Gladwell Kiwara, Impact of COVID-19 Pandemic on Performance of Micro, Small and Medium Enterprises in the Service Sector in Nairobi County (2021)

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Article by Gladwell Kiwara of the University of Nairobi in The Strategic Journal of Business & Change Management, Vol. 8, Iss. 1, pp 826 – 834, dated March 20, 2021, on how COVID-19 affected micro, small and medium enterprises in Nairobi County's service sector. Using a systematic review of existing studies, it finds that the pandemic and the restrictions on social distancing and travel brought job layoffs, reduced profit margins and business activity, and higher costs of maintaining health safety measures. It also reports declining productivity, constraints in obtaining credit and settling debts, and business closures. The author recommends that small businesses adopt technology so they can serve customers contactless.

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IMPACT OF COVID-19 PANDEMIC ON PERFORMANCE OF MICRO, SMALL AND MEDIUM ENTERPRISES IN
THE SERVICE SECTOR IN NAIROBI COUNTY

Kiwara, G.
Vol. 8, Iss. 1, pp 826 – 834. March 20, 2021. www.strategicjournals.com, ©Strategic Journals

IMPACT OF COVID-19 PANDEMIC ON PERFORMANCE OF MICRO, SMALL AND MEDIUM ENTERPRISES IN
THE SERVICE SECTOR IN NAIROBI COUNTY

Kiwara, G.
University of Nairobi [UoN], Kenya

Accepted: March 10, 2021

ABSTRACT
Pandemics have been a major catastrophe to humankind since a long time ago. Recently, COVID 19
pandemic has brought the world to a stop still with its outbreak. The negative impacts of the COVID 19
disease and the restrictions enacted to control the spread of the disease have been felt by service sectors all
over the world that require face to face contact. The protocols set by the government on social distancing
and travel restrictions have affected the demand and also the supply chain for not only the small and medium
enterprises but also the large companies. This study, therefore, investigated the impact of the COVID19
pandemic on the performance of micro, small and medium enterprises in the service sector in Nairobi County.
The study adopted a systemic review approach to identify and select data from studies in a clear and
comprehensive way. The findings of the study indicate that the impact of the COVID 19 outbreak on MSMEs
have brought about job layoffs, reduced profit margins, reduced business activities, increased costs of
operations in maintaining health safety measures, decline in productivity, constraints in obtaining credit and
settling debts and finally closure of the business. The impacts and potential threats from COVID 19 are still
undefined, it is therefore paramount for small businesses to reinvent themselves by adopting technological
strategies that will enable them to still conduct their businesses with their customers contactless during this
period of COVID and yonder.
Key Words: Covid 19, Micro, Small and Medium Enterprises, Performance

CITATION: Kiwara, G. (2021). Impact of Covid-19 pandemic on performance of micro, small and medium
enterprises in the service sector in Nairobi County. The Strategic Journal of Business & Change Management,
8 (1), 826 – 834.

