehydration linked to the overuse of disinfectants.

Yet, with revenues still dwindling, the company is considering layoffs among its 650 workers. “If there is a complete lockdown and we are asked to stop production, the only solution will be very severe [cost cutting]. We will lay off any redundant or casual workers because otherwise we won’t be able to pay the most-needed employees.”

With coronavirus cases only increasing, many business leaders are warning against a prolonged disruption of production, arguing it would increase poverty rates in a country where more than a third of the population earns less than $1.45 a day.

“What is next is the million-dollar question,” said Hussein Abu-Bakr, founder and CEO of Plantform, a four-year-old enterprise that specializes in processing and exporting vegetables to the US and Canada. “This is unprecedented. It is the first time the engine has shut down. The economy is [at a] 100 percent standstill.”

Plantform is already dealing with a 40-percent decline in revenues compared to the same time last year.

Due to port-related supply chain disruptions and the suspension of food services in many American states, Abu-Bakr finds himself obliged to weather a significant drop in demand. In response, the factory, which has over 200 blue-collar workers, has been operating at half capacity.

So far, there have been no layoffs at Plantform, but temporary pay cuts of at least 20 percent have been introduced, Abu Bakr said. “We are labour-intensive and thank God people will never give up on food, so we just need to hold tight for the next six months.”

Abu-Bakr has also negotiated rent reductions and reached deals with farmers on new pricing schemes for crops. “People are really cooperative. Everyone can see how bad things are and understand that there are no other options. It all force majeure.”

In 2019, Planform’s sales were estimated at $5 million, a figure that Abu Bakr expects will drop by at least 20 percent this year. “We are approaching very tough times. Very few businesses will be able to survive,” he remarked.

(Writing by Noha EL Hennawy, editing by Seban Scaria


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© ZAWYA 2020