The social and economic impact of covid-19 on small and medium enterprises in Lesotho

Abstract

The COVID-19 outbreak came as an unprecedented health crisis cross the globe but had later taken a different form as an economic crisis. In an attempt to curb the spread of the virus, after it was declared to be a pandemic by WHO in March 2020, governments implemented policy measures which included among others: lockdowns, social distancing and quarantines, cancellation of international flights, movement restrictions, prohibition of people gatherings and closure of some key institutions. The policies presented positive results in containing the situation; however, they came with adverse effects on all businesses, particularly the SMEs. Lesotho’s SMEs account for the majority of the private sector and are inevitable national economic growth, sustainable development, and job creation. SMEs are commendable for their ability to create employment to the low skilled labour force, particularly the youth who are unable to find employment in the formal sector. They are easy to start with less complicated organisational structures, as a result they are considered vital instruments for poverty alleviation, reaching out the most vulnerable society in the rural landscapes. However, the SMEs sector has been disproportionately affected by the disruptions in supply chains, the closure of borders, the continued lockdowns and the declines in aggregate demand all attributed to the outbreak of COVID-19. The impact of COVID-19 experienced on the performance of SMEs showed declines in demand and delays in supply of the SMEs’ products and inputs respectively, accompanied by reductions in working hours. The total turnover also experienced an uncontrollable drop down, owing to declines in sales and cash flows. The effects of COVID-19 on employment of SMEs displayed escalated job losses and reduction in salaries which were all responsible for deterioration in the living standards of SMEs workers who relied entirely on income obtained from these enterprises. The dire effects of COVID-19 call for effective government intervention to boost the SMEs to a speedy recovery.