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INTRODUCTION looking to get out of the pandemic. The spread of
Pandemics have been happening to humanity since misinformation can be tragic during this pandemic
ages. These pandemics over the years have and claim more lives instead of providing the
impacted our history in a vast way. A global scale needed healing. Other concerns raised globally, is
pandemic such as Covid-19 is inevitable to people. the estimated one billion people who live in the
Reports indicate that since the Spanish influenza of slums. Due to their dwellings, the people are more
1918, the Covid 19 is the second most severe susceptible to transmission of COVID 19 with the
pandemic. The outbreak of Covid 19 clear shows least capabilities in handling an outbreak. Further,
that even though pandemics are rare, they did challenges in maintaining social distance, and
happen before, are still happening and they are handwashing which are a prerequisite in curbing
expected to happen in the future. According to the spread of the virus may not be possible in a
Roser, Ritchie, Ortiz-Ospina and Hasell, (2020) the slum dwelling.
first pneumonia case was discovered on December
East Africa reported its first case on the 13th of
8, 2019, in a wet market in Wuhan, the capital city
March 2020, in Kenya, and the disease has since
of Hubei Province of China. Afterward, throughout
continued to spread with new cases reported each
the month of December 2019, other groups of
day. The East African governments adopted various
patients with such pneumonia cases were reported.
preventive measures to contain the spread of the
The largest global recession in the modern-day has virus in accordance to the WHO guidelines. These
been caused by the Covid-19 pandemic. Efforts to measures included: social distancing, lockdowns,
contain the pandemic from spreading had a third of border closures, movement restrictions, and
the world population put under lockdown. In Africa, quarantine. The measures, however, have had a
the number of covid-19 cases was relatively low detrimental economic and social effects on millions
until mid-April (Kaseje & Neema, 2021). Reports of people. Most African countries do not have
from Sub-Sahara Africa indicate that the rates of experience dealing with pandemics so this has
infections were low between the months of January become a great challenge to them.
to February during the first stages of coronavirus
The pandemic has negatively influenced the
spread. However, the rates of infections have
economic activities of nations. For instance, in
steadily increased since then. By April 2020,
Kenya, her economy grew steadily during the 2019-
community transmission of the COVID 19 was
2020 financial year. During the same year,
detected by the World Health Organization in some
projections from World Bank indicate that Kenya’s
African countries. In Sub Saharan, projections from
GDP will grow at a rate of +6. The economy includes
global health experts and African governments
sectors such as hospitality, agriculture, forestry,
indicate that if the governments do not take action
mining, manufacturing, and tourism. Despite the
right now, more than two million COVID deaths are
fact the Kenyan government has created a friendly
likely to occur. Further, the impact of the outbreak
environment for investors to invest in Kenya, her
is expected to intensify due to fragile health
economy still is faced with a myriad of challenges
systems which will hinder sufficient surveillance and
ranging from corruption and debts. The president
control of the disease.
stated during this outbreak times, every day the
In the pursuit of bringing the virus under control, Kenyan government loses two billion to corruption.
several concerns have been tabled. Concerns on Kenya being a consumer nation, measures such as
unsupported treatments or promotion of protective working from home have adversely affected a lot of
behaviors which are ineffective have been common. people who have experienced layoffs from the very
This has created confusion among people who are measures of curbing the outbreak.
in dire need of treatment and those who are

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The exchange rate of the currency on the other side closures had already occurred just a few weeks into
was affected by Covid-19. It was trading at 103.38 the crisis. Further, the study established that the
Kenyan shillings against the dollar which role past business risked closure of their business if the crisis
110 shillings. The pandemic has also affected persisted. Moreover, businesses had different views
economic activities such as the demand and supply and beliefs about the duration they would
of goods and services for both imports and exports experience the COVID 19 disruptions. Lastly, the
due to disruptions in global supply chains. Kenya study established that most of the business finances
has been affected by this pandemic since it depends had decreased and were seeking funding through
on imports predominantly, making Kenya the Coronavirus Aid, Relief, and Economic Security
susceptible with reduced imports. For instance, the (CARES) Act. From the findings, 43% of businesses
trading between Kenya and China fell by 22%. There had closed temporarily. Virtually, all the closures
was also a major crisis in the financial markets with were as a result of the COVID-19 pandemic. The
the selling of shares in the stock market by the findings indicate that the respondents
foreign investors who invested. This led to a decline predominantly closed their businesses due to
in the stock market, for example, Safaricom and reduced demand and the concerns of employee’s
Kenya Commercial Bank fell by 5. 4% and 7.0% health. The findings further established that the
respectively in one day. The measures enacted by disruptions of the supply chain were considered a
the government in curbing the coronavirus have less factor for closure. The businesses indicated a
affected all the sectors thus affecting the revenue reduction in active employment by 39% since
generation, especially from the service sector. The January. In the Mid-Atlantic region (which includes
government is implementing social security New York City), the decline was sharp. 54% of firms
regulations and protocols, such as the closure of were closed and employment was down by 47%.
educational facilities, suspension of domestic and The impact of COVID 19 differed across industries.
international flights and transportation, 14-day Some industries such as retail, arts and
quarantine of passengers within the country, and entertainment, personal services, food services, and
reduction in the number of general gatherings hospitality businesses reported employment
including the churches, hotels, bars, restaurants, declines that exceeded 50%. However, some
twilight to down curfew and distribution businesses experienced fewer disruptions especially
restrictions. Despite the expected benefits, these businesses involved in finance, real estate and
measures have serious implications for businesses. professional services less disruption, since they
The purpose of this study was to investigate the could move to remote production.
impact of COVID-19 on the performance of micro,
According to a survey report by Kenya Private
small and medium-sized businesses (MSMEs) in
Sector Alliance (KEPSA) (2020) MSMEs have faced
Nairobi County in the service sector in reference to
unprecedented revenue losses and uncertainties
the hotel industry.
about tomorrow due to the disruptions of business
since the COVID-19 outbreak. Most MSMEs are
LITERATURE REVIEW
limited financially and do not have a financial
Effect of Covid- 19 on the financial performance of reservoir that can cater for expenses in case of an
MSMEs emergency. The reports show that only 39% of
Bartik, Bertrand, Cullen, Glaeser, Luca, and Stanton Kenyans have financial reserves set aside, to attend
(2020) conducted a survey in more than 5,800 small to emergencies in case of a loss of the business
businesses in the USA, in exploring the impact of income. MSMEs require support in accessing and
coronavirus disease 2019 (COVID-19). The survey adopting digital technologies so that they are well
which was carried out between March 28th and able and equipped to respond to the COVID 19
April 4th 2020 established that mass layoffs and

