Analysis of Effects of COVID-19 Pandemic on Small- and Medium-Sized Enterprises (SMEs) in Rwanda Using Wood Firm-Level Data

Abstract

This study assesses and quantifies the economic and financial impacts of the COVID-19 pandemic during the period of business operation restrictions countrywide (lockdown measures). We examine the strategies adopted by small and medium-sized enterprises (SMEs) to reopen their business operations after lockdown measures had been relaxed or lifted. Data were collected in Rwanda from nearly 244 SMEs across the country, providing firsthand and reliable information on the effects of the pandemic on business performance, with a particular emphasis on wood-based enterprises. We used Exploratory Data Analysis (EDA) and multivariate linear regression methods to measure the pandemic’s effects on employment, sales, and tax payments among SMEs. The findings reveal that firms downsized employment by 36%, with significant deviations within different SME sizes. Small businesses were particularly affected by reduced sales levels due to the pandemic. Although there was an overall reduction in tax payments during the crisis, medium-sized enterprises experienced a more significant decrease in taxes paid to the government by 74.6%. Additionally, regression findings affirm that the COVID-19 effects on SMEs were manifested in reduced sales across all categories of SMEs, reduced employment, and a reduced amount of taxes paid to the government, which further translate to reduced economic performance during COVID-19 period. Furthermore, SME owners utilised various coping mechanisms during the reopening phase, including a reliance on savings and selling assets. The analysis recommends establishing medium-term financing mechanisms and providing technical support for SMEs to ensure a steady and sustainable recovery from the pandemic’s effects, as well as enhancing their resilience to future socio-economic shocks.