Blog: Different sector, different effect
COVID-19 crisis heavily affects small businesses, especially in travel and hospitality services
- The hospitality, sports and recreation, personal services and large parts of the retailing sector are among the sectors most affected by partial or full lockdowns.
- Travel bans hit directly the travel and tourism industry.
- The manufacturing sector suffers slowdowns or (partial) shutdowns during national lockdown periods with repercussions across borders.
- The automotive, apparel and footwear, and computer and electronics sectors are among the sectors most exposed to indirect effects from lockdowns abroad because of negative repercussions along international value chains.
The prevalence of small businesses differs across these sectors. While micro, small and medium-sized enterprises (MSMEs) are overrepresented in accommodation and food services and in the wholesale and retail services (compared to the sample average in Figure 1), they are underrepresented in the manufacturing sectors, with the exception of apparel and footwear. This suggests that MSMEs are overrepresented in sectors exposed to the direct effects of national lockdowns and underrepresented in sectors exposed to the indirect effects of lockdowns abroad.
Figure 1: Participation of MSMEs across sectors
Note: Firms' response to the question “How many employees does the business have?”
Source: ITC SME Competitiveness Surveys of 3,680 firms in Argentina, Benin, Botswana, Ghana, Hungary, Kenya, Saint Lucia, the Gambia, the Philippines, Ukraine and Zambia in 2017, 2018 and 2019.
An exception is the travel and tourism sector with an important international segment. The sector therefore depends to a significant extent on decisions taken abroad. Forecasts point to a 13.5% decrease in the market of travel and tourism between 2019 and 2020¹. MSMEs represent around 90% of businesses in this sector in the countries covered by recent ITC firm-level surveys.
The travel and tourism sector also stands out because it employs an above average percentage of women (see chart) and youth. Women employment and the presence of women-owned enterprises is even more pronounced in the accommodation and food services sector and to a lesser extent in wholesale and retail.
Figure 2: Women participation across sectors
Note: Firms' responses to: “How many full-time employees does this establishment currently employ?”, "How many full-time female employees does this establishment currently employ?" and "Which option (of ISIC codes) applies best as the main sector of activity?"
Source: ITC SME Competitiveness Surveys of 4,027 firms in Argentina, Benin, Botswana, Ghana, Hungary, Kenya, Saint Lucia, the Gambia, the Philippines, Ukraine and Zambia in 2017, 2018 and 2019.
Accommodation and food services also feature high numbers of MSMEs led by young entrepreneurs. Restaurant bookings in several countries have almost completely collapsed, falling by about 80%by mid-March². While online food delivery could take off, women and young workers are nevertheless particularly vulnerable to the direct effects of national lockdowns.
It is different for the repercussions from international value chains. Those are more likely to hit employees who are men. This is, for instance, the case in electronic equipment, where estimates point at export reductions of more than 10% in the first quarter of 2020.³
The automotive industry is known for employing high numbers of men, including in the countries that are represented in the above chart. Because the Chinese market is important for automotive sales, this sector is expected to suffer from both supply-chain disruptions and a demand shock in China. In February 2020, sales of passenger cars in China are considered to have declined from an estimated 1.5 million to 315,000 vehicles, and from 923,000 to 462,000 motorcycles. In the same month, combined sales of passenger cars and motorcycles in China are estimated to have declined by 69%, compared to February 2019 and compared to previous expectations for February 2020, with a cascading effect on the rest of the world through value chains linkages.⁴
The exception to the rule-of-thumb that supply-chain repercussions mainly affect men employment is the apparel and footwear sector. This sector employs high percentages of women and is particularly vulnerable to East Asian supply disruptions. In specialty and fashion apparel stores in the United States, for instance, retail transaction velocity, a measure of sales, fell nearly 10% from February 15 to March 9 compared to the previous year.⁵
The ideal timing and design of policy measures meant to support MSMEs will very much depend on whether MSMEs are mainly affected by national lockdown measures, by exposure to the travel industry or to value chain repercussions. While steep drops in consumer goods sales might partly be recovered when containment measures are lifted, services sectors will not be able to recover their losses. They will feel the hit the hardest. Given the burden that post Covid-19 economic support measures are likely to impose on government budgets, paying detailed attention to the optimal policy mix may be a worthwhile exercise.
¹ Estimates from COVID-19 Statista Mobility Market Outlook – Trend Whitepaper, March 25, 2020.
⁴ Estimates from COVID-19 Statista Mobility Market Outlook – Trend Whitepaper, March 25, 2020.