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pandemic situation and also for better Effect of Covid-19 on the demand of products and
transformative operations. services
Polemis (2020) conducted a study on the impact of
Hafsa (2020) conducted a study on the impacts of
COVID-19 on hotel performance. The study adopted
the COVID-19 pandemic on the tourism and
a difference-in-difference (DID) methodology in
hospitality sector in Bangladesh. This study is
comparing the performance of the hotel sector in
conducted on the basis of secondary data sources,
Italy and Turkey during the post-treatment period.
various publications, newspapers, organizational
From the findings, the adoption of a national
and government publications, website materials
curfew by the Italian government to reduce the
and other sources are used to uncover and
spread of COVID 19 reduced the hotel performance
complete the analysis. Bangladesh's economy is in
by 68%. Preliminary results from a longitudinal
decline and, with the tourism industry facing
study by the Journal of Hospitality Marketing &
dreadful predicaments in history. Due to the
Management editorial team suggest that the
pandemic, people are restricted to staying in one
customers will not be back immediately even
place. With the increase of positive COVID-19 cases
though the restaurants are reopened and there is
increases each day, the government is forced to
ease on travel restrictions (Gursoy, Chi & Chi, 2020).
make this difficult decision of canceling all
Most people (over 50%) are not immediately ready
international flights; The hospitality businesses
to dine in a restaurant. The same goes for hotel
(hotels/motels/resort owners) have already begun
stays. Most customers (over 50%) are unwilling to
to suffer untold losses. Small
travel to a destination and stay in a hotel anytime
hotels/motels/restaurants/travel agencies have
soon. Only about a quarter of customers have
closed their businesses; and thousands of people
already dined at a restaurant and only a third are
working in the tourism sector becoming jobless.
willing to travel to a destination and stay in a hotel
The African Trade Policy Centre (ATPC) of the in the coming months (Gursoy et al., 2020). These
United Nations Economic Commission for Africa findings posit that the customers broadly are still
(UNECA) and International Economics Consulting uncomfortable dining in a restaurant, traveling to a
Ltd jointly developed and surveyed the coronavirus destination, and staying in a hotel. As the break-
disease (COVID-19) pandemic and its economic even point in the hotel industry is relatively high
impacts across Africa which lasted for one week, due to high operating costs, the survival of many
from 14 to 20 April 2020. The study targeted hotel companies is heavily dependent on the
enterprise that operates in 1 and/or all 54 African growing demand for their services and products.
countries and disaggregated as 76 micro-
In November 2020, The Central Bank of Kenya (CBK)
enterprises, 59 small-sized enterprises, 42 medium
carried out a survey with the aim of assessing the
sized-enterprises and 33 large enterprises. From the
extent of recovery in the hotels, particularly with
findings, small-sized enterprises utilize capacity at a
the reopening of the economy and continued
range of 30-40% while large-sized enterprises at a
implementation of Government measures to
range of 50-60%. The findings further established
mitigate the measures of COVID-19. This was a
that the rate of capacity utilization varied in the
follow-up on the findings of the previous one with
sector in which the business operates. The reports
an expansion to the hotels in Naivasha. The reports
posit that rates of capacity utilization on average
established that among the hotels sampled in the
were around 30-40% for goods and 40-50% for
country 96 percent of the hotels were operational
service (ECA, 2020).
as compared to 89 percent of the hotels in
September’s survey and 35 percent in May. This is
attributed to the ease on COVID 19 restrictions

