Monitoring COVID-19 impacts REPORTREPORT N NOO. 11. 11
Monitoringon firms in Ethiopia COVID-19 21 / December / 2020 21 / December / 2020
impacts on firms in Ethiopia Public Disclosure Authorized
Authors: Girum Abebe, Tom Bundervoet, Christina Wieser
❖ 49% the share of firms affected by the riots ❖ 6% the share of firms affected by internet shutdown ❖ 9% the share of firms that sustained damages to their properties ❖ 123,000 ETB the estimated value of self-reported property damage per firm ❖ 29% the estimated decline in monthly sales revenue
Public Disclosure Authorized ❖ 29% the share of firms that experienced disruptions in their supply chain
It is long recognized that instability is inimical to economic growth. Instability produces uncertainty, amplifies risks, undercuts high-return investment, and diverts public policy towards short-term and quick-fix policies. Instability, accompanied by violent protest and riots, not only impacts current productive assets but also thwarts physical and human capital accumulation, weakening future growth. In the last two years, non-state conflict, civil unrest, and violent protest was rife in Ethiopia. While such conflicts are known to be barriers to a peaceful political and economic transition, little is known about how they have impacted the private sector. In this brief,
Public Disclosure Authorized we examine the economic impact of one specific event that led to the outburst of violent protests on firms in Ethiopia.
Following the death of the Ethiopian singer and activist Hachalu Hundessa on June 29th, 2020, a wave of largely peaceful protests took place in Addis Ababa and Oromia regional state. Overshadowing the peaceful protest, violent demonstrations targeting businesses and communities arose in the days following the singer’s death. More than 200 fatalities and property damages estimated in the hundreds of millions of ETB were reported in Addis Ababa, Adama, Shashamane, and other towns across Oromia. In an attempt to contain the violence, the government shut down the internet connection for two weeks.
How did the riots and the internet shut down impact firms in Addis Ababa? To address this question, we rely on data from a representative sample of firms in Addis Ababa, which was in the process of being collected when the riots broke out. The high-frequency phone survey of firms
Public Disclosure Authorized (HFPS-F), which follows the same firms each month for a period of eight months, was in its fourth wave. The survey was intended to study the impact of the COVID-19 pandemic on firms in Addis Ababa.1 Early evidence from the survey indicates that the economy is reeling from the pandemic and firms have gradually started opening when the violence erupted in the early morning of June 30th 2020.
1 Further details about the population frame and sampling strategy is available here. 1 Monitoring COVID-19 impacts REPORT NO. 11
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Using this dataset, this brief examines the direct impact of the political instability, riots, and internet outage on 438 firms in Addis Ababa, which were interviewed immediately after the incidents. We mostly rely on observations from the fifth round (July 23rd to August 15th, 2020) and the sixth round (August 17th to September 8th, 2020) of the HFPS. While the violent protests in Addis Ababa lasted only a few days, they seem to have left a scarring effect on firms and their operations. We, however, recommend caution in interpreting some of these results as they are mostly based on self-reported data and are not verified by objective indicators or administrative data.
About 49 percent of firms in Addis Ababa reported to have been affected by the instability, violence, or internet shut down associated with the riots. About 47 percent of the firms in the sample reported to be affected directly by the unrest triggered by the riots (equal to 95 percent of those that report to be affected somehow). About 6 percent of firms in Addis were affected by the internet shutdown (Figure 1). Less than 1 percent indicated that the mobile phone service shutdown was a problem during this time.
Firms experienced a significant shock to their sales revenues following the riots and internet shutdown. Among those who stated that they had been affected by the riots, about 71 percent of firms reported that their sales were affected negatively by the unrest or violent protest following the killing of Hachalu Hundessa. Moreover, 29 percent experienced a notable disruption to their supply chain and about 9 percent suffered direct physical damage to their properties (Figure 1).
