The coronavirus pandemic threatens unprecedented economic disruptions in Africa, where poverty and limited government resources for mounting effective responses may compound its negative effects. This study will examine the pandemic’s impacts on small businesses in Rwanda, which play a unique role in the economy, comprising - as in many low-income countries - the vast majority of businesses and contributing more than 60% of employment and GDP. The pandemic jeopardizes not only the livelihoods of these firms but the wider economy though channels ranging from disruptions to inputs to negative shocks to demand and the health and earnings of employees. In Rwanda, where most citizens live on less than USD$1 per day, the virus could impose significant financial burdens on a population that already ranks among the world’s poorest.
Through surveys of 2,500 small firms and through the use of administrative tax data, Richard Dada and Gabriel Tourek will track the impacts of the coronavirus pandemic among Rwandan firms. The surveys will provide contemporaneous, descriptive evidence of the pandemic’s economic impacts and how they vary across firm characteristics such as size, sector, location, and eligibility for government assistance. Survey measures will also be linked with administrative tax declarations for sample firms to permit analysis of how heterogeneity in firm characteristics affects longer-run outcomes captured by tax declarations. Through partnership with the Rwandan Revenue Authority, they will also access administrative tax data on supply chain relationships, reported inputs and sales, and employment that we will use to track the impacts of the pandemic over time. Given the richness of this data, the researchers will explore quasi-experimental methods for evaluating the impact of the spread of the virus, lockdown measures, and other government policies that exploit geographic or firm-level variation in exposure.
The researchers hope to shed light on what policy tools might be most appropriate for combatting the economic harms to small firms in Rwanda and LICs more broadly. Rwanda was the first country in Africa to impose a lockdown and is considering tax exemptions and subsidies for firms, among other policies. While new research suggests that more aggressive use of non-pharmaceutical interventions to limit disease spread - like lockdowns - can mitigate the economic costs of pandemics, policies that compensate for the lack of existing social safety nets in LICs may be needed to support firms, such as loan forgiveness or direct food aid and income transfers to business owners and employees. By assessing ongoing policy responses - and evaluating the potential effectiveness of alternatives - this project can assist policymakers in a challenging time.