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enacted and also the hotels being compliant with November and in May respectively. Notably, there
health safety measures. The reports further have been gradual improvements on the utilization
established that the sector has since started of restaurants and conference services since May.
recovery on employment with an average of 53 The local guests are predominantly the support of
percent in November as compared to 45 percent in activity to the sector during this period in the
September and 37 percent in May. The average bed accommodation and restaurant services with over
occupancy has recovered gradually, with an average 84 % and 79 percent respectively. The sector is
of 23 percent in November and October as optimistic of a strong recovery once the pandemic
compared to 24 and 10 percent respectively for the is over regardless of the recent resurgence in
month of September and May. Further, there has COVID-19 infections and the recent findings of new
been an improvement on the utilization of results variants of the virus (CBK, 20201).
and conference services. The survey indicated that
Effect of Covid-19 and on Human resource and
in November, there was a negative impact of a
customer relationship management
resurgence in COVID-19 infections relative to
Hao, Xiao, and Chon (2020) assessed COVID-19 and
October. The hotels are supported by the local
the Chinese hotel industry on impacts, a disaster
guests accounting over 80 percent of the total
management framework, and a post-pandemic
clients in accommodation and restaurant services
agenda. The exploratory study looked at the overall
during this period. The levels of operations are
impacts of the 2019 coronavirus pandemic (COVID-
expected to go back to normal operations before
19) on the Chinese hotel industry. Due to the
COVID by 58 percent of the hotels between late
pandemic, individual hotels have suffered to a great
2020 and 2021. The sector is hopeful despite the
extent as compared to other actors since they are
recent resurgence in COVID-19 infections that once
easily predisposed to disaster (Zhou, 2020). The
the pandemic is contained, the sector will strongly
individual hotels experience challenges in
recover (CBK, 2020).
disorganized function in management; unsteady
The central bank further conducted another study quality of service; poor hygienic conditions; high
in January 2021 to assess the extent of recovery of turnover rate; poor customer loyalty;
hotels, particularly with the reopening of the unprofessional cost control; and even unskilled
economy and continued implementation of the fires, sanitation and public safety (China Hospitality
Government measures to mitigate the impact of Association, 2020). However, during the pandemic,
COVID-19. This was a follow-up survey on the one branded hotel chains have been more competitive
carried out in November 2020 with an expansion to during the pandemic due their competitive edge in
the scope to cover more hotels. The reports terms of business model, improved business
established among the hotels sampled, 97% of operation procedures, disaster management
them were operation as compared to 96 and 35 mechanism and unique operations.
percent in September and may respectively. This
Lakuma and Nathan (2020) assessed the impact of
can be attributed to the hotels maintain health
COVID-19 on micro, small, and medium businesses
safety measures and the ease of COVID 19
in Uganda. The survey results r indicate that in
restrictions. Employment recovery in the sector
Uganda, workforce among service business is
towards the pre-COVID levels, is at 57 percent in
undergoing restructuring. The findings reveal that
January 2021 compared with 53 and 37 percent in
80% of the businesses have reduced their
November and May 2020 respectively, all relative to
workforce by more than a quarter which is
the pre-COVID-19 levels. The bed occupancy has
attributed to the decline in demand. Results
improved gradually to an average of 26 percent in
indicate that there was a decline in demand of the
December 2020, compared to 23 and 10 percent in
71 percent of surveyed businesses reported as

