East Africa: Covid-19 Cited for Contraction of East African Economies

Regional economies received a battering courtesy of the Covid-19 pandemic, and the numbers now just prove how damaging.

Kenya, Rwanda and Uganda had by the end of March instituted measures to contain the virus, shutting down the economies leading to job and other economic losses.

Uganda's economy registered negative growth of 3.2 percent between April and June 2020 compared with negative growth of 1.7 percent recorded between January and March 2020, according to Bank of Uganda statistics. The general economic outlook for the rest of 2020 remains cautious and fairly pessimistic on account of weak consumer spending patterns and the hostile impact of election activity on investment appetite across many sectors.

Kenya didn't perform any better with the economy contracting by a record 5.7 percent during the three months to June 30 2020 with virtually all key economic sectors - except agriculture and financial activities - grinding to a near halt, pushing over 1.7 million people out of work.

Data by the Kenya National Bureau of Statistics (KNBS) shows that the country's real gross domestic product declined by 5.7 percent compared with a growth of 5.3 percent during the same period last year.

"Economic activity was markedly subdued in the second quarter of 2020 compared with the corresponding quarter in 2019. The economy was significantly affected by the disease," the agency said.

Kenya announced the first coronavirus infection on March 13 this year. Consequently, the government instituted measures aimed at containing the spread of the virus, including restriction of movement in and out of some counties, closure of learning institutions, businesses and international travel.

According to the KNBS, these containment measures adversely impacted economic activities, considerably constraining production and, in some cases, causing a complete halt.

The slowdown in economic activity was manifested in reduced activity at the Nairobi Securities Exchange (NSE) which saw the NSE 20-Share Index drop by 26 percent from 2,633.3 points in June 2019 to 1,942.1 points in June 2020 while the Kenya shilling lost significant ground against major trading currencies such as the Japanese yen (7.47 percent), dollar (5.13 percent), the Sterling pound (2.95 percent) and the euro (1.49 percent).

Restrictions impact

According to the KNBS's quarterly statistics released last week, the overall performance of the economy was cushioned from a deeper slump by a 6.4 percent growth in agriculture, forestry and fishing activities and 4.2 percent growth in financial and insurance activities.

On the other hand, the performance of the manufacturing sector declined by 3.9 per cent compared with a growth of four percent in the same period last year while the construction sector recorded a slowed growth of 3.9 per cent from a growth of 7.2 per cent.

Activities of electricity and water supply contracted by 0.6 per cent from an expansion of 7.3 per cent while the transportation and storage sector declined by 11.6 per cent compared with a growth of 7.6 per cent during the period under review.

"In the review period, restriction of movements resulted in a significant decline in travel activities thereby impacting negatively the sector's performance," the report says.

Accommodation and food services activities contracted by 83.3 per cent compared with an expansion of 12.1 per cent growth in the same period last year.

During the period, businesses in the accommodation and food services sector either operated under minimum capacity or completely closed down what with the significantly reduced number of visitors' arrivals as well as restrictions of movement within the country.

Rwanda's economy

The situation is the same in the region. The Rwanda Institute of Statistics said Wednesday, October 14 that the country's GDP slumped by 12.4 percent in the second quarter of 2020.

"The sharp contraction in economic activity in quarter two was a negative surprise. We are gearing up for a virtual review mission over October 5-23 and will use this opportunity to hold discussions with Rwandan authorities on the growth outlook and review the evidence with a view of updating our GDP growth forecast," Samba Mbaye, resident representative of IMF in Rwanda told The EastAfrican.

Before the pandemic, the IMF had projected Rwanda's economy to grow at an unprecedented rate of 8.1 percent in 2020.

But the country's economic outlook worsened instead, leading the IMF in June to further revise downward the 2020 GDP growth forecast from 8.1 to 5.1 percent and to 2.0 percent due to the deepening of the Covid-19 impact.

Much of the rough period was experienced between March and April when the first cases of coronavirus were reported in Rwanda, which led to a total lockdown of economic activity.

The IMF advises that the main priority for Rwanda remains to contain the Covid-19 risks, as the economic recovery critically depends on how quickly the health crisis is addressed.

"The longer the health crisis persists, the higher the risks of permanently scarring the economic fabric," Mr Mbaye said.

Economic sectors that were most affected include education, which dropped a whopping 67 percent, hotels and restaurants dropped by 62 percent and transport dropped by 41 percent.

Air transport, which anchors Rwanda's exports and tourism sector, fell by 96 percent, trading dropped by 22 percent while construction fell by 20 percent.

"All economic chains were disrupted by Covid-19 and unfortunately, many businesses had to close down, particularly those in the SME sector that could not withstand the shocks of the lockdown. We are at a point where the private sector cannot afford a second lockdown," Robert Bapfakurera, chairman of Private Sector Federation told The EastAfrican.

"We will continue negotiating with the government to ensure that support to the private sector reaches those that need it. We know sectors such as tourism, and traders and exporters have experienced a major setback. So we are hoping a return to better days."

- Additional reporting by Ivan R. Mugisha

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