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A global health crisis is slowly dimming Kenya's fortunes

NEWS
By Dominic Omondi | March 13th 2020

The virus, which has since been declared a pandemic by the World Health Organisation (WHO), now threatens to aggravate the unemployment crisis as various sectors of the Kenyan economy get infected.

Kenya, which is yet to cobble together a convincing narrative on how it will handle its first case of the disease-leave alone a sound strategy on how to stem its entry into the country, is no longer immune.

Locally, Tonny Obare, a small trader, who orders products such as wallets and phone accessories from China, and sells them online, has started feeling the coronavirus fever. China is the source country of the virus that has sparked social and economic jitters across the globe.

Obare says his imports take three to four weeks before they arrive, but this has changed.

“When you order something from China it takes over two months,” explains Obare, who is now contemplating changing his market source. The country that he has in mind is Dubai, although even there, he explains, there is an economic slowdown linked to the virus.

His sentiments have been backed up by a recent report which polls purchasing managers. The report found that prices of key inputs, particularly those from China, have already increased to a six-month high. This high cost of production is likely to be passed on to consumers and fuel the cost of living. Kenya’s import goods worth over Sh300 billion annually or over 20 per cent of the country’s total imports.

But with the Coronavirus affecting the manufacturing sector, the effects of the deadly virus have begun to fester. Kenya has started importing high cost of living from overseas as traders such as Obare look to other sources of goods.

Welded into the global economy, Kenya has reluctantly taken the painful route of closing up its borders, a move that now threatens to precipitate a financial crisis. And as the uncertainty grows, investors have taken up a wait-and-see approach even as consumers have started engaging in panic-buying.

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Media reports filtering through now shows the world is on the verge of a recession- Manufacturing in China has bottomed out; there is a global stock market meltdown; tourism and travel sectors are on their knees and the global supply chains have broken down.

Soccer fans have been denied their euphoric moments of watching juicy clashes such as Manchester City vs Arsenal. Local pubs are losing out, as English Premier League (EPL) and other major leagues are called off, while betting firms are also counting their losses.

It is certainly shaping up as one of the worst global crises even as the World Health Organisation warns that every country across the globe would be affected.

 International Monetary Fund (IMF) Managing Director Kristalina Georgieva also noted that the global economy will have to take a hit.

“Under any scenario, global growth in 2020 will drop below last year’s level. How far it will fall, and for how long, is difficult to predict and would depend on the epidemic, but also on the timeliness and effectiveness of our actions,” said Georgieva.

About one-third of the economic losses from the disease will be direct costs: “from loss of life, workplace closures, and quarantines," noted the IMF boss. National Treasury, which is responsible for developing the country’s policy on taxation and spending plans, did not foresee the crisis. However, they hinted at what might happen.

In its Budget Policy Statement 2020, Treasury reckons that in case such a shock results into a decline in the country's projected GDP in 2020 by one per cent, both revenues and expenditure would be on a downward path.

There are indications that the disease has already started having a toll on key sectors such as trade.

The report noted that shortages of raw materials inflated total costs for firms, linked to reduced imports from China due to the coronavirus outbreak.

Stanbic Bank East Africa Regional Economist Jibran Qureishi said firms faced a shortage of raw materials owing to reduced imports from China due to the coronavirus outbreak over the past month. “This has increased output prices as alternative import markets aren’t as cheap as China.”

Mr Qureishi said the scant data available makes it difficult to assert whether we are at the beginning, middle or end with the coronavirus.
“In the event that there is an escalation into new geographies with the disruption potentially extending into the third quarter of 2020, the likelihood of a global recession then increases,” added Qureishi.

China, dubbed the factory of the World, does not simply manufacture for Kenya finished goods such as telephone, refrigerator, and laptops, the Asian country is also a factory for Kenya’s factories.

Thus, machines in local factories might soon stop humming as manufacturers run out of critical inputs such as bolts, nuts, rubber tyres and vehicle parts from China.

With lockdowns, quarantines and restrictions being announced every now and then, the flow of dollars into the country is affected. Without Dollars, the country might struggle to service its foreign debt, pay for petroleum or just pay contractors engaged in the many construction activities.

Unfortunately, a cloud of uncertainty that hangs over the global economy has seen foreign investors evacuate their cash from the country. 

Covid 19 Time Series

 

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