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compared to 47 percent in manufacturing. the outbreak situation persisted. Moreover, a total
Resultantly, a significantly high number of of 69 percent of the SMEs indicated a decline in
businesses had laid-off employees. Results show access to credit with 34% reporting an experience
that 41 percent of the business reduced their of severe decline. In Kenya, the COVID 19 saw many
employees by more than one-half. Further, if the MSMEs incomes vanish overnight. According to a
risks associated with COVID 19 pandemic persists survey carried out by the central bank in 2020, most
and the containment measures are contained or of the MSMEs had a limited reservoir and close to
amplified, the rate of unemployment is likely to 75 percent of the businesses were in the verge of
exacerbate. The findings indicate that if the collapsing.
continued threat of COVID 19 and the containment
A case study by Chowdhury, Sarkar, Paul and
measures enacted go up to six months, then
Moktadir (2020) focused on strategies for coping
businesses are likely to lay off a total of 1,662
with the impacts of the COVID-19 pandemic on the
workers temporarily and 406 permanently.
food and beverage industry in Bangladesh. The
Remarkably, over 75 percent of employees from the
study examined the short- and medium- to long-
service sector are projected to lose their jobs
term impacts of the pandemic and outlined
permanently considering the fact that most services
approaches to reduce the budding impacts of the
involve human-to-human contact which is contrary
outbreak. A qualitative methodology of multiple
to the requirements of maintaining social distance.
case studies was used. Data was collected from
Effect of Covid-19 on Supply Chain eight sampled companies with fourteen
Masago, Okombo, Alice, Reuben, Chaka, Godrick respondents in the food and beverage sector in
and Joshua, (2020) assessed the effects of COVID-19 Bangladesh. The findings of the study indicate that
Pandemic on Small & Middle-Income Economies the short-term impacts of the outbreak are severe
(SMEs) in Kenya, a case study of Narok Town. The and are characterized by the expiration of products,
study deployed a case study research design. The shortage of available working capital and limitations
findings of the study indicated that the in operations of the dealers. The findings indicate
entrepreneur were youthful. The findings indicate that the long-term impacts were perceived to be
that most of the SMEs begun between 2016 and multifaceted and are undefined. In the long run,
2018 in that region and the political environment of various performance metrics are expected to
the area greatly determine if the businesses will decline, such as the company's return on
start. From the findings, the employees have been investment, the companies' contribution to gross
affected with a business reduced to an average of 2. domestic product (GDP), and employee size.
The daily wages have also reduced from ksh. 800 to
200. The supply of SME stock from other places to METHODOLOGY
Narok has reduced due to the pandemic. The This study adopted a systemic review approach to
reports indicate that 82.6% of SMEs business had identify and select data. A systematic review is a
no option but to obtain stock within the county review of the evidence on a formulated question
itself. The supply of stocks to SMEs reduced by that uses systematic and explicit methods to
77.14% while the demand by buyers reduced by identify, select and critically appraise relevant
91.43%. Resultantly, the SMEs experienced primary research, and to extract and analyze data
reduction in the net profits margin from an excess from the studies that are included in the review
of 20,000 in a month to 5,000 monthly. This led to (Aromataris & Pearson, 2014). According to
other auxiliary services being affected such as Jefferson, Alderson, Wager, and Davidoff, (2002)
lenders and insurance. From the study, 54.5% of the systematic reviews offer a number of benefits. A
SMEs were likely to be disbanded by the owners if systematic review ensures that evidence on a given
topic is tabled in a clearer and comprehensive way.

