Determinants of business closure disparities during the coronavirus disease 2019 pandemic in South Africa: Evidence from enterprise survey data

Abstract

Background: Businesses of all types experienced the devastating blow of COVID-19 pandemic. However, the impact was disproportionate – with closure of some businesses at the onset of the pandemic, others endured for a few months, whereas some survived. The factors underpinning disparities in business closures across firm sizes and sectors remain underexplored in the literature. Aim: The purpose of this study is to investigate the disparities in business closures in South Africa during the pandemic. Setting: This study focuses on businesses operating after the outbreak of COVID-19 pandemic. Methods: This study employs descriptive and logistic regression analyses using Enterprise Survey data from the World Bank. Business closure was modelled as quarter-specific binary outcomes using separate logistic regressions. Results: Findings show that small businesses were significantly more likely to close than medium and large ones, with closure disparities of 8% in 2nd quarter, 88% in 3rd quarter, and 5% in 4th quarter based on estimated marginal effects from the logistic regression models. Managerial experience reduced closures in 2nd and 3rd quarter, while critical thinking and skilled workforce had negative effects on closure likelihood, especially in 3rd quarter. Temporary workers have a positive impact on business closure in the 2nd quarter and a negative impact in the 4th quarter. Conclusion: Small-sized firms are more vulnerable to closure than medium-large sized firms in crises such as the COVID-19 pandemic. Business closure disparity refers to differences in closure probabilities across firms, estimated using quarter-specific binary logistic regressions. Statistically significant determinants of business closure disparity included skilled workers, female workers and industry factors, with these factors having varying impacts depending on firm size. Contribution: The study has deepened understanding of business resilience factors in times of crisis, targeted policy intervention, support business resilience in the wake of the pandemic and ensure preparedness for any unforeseen.