Covid-19 risks shutting down economy

It was a vibrant economy projected to grow by at least six per cent.

The country was making the final steps in joining the league of oil producers. The heavy infrastructure spending was starting to yield the first dividends.

The tourism industry was just emerging out of a prolonged lull, having been battered by the terrorism nightmare since Kenya started its military action to contain Al-Shabaab extremists’ further expansion in the region.

Diaspora remittances were at an all-time high. The road to becoming a middle-income economy had become clearer.

The Big Four agenda was just taking shape and the political landscape had been calmed by the Handshake. Then Covid-19 struck.

In just 50 days, Kenya’s economy has come tumbling downhill from one of the fastest-growing on the continent to a near standstill.

Companies that had started the year with ambitious targets are now reporting some of the worst sales in a decade.

Consumers have jumped into survival mode, only spending on essentials. Banks are restructuring loans and cautiously approving new ones.

Hotels are staring at a rare emptiness that has not been witnessed in the country for a long time. Most have scaled down their operations and have sent thousands of employees home.

PAY CUTS

The horticulture and aviation sectors, which earn the country billions of shillings in foreign exchange, are bleeding billions of shillings in losses every passing day. Bars and social places remain shut down.

The tourism industry has received the biggest punishment from the pandemic. With no tourists coming in and domestic travel halted, players in the sector are hurting in silence as the country focuses on the most important fight — flattening the curve of infections.

Event planners and players in the entertainment industry have been confined to online shows. Private schools are on the brink of going burst with no new income.

But it is the unprecedented pay cuts for salaried employees that have now been confined to working from home that tell the story of just how far the virus will hurt the economy.

The lucky ones have got away with salary cuts. The not-so-lucky ones have been sent home without pay until the Covid-19 cloud lifts.

Initial projections cut the Gross Domestic Product (GDP) growth by half to three per cent. But as things started being clearer, the World Bank now projects that the economy will at best grow by 1.5 per cent this year.

BUDGET SHORTFALL

In the worst-case scenario, Kenya’s economy could record a negative one per cent growth. This will be worse than the growth realised in the aftermath of the 2007 election violence.

The World Bank says that, at the global level, the virus will visit the global economy with a worse recession than what was witnessed in the financial meltdown between 2007 and 2009.

This recession will further complicate Kenya’s recovery efforts. The National Treasury is more ambitious, putting the growth at between 1.8 per cent at worst and 2.5 per cent at best.

The pandemic has left the Treasury with a Sh170 billion budget shortfall, which it must find to allow the national and county governments to continue providing services.

Treasury Secretary Ukur Yatani told the Senate this week that he will have to borrow from both the domestic and external markets to deal with any revenue shortfalls expected from the economic slump.

The money markets and the Nairobi Securities Exchange took the first hit as soon as Nairobi announced its first positive Covid-19 case.

STOCK MARKET

The situation was made worse after panicked investors made indiscriminate sales of shares. In just one day, the total market capitalisation shrank by Sh120 billion, in one of the largest declines in a single day in the history of the Nairobi bourse.

Major stocks such as Safaricom and KCB declined by 5.4 per cent and seven per cent, respectively, on day one of the news.

Safaricom accounts for the bulk of the action at the NSE and anything that happens on that counter affects the whole performance of the stock market in Kenya.

When this continued on the second day, trading for the NSE 20 share index was halted on March 13 after it dropped more than five per cent, under the provisions of the NSE Equity Trading Rules. The bourse is yet to recover.

On the currency front, the Kenyan shilling has also lost ground against the dollar, weakening from Sh102 on average to Sh107 now. This has made the country’s debt increase just from foreign exchange losses alone.

The horticulture industry has stared in disbelief as flowers are thrown out of airports around the world.

The Kenya Flower Council says sales of cut flowers in overseas markets have shrunk by over 35 per cent in just one month. The sector employs over 150,000 Kenyans directly and a further 500,000 through suppliers goods and services.

BARS CLOSED

One of the other significant changes has been the death of nightlife in major towns in Kenya, among them Nairobi, Mombasa, Kisumu and Nakuru, which had elevated Kenya to a regional entertainment hub.

This has seen thousands of bar owners and alcohol manufacturers take a big hit, the impact of which will be known when they announce their results.

“Bars employ over 250,000 people, who, in most cases, earn a daily wage. Closing them will render these people jobless, jeopardise their support for over two million livelihoods and directly lead to social unrest,” said Alcohol Beverages Association of Kenya Chairman Gordon Mutugi.

“Ultimately, this could potentially result in social anarchy, including looting, muggings, violent robberies, as has already been witnessed in other parts of the world,” he warned.

The country is also struggling to shift to a cashless economy as the Central Bank of Kenya encourages consumers to avoid using banknotes, which can spread the virus.

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