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FINDINGS Observable disinfection efforts such as placing hand
The recent surveys conducted revealed that the sanitizers on doors, staff wearing masks and gloves,
dangers presented by the COVID-19 and implementing social distancing, limiting the number
consequent measures to contain it had led to the of customers served, more rigorous and frequent
layoffs of employees in most businesses. From the cleaning of high-contact surfaces in common areas,
results, business activities had reduced by more and employee training (Gursoy et al. 2020).
than half due to the lockdown measures enacted.
According to the African Union Commission (2021),
The findings showed that the service sector
the need to use various technologies by hotels and
experienced constraints due to control measures
restaurants in order to minimize human-to-human
such as transport restrictions, quarantine, social
contact in COVID 19 environment was necessary.
distancing, and bans on weekly markets (Lakuma &
The technology application included the use of
Nathan, 2020).
contactless payment such as Apply pay or
From the findings, companies further experienced contactless bank cards, digital menus that can be
increased costs in ensuring safety measures were viewed on personal mobile devices via QR codes,
adhered to despite the low demand in workflow contactless digital payments, keyless entry,
and consumption. Other challenges established touchless elevators, etc.). From the findings, in the
included the decline in productivity and constraints near future, the adoption of technology and its
in obtaining credit and liquidity. Resultantly, the integration to hospitality operations would be
micro, small and medium-sized enterprises pre- fundamental.
existing credit and financial liquidity worsened and
In the long run, the lasting impacts of the Covid 19
decreased due to the outbreak of Covid 19 as
pandemics were as yet to be established. However,
compared to that of large companies. This trend
it led to disruptions of supply chains, reduction of
was due to the fact that lenders already considered
international travels, and crashing most of the
them to be high risk, and if the COVID 19 continued
service sector enterprises. Two-thirds of micro and
and the restrictions enacted were maintained they
small businesses had been affected strongly by the
were likely to go bankrupt. Reports indicated that
pandemic as compared to the larger companies
High percentages of utility companies had
with most of the SMMES fearing shutting down
decreased ability in paying unsettled debts due to
permanently especially if the Covid 19 persisted.
the COVID-19 outbreak.
These enterprises were experiencing challenges
The research findings also indicated that most such as reduced sales and difficulties in accessing
customers felt comfortable frequenting a inputs. Food and accommodation company
restaurant only when their countries ability to test, services, predominantly operated by women and
monitor, and isolate cases of COVID-19 improved youth, had been hit hard both in retail and in
significantly. Most customers were at ease traveling wholesale.
to a certain destination and staying in a hotel only if
the place had few cases of COVID 19 and could test, CONCLUSIONS AND RECOMMENDATIONS
monitor and the covid 19 cases be isolated. The impacts of COVID-19 on the performance of the
Additionally, another group of customers indicated service sector had been devastating. The decline in
that they could only be at ease frequenting a business had led to huge losses and a record of
restaurant and traveling to a destination, and layoffs and/or unauthorized leave for hotel
staying in a hotel if the vaccine for covid 19 was employees as owners struggle to pay fixed costs
available (Gursoy et al., 2020). The findings and mortgages on their properties. Most hotel
indicated that the customers expected hotels and chains had canceled payments and postponed
restaurants to deploy safety precautions such as capital expenditures to prevent the industry from

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going bankrupt and collapsing. Due to the COVID-19 proactively consider granting emergency loans to
pandemic, leisure and conference tourism, both SMEs with flexibility in repayments. There was need
abroad and domestically, suffered a possible for the government to recapitalize the commercial
collapse due to travel restrictions that had banks and microfinance institutions by providing
completely blocked the arrivals of international cash loans or easing liquidity buffer requirements to
tourists, while the expulsion measures had affected provide financial institutions with the additional
tourism and national conferences. The travel ban liquidity needed to make flexible emergency loans.
prevented the consumption of various goods and This could also be supplemented by the private
services and the income of service sector workers. banks in extending and diversifying of partial credit
The outbreak of coronavirus created the need for guarantee schemes in their loans granted. On the
the MSMEs to reassess how to leverage contact other hand, the government could offer loans that
centers, how employees could deliver relevant are subsidized. During the crisis, the use of
customer experiences, where to work, and how to technology to access credit was also expected to
use digital channels in supporting business increase. For instance, mobile money and other
continuity when there is a crisis and yonder. electronic platforms could streamline the
application processes of the loans and decrease the
The service industry had been changed forever by
loan delivery period to MSMEs.
the global COVID-19 pandemic and with these new
emerging behaviors, MSMEs could use this Sustaining local industries in the service industry
opportunity to fast-track the shift to digital (micro, small and medium businesses) should be
commerce by increasing available offerings to prioritized both in the short and medium-term since
create new service lines, such as retailers who were they provide jobs to the people living in poverty.
mobilizing to ensure contactless ground delivery This could be done by making loans accessible to
and collection services for consumers. This speed- them, ensure a waiver of licensing fee and a waiver
up adoption would force service sector in taxes.
organizations to reinvent their digital strategies to
Hotel firms ought to seize this opportunity in
capture fresh market opportunities and digital
ensuring a market share increase, on the other
customer segments.
hand, individual hotels could dynamically liaise with
Most of the MSMEs experienced financial key companies in achieving change and up-
constraints and as such financial institutions should gradation.

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