Figure 1. Share of firms reporting to be affected by the instability between June and July 2020
Firms were asked whether and how they were impacted by the riots and unrest that ensued the June 29th event. Figure 2 shows a closer look at the 47 percent of firms that were affected directly by the unrest. The riots appeared to impact a greater share of larger firms than smaller firms — 55 percent of small, medium, and large (SML) firms reported to be impacted by the unrest. In contrast, 44 percent of own-account firms reported that they were affected by the unrest during the same period. Service sector firms are slightly more likely to be impacted by the riots compared to firms in the industry sector. With 60 percent of firms reporting business disruptions due to the riots, the 5-9 year age cohort of firms was particularly hard hit by the instability.
Figure 2 also suggests that slightly more male-owned firms than female-owned firms experienced business disruptions due to the instability associated with the riots. This is partly explained by size effects, where male-owned and operated businesses are likely to be larger and larger firms are more likely to be affected by the unrest.
Firms that reported to have been impacted by the instability were on average closed for 6 days. The number of days of closure does not vary much by sector, firm size, and sex of the business 2 Monitoring COVID-19 impacts REPORT NO. 11
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owners. There is a slight variation by firm age, where the youngest firms were closed for 10 days on average, while the rest were closed between 5 and 7 days (see Table 1).
Figure 2. Share of firms affected by the riots
Ethiopia lags far behind African peer countries in internet penetration, speed, and other quality dimensions of internet usage. In an earlier brief, we report that about 20 percent of firms used internet or online platforms for any business related activities. We thus do not expect that the internet shutdown would affect a large number of firms which could trigger a business crisis. Indeed, as indicated in Figure 1, only about 6.5 percent of firms report that they were mainly affected by the internet shut down between June 29th and mid-July 2020. Compared to older firms, a larger share of younger firms reported to have been negatively impacted by the internet shutdown. Nearly one in eight (12 percent) new firms that started operations between 2019 and 2020 were affected by the internet shutdown compared to about 6 percent of firms with 10 or more years of operational experience (Figure 3).
Figure 3 also shows that the internet shutdown affected a large share of SML firms than own- account firms. Not surprisingly perhaps, young and large firms are more likely to run businesses that depend on an online presence. We also see sector differences in the impact of internet shutdown on businesses. About 12 percent of firms in the industry sector and 6 percent of firms in the service sector report to have experienced disruptions to the business due to the internet shutdown. There is, however, little variation in the impact of internet shutdown on male- and female-owned firms.
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Figure 3. Share of firms affected by internet disruptions by firm characteristics
Irrespective of the cause, riots can be extremely destructive. About 9 percent of firms reported to have sustained damages to their properties following the instability that started in the early hours of June 30th, 2020. Service sector firms were more likely to report physical damage to their properties compared to firms in the industry sector — one in ten service firms experienced a damage to their properties compared to only 1.5 percent of firms in the industry (Figure 4). Anecdotal evidence and public disclosures suggest that the property damages include broken windows, arson attacks, looting merchandise, and so forth.
While a relatively small number of firms were affected by damages to properties, the estimated value of the physical damage for affected firms is large — and larger for the industry sector compared to the service sector. Firms that reported to have experienced damage to properties incurred an average self-reported loss amounting to 137,000 ETB in the industry and 123,000 ETB in the service sectors (Figure 5 and Table 2).
Larger firms were affected more seriously by the instability and the riots, both in the intensive and extensive margins. The larger the firm, the higher the likelihood of being exposed to property damage or vandalism and the larger the estimated value of the damage it sustains. SML firms were nearly twice as likely to have been hit by property damages than own-account firms. Similarly, the average estimated value of the property damage in SML firms is eight times larger than the damage experienced by own-account firms and more than 30 times larger than by micro- enterprises. Due to their visibility and their physical appearance on the main roads, that were swarmed by the protests, large firms are often soft targets for attack, vandalism, and looting.
While the correlation between the probability of experiencing property damage and firm age is less clear, the estimated value of physical damage seems to be largest in the oldest firms in the sample. For example, about 4 percent of new firms reported to sustain physical damage to their properties, estimated at around 4,000 ETB per firm. By contrast, of firms that were in operation for 10 years or more, 9 percent experienced physical damages, estimated at 476,000 ETB per firm. This is partly due to the seminal correlation between firm age and firm size where larger and older firms tend to be affected more by violent protest, vandalism, and looting.
