Direct vs Indirect taxes: what will African governments use for economic recovery?

By Emmanuel Allottey

The COVID-19 pandemic has triggered severe economic contraction in many nations. Governments’ interventions to slow the health impact of the virus including lockdowns, social distancing have hindered business growth in different sectors of the economy. The slowdown in some areas of the economy has unleashed the potential for entrepreneurs to start businesses driven by innovations.

Innovation in business involves launching new ideas, products and services. This can also be the modification of existing business models and adapting to changes to achieve better results. Covid-19 has disrupted customer behaviour and businesses need to adapt or face being overtaken by new entrants looking to capitalise on the opportunity.

Small and Medium sized Enterprises (SMEs) are key drivers of most economies in the world. SMEs account for about half of global gross domestic product (GDP) and employs over 40% of the workforce in a nation. Comprehensive research of the marketplace must be performed before starting a business. The sector identified should already be lucrative with high growth potential. Large corporations stated small as SMEs and grew, highlighting the potential of start-up businesses to succeed.

There are various advantages to starting a business during these challenging times:

Low Interest rates: economies are operating under low interest rate environments due to government monetary policy interventions such as reducing lending rates to encourage spending. This means for those starting a business with loan capital and other borrowings, they stand to benefit from low interest rates. Loans and other credit facilities now cost less, improving the business profit margins.

Low input costs: due the slowdown in the economy, suppliers and manufacturers are more accommodating in their agreements with buyers. New businesses have the bargaining power to negotiate longer term payment deals that will remain once the economy begins to recover. Landlords looking to fill vacant properties will be open to accepting reduced rentals. Equipment in good condition are accessible as some businesses sell off inventory.

Low human capital cost: opening a business and hiring employees during an economic slowdown increases access to top talent. Many highly skilled workers will be on the market looking for new jobs. Previously unattainable highly skilled recruits are now available.

Opportunities for businesses continue in the current volatile economic environment created by COVID -19. Entrepreneurs with an innovative business solutions stand to benefit as they bring new and improved products and services to market.

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