Navigating through COVID-19: A snapshot on how the pandemic affected MSM Es in TheCOVID-igpandemic is impacting businessesona national and global scale.As governments introduced measures to contain the domestic spread of the virus, restrictions on trade have impeded theflow of goods and services and intensified global uncertainty As a consequence, businesses, financial institutions, state agencies, associations, and other public and private enterprises need to find new ways to cope with the pandemic. This note focuses on how micro-, small-, and medium-sized enterprises (MSMEs) are affected by the pandemic and are dealing with its impact in Guinea. This note is part of a series that will provide snapshots of the state of MSMEs' business operations and how they are navigating theirway through the COVID-ig pandemic in countries across Africa and the Middle East. These assessments draw on data from an ongoing standardized survey of MSM E clients of financial institutions throughout the Middle East and Africa. The assessments, therefore, primarily reflect the impact of the pandemic on banked enterprises. The country snapshot assessments focus on three main aspects: First, the financial health and resilience of the MSME sector in the country; second, the crisis response and future plans of businesses; and, third, businesses' needs and required support from governments and financial institutions. KEY RESULTS FROM CUINEA Impact of COVID-19 on MSMEs' Financial Health Business Needs 870 Expressed need for capacity building that 87%is particu arly pronounced among smaller of MSM Es experienced adverse effects on businesses. business profits and about half of MSMEs plan to decrease volumes over the next 3 months. Banks represent primary reference points where to seek business advice for MSMEs. r 8 5% of businesses report cash flow problems. Mixed effects of COVI D-19 crisis on operating As ofJune 2020, most MSM Es had not costs of MSMEs. received support from neither banks northe government. > 8o% Only small share of sales generated online before considerworking capital loans and loan and during the crisis but businesses benefitted restructuring as most urgently needed from using online tools and solutions. support from banks. ;71FC WORLD BANKGROUP UKaid fom -eB,tsh -P1e Creating Markets, Creating Opportunities Figure 1: Geographical distribution of interviewed businesses For this survey, business owners of ii8 Guinean MSMEs (nine percent women-led) were interviewed across all eight regions of the country Labi (see Figure i).1l2 During the period of the interviews in May and June 2020, business owners saw themselves confronted with a variety of Bok measures enacted by the national government: On March 26, a state Mamou Kankan of emergency was declared in Guinea. The Government imposed an Faranah overnight curfew; it closed schools, non-essential shops and external Kindia borders; and it banned large public gatherings. Conakry s 5SurveyedMSMIEs(Conakry) allMSMs eperencd roucion n emad fr teirgoos 205uyeMSMEs(Nz'rekor) The study shows that 97 percent of Guinean MSMEs were impacted 2 M M (or 125SurveyedMSMSEs (Kankan) by the COV D-ig pandemic. The survey found that 77 percent of all MSMEs experienced reductions in demand for their goods 5 SurveyedSMlles(Kindia,Lab ) and services. Eighty-seven percent of business owners said they 45urveyedMSME,Boke experienced a decline in profits. For those, on average, profits were 3urveyed MSMEs(FaranahM amou) 38 percent lower than pre-COVID-ig levels in 2019. Note: This figure excludes two MSMEs operating across regional borders as well as five MSMEswith missing data on the regional background. Liquidity problems are a serious concern for Guinean businesses during the pandemic with 85 percent reporting current financial Figure 2: Current shortfall of businesses by annual turnover shortfalls. While the median shortfall amounted to $io,ooo, there 0 is a clear association between the size of financial shortfa Is and business size (see Figure 2). Tab e shows in more detail the considerable differences in terms of .S * average current shortfalls across business sizes where particularly medium-sized businesses stand out with shortfalls beyond the average shortfall of all businesses. Nevertheless, medium businesses o 9 , tend to have fewer problems serving currently outstanding loan o o * * obligations. O 200000 4000000 800 00 o 00o000 1000 000 Annual Turnover (in USD) SicroBusinesses Small Businesses MediumBusinesses Fittedvalues Note: This figure only includes MSMEs with data on the current shortfall and annual turnover. Two observations ofmicro/small businesses with shortfalls 0150ooo USD were excluded Table 1: Current shortfalls by business size (in USD) Micro Businesses Small Businesses Medium Businesses Median 3,000 7.750 45,000 Mean 8,99o 9,900 58,544 Note This table summarizes data for all businesses visualized in Figure 2 At the time of the survey in May and June 2020, more than half of the owners expected their enterprise's business volumes to decrease over the next three months if the crisis continues to unfold. Moreover, one out of six business owners even expected to be forced to at least temporarily close down business activities, most of them in the construction as well as tourism and accommodation sectors. Only eight percent anticipated theirvolumes to increase overthe next months, and 22 percent expected no significant change. The proportion of sales generated online remains at low pre-COVID-19 levels among interviewed Guinean businesses. However, about one fifth of the business owners indicated that digital solutions and tools in the form of both online services and product offerings, as well as marleting via social media accounts, have helped them navigate through the crisis. 7 For this analysis, the following business size segmentation based on annual turnover in US dollars was used: micro (< $50,000), small ($50,ooo- $299,999) end medium ($300,000 - $999,999). 2 The sample is not necessarily representative ofthe MSME sector as a whole. Figure 3: Sources of business advice by business size 70% 60% 40% 23% 23 2~ ig 20% i0 12 2 OI 50 Finn a Busines/trade Mlyentrepreneuri Frilo SuDpplers Interne, Government, Online Other Noe instituion asscitin networlk friends InStitutions wyebinars and or agencies courses MicroBuil Businesses m Ieiu Businesses AIl BUsanesses As a response to the experiences from the current crisis, go percent of enterprises plan to undertal<e future risl< mitigation actions, notably creating a business continuation plan, diversifying their business activities and improving their cash-flow management. In this context, enterprises see flnancial institutions as their primary point of reference to seel< business advice. This finding is more pronounced for micro enterprises whereas medium enterprises draw on a larger network including business associations and a stronger entrepreneur networl< (see Figure 3). From the start of the COVID-ig pandemic through June 2020, 72 percent of enterprises had not received any support from Pinancial institutions and 80 percent of those surveyed had not received government assistance. This coincides with public sector and private sector delays in responding to the crisis. Several initiatives have only started to be effective after the survey. In terms of businesses' needs, working capital loans and loan restructurings were identified as most urgently needed from banks while MSMEs have said that they mostly need loan guarantees, tax brealks and disaster relief from governments. From a banl<perspective, this analysis helps to better understand the current challenges that MSME clients are currentl facing. On the one hand, the results illustrate the potential threatof rising non-performing loansdueto MSM Es'liquidity problems. On theatherhand, the reported needfor finance similarly presents a business opportunity forpfnancial institutions if carefully considered. Due to a shorter maturity and a lower associated ris|<perception, banl<s are inclined to provide short-term loansfor MSMIE dlients. However, these solutions often only provide temporary financial relief, whereas longer-term financing may offer an opportunity to structurally change and spur business operations. Moreover, this study clearly demonstrates the importance of continuously supporting the MSME client base with multifaceted, non-financial services and capacity building opportunities. September 2020 Authors: Tim Ferber and Sinja Bu ri Acknowledgments: The research was supported by FCDO (Foreig n, Commonwealth & Development Office). I FC is grateful to Vista Bank Guinea for participating in this collaboration. The team would also lil<e to extend special thanks to Vivian Owuor, Alexandra Celestin, Soren Heitman n, Jose Gnangnon and Serge Guay from I FC for their valuable feedback during the project and on earlier versions of this note. Uaid -om- B,t"h -P1e Creating Markets, Creating Opportunities