A larger share of male entrepreneurs sustained property damages to their businesses compared to female entrepreneurs. Strikingly, the average male-owned firm reported and estimated damage amounting to 137,500 ETB compared to a 3,500 ETB reported by female-owned
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businesses. This is despite about 95 percent of women-owned firms operating in the service sector, which is likely to be more strongly affected by the instability. Indeed, a closer look at the data indicates that these female-owned firms that report to be impacted physically are own- account firms that operate in the service sector specifically in the retail trade.
Figure 4. Share of firms that reported to have experienced physical damage to their properties
Figure 5. Estimated value of physical damage (in thousands ETB)
500 400 300 200 100
0
ETB
Male
0 years 0
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SML (>5) SML
1-2 years 1-2 years 3-4 years 5-9
Value in thousnands of in thousnands Value
Micro (1-5) Micro
10 years or years 10 Own-account Sector Firm size Firm age Sex of owner
Even when firms do not directly sustain physical damages to their properties, their business earnings may be affected by forced closures to prevent possible damages to their firms. Firms were closed for an average of 6 days (Table 1) but firms that remained open might have scaled back operations, for example, by closing earlier than usual or due to disruptions to their supply networks. Moreover, we expect firms to experience a decline in demand as customers choose to stay indoors and their spending confidence gets eroded due to the instability. Indeed, as shown in Figure 1, the instability led to a perceptible decline in sales revenue and disruptions to the business supply chain.
To examine the extent to which firm turnover was directly affected by the riots, we asked entrepreneurs to indicate the percentage of monthly sales revenue that were lost due to the inability to sell or produce during this period. Figure 6 shows self-reported revenue impacts experienced by firms in our sample. About 29 percent of monthly sales revenue—26 percent in the industry and 29 percent in the service sector—were lost due to the instability and the 5 Monitoring COVID-19 impacts REPORT NO. 11
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accompanying shock in demand. Strikingly, more than a third of own-account firms’ and a quarter of micro-enterprises’ sales revenues were wiped out during this period. Larger firms experienced a 19 percent decline in sales turnover during the same period. Similarly, the youngest firm in the age-group under the study reported the largest decline in sales revenues followed by those that are 1-2 years in operation. The reported decline in monthly sales revenues is also comparable for male- (29 percent) and female-owned firms (27 percent).
Figure 6. Reported monthly sales revenue lost (percent)
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Sales revenue (%) revenue lost Sales
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10 years or M i c r o ( 1 S e c t o r F i r m s i z e F i r m a g e Sex of owner
The survey also inquired about potential disruptions to the firms’ supply chain following the instability and riots. About 29 percent of firms that reported to be impacted by the instability stated that their supply chains were disrupted due to the riots and unrest following Hachalu Hundessa’s death (Figure 1). A third of firms in the industry and 28 percent of firms in the service sector reported that the instability (unrest, internet or mobile service shutdown) lead to significant supply disruptions (Figure 7 and Table 3). Most of the disruptions are related to the unrest following the riots and 9 percent in the industry and 5 percent in the service sector identify the internet shutdown to be responsible for supply chain disruptions.
The supply networks of own-account firms are slightly less likely to be impacted by instability compared to be micro- and SML enterprises. Smaller share of younger firms compared to older firms report supply disruptions due to the instability. However, a larger share of these firms were impacted by internet shutdown. Supply disruptions were also observed across different firm age cohorts and irrespective of the sex of business owners.
