Firm closures and performance in a time of pandemic

El-Haddad, Amirah / Chahir Zaki
External Publications (2022)

in: ERF Working Paper Series No. 1530

We use data from the 2020/21 Egyptian Industrial Firm Behavior Survey (EIFBS) to assess the effects of the COVID-19 crisis on firm dynamics, behavior and performance. The crisis emanating from the COVID-19 pandemic induced both demand and supply side shocks, which are more far reaching than any crisis in living memory. Our results show that the crisis has hit the entire Egyptian manufacturing sector. But, in line with Schumpeter’s (1934) creative destructive theory, the market shows signs of ‘self-cleansing’, whereby the less efficient are more likely to exit and downsize their activities. Our descriptive results show resilience of larger, public, formal, and export sector firms. Thus, revealing pre-existing fragilities of the private, informal and, more generally the lower productivity firms in the manufacturing sector. The counter cyclicality of the relation implies that contraction of the formal sector expands the informal as the only alternative way to earn a living. As a ‘survival sector’, the informal sector has provided 'helping hand employment'. Pre-crisis good managerial practices, innovation, the adoption of advanced technologies and training workers all provide an opportunity for firms to adapt their business model, as reflected by superior firm dynamics and post-crisis performance. Larger firms and mostly less vulnerable sectors such as fabricated metals and rubber have had more access to government support. It is likely that the government has chosen to support sectors with potentially better chances of survival rather than support the most vulnerable. Firms in pharmaceuticals were also recipients of support, which is sensible in a health crisis.

About the author

El-Haddad, Amirah

Economy