Kenya: COVID-19 Brings Economy to Near Standstill

With people staying at home, conferences suspended, nightclubs closed, schools shut and global supply chains disrupted, Kenya has started walking down the path of nations whose economies have been devastated by Covid-19.

Companies are trying to figure out where to get money to pay their employees at the end of the month due to the impact of the economic shutdown occasioned by efforts to fight the virus.

The service and hospitality industries have the biggest nightmare, given that they need easy customer movement to make money.

Some companies have resorted to engaging casuals as they figure out how to pay permanent staff in a fortnight.

The Kenya Private Sector Alliance (Kepsa) said it would develop a business Covid-19 action platform in the next two days, like other countries have done.

"The action platform will have a 24-hour call centre and a portal to share business and workplace health-related information for all sectors and business sizes, from small and medium-sized enterprises (SMEs) to multinationals, and a framework on the economic impact of the virus, and mitigation that we are collaborating with the government on," Kepsa Chief Executive Carole Karuga said.

This comes as Kenya starts to assess the economic cost of the virus, which is devastating cities, crushing stock markets and causing an economic meltdown across the world.

JOB LOSSES

Wherever it has visited, countries have responded with measures that have shut themselves in, closed their doors to tourists and business travellers. The unintended consequences have been disastrous.

A new United Nations report on the Economic Impact of Covid-19 on Africa suggests the virus will reduce the continent's growth from the current 3.2 per cent average to 1.8 per cent.

The report says a disruption of global supply chains will lead to a drop in value creation. There will also be demand shocks in the oil and tourism sectors, as well as remittances from abroad.

Also expected is a slowdown in investment, hence job losses. For oil exporters, revenue losses of up to Sh6.5 trillion are expected as well as inflationary pressures due to supply shortages.

There will also be unanticipated increases in health spending of up to Sh1.06 trillion.

The report adds that revenue losses could lead to unsustainable debt and has recommended that the continent take decisive actions, including providing fiscal stimulus packages, such as guaranteeing wages for those unable to work due to the crisis, favouring consumption and investment.

"As a safety net, provide incentives for food importers to quickly forward purchase to ensure sufficient food reserves in key basic foods items," the report recommends.

Kenya's economy is largely driven by the agricultural sector, with tea and coffee exports being the most important drivers.

The second most important engine for the economy comprises the tourism, hospitality and the service sectors, which rely on the movement of people, and a shutdown has a direct hit.

Though it is not yet clear how big the blow will be, the private sector is coming to terms with the lockdown announced by President Uhuru Kenyatta on Sunday.

The Covid-19 nightmare has hit the aviation industry hardest, causing one of the most painful tumbles in stock markets globally, taking down with them billions in investments.

But it is not all gloomy. The virus has also come with new opportunities for players in the pharmaceutical and manufacturing industries.

TOURISM

Those in the retail sector, especially e-commerce, are already experiencing spikes in sales, mostly occasioned by panic buying. Mobile money companies and banks are also likely to see their fortunes rise during the period.

Players in the food delivery and taxi-hailing industries will also gain as more and more people opt to order essentials online.

Tourism has taken the biggest hit, given that the government has closed the country's borders.

The virus seems likely to derail the industry's impressive recovery as it shrugged off the impact of the terror threats to the country. The Economic Survey 2019 shows that tourism earnings increased by 31.3 per cent to Sh157.4 billion in 2018.

The number of international arrivals increased by 14 per cent to two million that year while hotel bed night occupancy increased by 20.1 per cent to 8.6 million, of which 52.1 per cent comprised residents, indicating the growing importance of domestic tourism. But the lockdown will reverse these gains.

Mombasa and Nyeri counties have banned nightclubs from operating past 11pm, a move whose impact will also be felt in the alcohol industry. Holidaymakers and tourists have been dealt another blow after beaches were closed. This practically confines them to their hotel rooms, with little or no outdoor activities.

AVIATION

The aviation industry has come to a near-standstill as more actions geared at stopping the movement of people are taken.

The government has suspended all non-essential travel abroad for government officials. Ambassadors and high commissioners in missions abroad will represent the government at international engagements.

The Health ministry has suspended all public gatherings, meetings and events for a month. There is also a 30-day ban on all international conferences and those bringing together more than 15 foreign participants.

Kenya Airways has taken the hardest hit, with most countries locking out airlines from nations that have reported cases of Covid-19. The airline has been forced to suspend flights to China, Italy and all other countries hit by the virus.

The International Air Transport Association estimates that airlines will lose up to Sh11.3 trillion in passenger revenues if the virus spreads further.

Kenya Airways estimates that it is losing at least Sh800 million a month, noting that the situation could get worse as more restrictions are placed on global travel.

"The route is important for Kenya Airways flying about 7,000 passengers per month (Nairobi to China). As you are aware, China is arguably the largest trading partner with Africa and Kenya, therefore, its significance cannot be downplayed. From a Cargo perspective, China is also a key cargo origin and a main feeder to the regional freighters," Kenya Airways told the Nation via e-mail.

Various players worldwide have warned that the virus and the travel advisories could plunge the global economy into a recession.

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