The 170 days of Covid-19: Storm clouds gather over economy

For Sarah Owano, the Covid-19 pandemic is more than just the new normal. She calls the infectious virus a new abnormal.

Last year, Sarah went for about four months without a job. She was weighed down by the difficulties of life as several job applications yielded nothing.

In November, she landed a job as a teacher in a private school in Embakasi. That meant moving from Kakamega to Nairobi.

Four months into the job, Covid-19 struck in Kenya, leading to closure of schools. Her short period of sunrise moved fast to sunset.

“I call it a new abnormal because I am jobless again. But this time, the little I had is now locked up in the city over rent arrears,” she says.

Sarah is just one of the many Kenyans facing economic difficulties triggered by the virus.

The first Covid-19 case in Kenya was reported on March 13, 2020. Some 170 days later, there are about 34,700 infections and 585 deaths. But the impact goes beyond these statistics.

Dark clouds are fast gathering over bread winners as the virus stalks the land, forcing the government to delay the full reopening of the economy.

Freeze expansion plans

Companies have had to scale down their activities, freeze expansion plans and announce job cuts and salary reductions to survive a pandemic period that has hurt revenues.

For Kenyans working outside the country, the situation is even worse. Some have come back.

Beldene Inzieu, who first opened up in May about her experience of losing a job in a foreign country, says the situation is not getting any better.

This is her fifth month on unpaid leave in Dubai and she has now turned to temporary jobs to keep going.

“Like everybody else, I thought it wasn’t going to last for more than a month,” she says.

Back home, bars remain shut, hotels and restaurants are recording few customers and private schools and many other businesses have no idea when they will require services of employees like Sarah and Beldene.

Kenya Private Schools Association chief executive Peter Ndoro says more than 146 private schools have shut down completely and that means permanent job losses.

He reckons that the abrupt closure of schools triggered tough decisions, given that school fees from parents is the key source of revenue.

Unlike public schools, private ones are not entitled to any government capitation.

“The conversations we have been having with our staff members is that due to the inability of schools to raise resources to sustain the wage bill, they take unpaid leaves until schools reopen and we start receiving income in the form of school fees,” said Mr Ndoro.

Covid-19 infections

But schools reopening depends on the Covid-19 infections curve flattening and the institutions making investments such as hand-washing stations.

For alcohol firms such as the East African Breweries Ltd (EABL), the impact has been huge, disrupting the traditional model of serving its customers.

EABL value chain for Senator keg, which targets the low end market, has collapsed and therefore delayed returns from its new Sh14 billion Kisumu plant. The order to limit alcohol selling to take-away meant keg could not be sold.

For the traditional beer brands, sales plummeted by nearly a third between January and June, making it post a six-year low net profit of Sh7 billion.

The beer-maker has now started packaging its bottled beer in carton packs of six to allow customers to buy as take-away. But it admits that it will be a tall order to make up for the lost sales.

Like many other companies such as Equity Group and NCBA Group, the brewer has shelved dividends.

Investors are feeling it at a time the Nairobi Securities Exchange (NSE) performance is also stuck in red.

“I have invested in different companies to spread risk and be assured of some dividends but this year is unusual,” says Alois Chami, who started investing on NSE in 1973.

The health crisis continues to fast morph into a financial crisis. Some of the impacts such as job losses look set to outlive the life of this pandemic.

Fear of infection has only made the situation worse, with few people willing to offer household chores to distressed job seekers.

People are turning to loans. But banks are hesitant, given that many more people are seeking more time to repay loans.

Between mid-March and the end of June, banks have been forced to restructure payments on loans valued at Sh844.4 billion or 29 per cent of the entire loan book to accommodate struggling businesses and individuals.

Non-performing loans

Repayment of personal and household loans worth Sh240 billion has been extended.

This at a time non-performing loans ratio is at 13.1 per cent – a 13-year high -- meaning banks are losing about Sh131 on every Sh1,000 loaned out.

Between March and June, defaulted credit has jumped by Sh29.9 billion, mostly linked to businesses and households.

The debt defaults highlight the distress of many workers who had borrowed loans on the strength of their pay slips only to later suffer pay cuts, unpaid leave or even layoffs.

Loan prices have fallen to an all-time low of 11.89 percent since the Central Bank of Kenya started tracking the figure in 1991. But there are fewer takers.

Kenya Bankers Association chief executive Habil Olaka says the Covid-19 pandemic has hurt the fundamentals in the economy leading to a “complex relationship” between price of loans and the demanded amount.

Banks are wary that indebting struggling businesses and households further could only serve to worsen the already high stock of defaulted loans.

“Demand from consumptive sectors of the economy remains high, but it is not quite attractive from a risk-return point of view, to lend,” said Mr Olaka.

But for some businesses such as private hospitals, Covid-19 has also meant low turnout of patients at a time they are required to make new investments.

Hospital revenue drop

The Ministry of Health (MoH) says that many people are afraid to go to hospitals for fear of contracting the virus while others have no money for treatment.

The dynamics have seen hospital revenue drop at a time they have been forced to make unforeseen investments such as buying personal protective equipment and masks.

Gertrudes Children Hospital recently drew a Sh200 million loan to boost its cash position and also beef up investments for the safety of its doctors and patients.

“The loan has been of great benefit to us considering the cash outlays required at this time of Covid-19 with a plunge in business and capital required to meet MoH guidelines for patients’ safety,” said chief executive Robert Nyarango.

But as the number of new deaths and infections keeps rising, the jury is split on whether to worry more about the prevailing health crisis or the deepening economic hardships.

President Uhuru Kenyatta in June called it the dilemma of “two rights,” warning that laxity in the virus control measures could cause many deaths and over 500,000 job losses.

All eyes are on the Covid-19 curve and what doctors are doing in laboratories across the world.

People are counting on social distancing, herd immunity and vaccine -- whichever will come first -- to flatten the curve.

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