Figure 7. Share of firms reporting supply disruptions (percent)
32
30.8 33.9 28.3 31.3 28.5 28.9 33.9 29.4
26.5
24.9
21.9
5)
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FEMALE
SHARE OF FIRMS FIRMS OF SHARE (%)
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A C C O U N T M I C R O ( 1 S E C T O R F I R M S I Z E F I R M A G E SEX OF OWNER
Table 1. Share of firms affected by sector, size, age and sex of the owner
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Unrest, internet or Mobile Internet Number of mobile service Unrest service shut down days closed disruptions shutdown
Sector Industry 48.2 44.6 11.9 0 6 Services 49.5 47.7 5.6 0.7 6
Firm size Own-account firm 46.3 43.8 5.6 0.5 6 Micro-enterprise (1-5) 51.2 49 7 0.2 6 Small, medium or large enterprise (>5) 54.6 54.6 8.2 1.8 5
Firm age 0 years 37.8 34.5 11.7 2.4 10 1-2 years 49.5 49.5 5.6 0 5 3-4 years 45.4 41.9 4.1 0 7 5-9 years 59.9 59.9 5.1 0 6 10 years or more 47.4 44.1 5.9 1.5 5
Sex of owner Male 50.5 48 6.4 0.8 6 Female 46.3 45.5 6.8 0 5
Total 49.3 47.3 6.5 0.6 6
Table 2. Reported lost sales and physical damage firms incurred during the unrest
Estimated value of Incurred physical Monthly Sales Revenue physical damage (in 000 damage (%) Lost (percent) ETB) (1) (2) (3) Sector Industry 1.5 137 26 Services 10 122.9 29 Firm size Own-account firm 7.6 50.7 35 Micro-enterprise (1-5) 8.3 13.8 26 Small, medium or large enterprise (>5) 14.4 440.2 19 Firm age 0 years 4.4 4 41 1-2 years 11.6 23.6 33 3-4 years 8.4 2.6 22 5-9 years 6.7 87.4 31 10 years or more 9 476 17 Sex of owner Male 10.7 137.5 29 Female 3.6 3.5 27
Total 8.8 123.3 29
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Table 3. Percent of firms that report supply chain disruptions
Unrest, internet or Mobile Internet mobile service Unrest service shut down disruptions shutdown (1) (2) (3) (4) Sector Industry 33.9 28 8.5 0.7 Services 28.3 26.8 4.8 0.3 Firm size Own-account firm 26.5 24.5 4.2 0 Micro-enterprise (1-5) 31.3 28.8 7.2 0.2 Small, medium or large 32 30.3 3.5 1.8 enterprise (>5) Firm age 0 years 21.9 20.2 7.1 0 1-2 years 28.5 28.1 5.6 0 3-4 years 28.9 24.2 4.7 0 5-9 years 33.9 33.9 3.2 0 10 years or more 29.4 26.1 4.8 2.1 Sex of owner Male 30.8 28.3 5.4 0.5 Female 24.9 23.7 5.4 0
Total 29.1 27.1 5.4 0.3
This summary brief is the fourth in a series of briefs on special topics and the eleventh on those reporting on the findings of the high-frequency phone survey of firms. Each round’s summary brief, table of indicators, and microdata are made available via the following website:
https://www.worldbank.org/en/country/ethiopia/brief/phone-survey-data-monitoring-covid-19- impact-on-firms-and-households-in-ethiopia.
The high-frequency phone monitoring survey monitors the economic impacts of and responses to the COVID-19 pandemic on firms with a focus on the effects on firm operations, revenues, and jobs. We call a sample of firms every three weeks between mid-April and mid-
September 2020 for a total of eight survey rounds in Addis Ababa and seven survey rounds in other cities. The final dataset will consist of a panel of approximately 800 firms (500 in Addis Ababa and 300 in four other cities—Adama, Bahir Dar, Hawassa, and Mekelle).
The sampling procedure was undertaken in three steps. First, the team cleaned the list of registered firms in number in Addis Ababa, Adama, Bahir Dar, Hawassa, and Mekelle, received from the Ministry of Trade and Industry (MoTI), by removing firms with missing or invalid phone numbers. Second, all phone numbers of the cleaned list of firms were shared with EthioTelecom and only active phone numbers were kept
constituting the sampling frame. Third, two survey domains were selected (Addis Ababa and other cities) and the team drew a random sample of firms without replacement, stratified by firm size (proxied by capital) and sector (industry and services). The sample size was set by a tight budget envelope, with a panel of 500 firms in Addis Ababa and 300 firms in other cities after round 8 (7) of the survey operation.
Expecting a high non-response rate, we drew a sample of 1,550 firms for Addis Ababa and 800 (200 in each city) firms in other cities.
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