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Corrupt Kenya will find it hard to survive the economic effects of Covid-19
By Special Correspondent | March 23rd 2020
Kenya Airways was already a troubled entity even before the outbreak of the coronavirus (Covid-19).
Now the virus threatens to bring the national carrier to its knees, if not the grave. Internal communication from the CEO to the airline’s employees paints a bleak picture. Yet it is a picture that could be mirrored in other firms in the aviation sector. It could catch up with other sectors too, given the linkages and networks in business and economies.
Those who are already weak will usually take the first blow and even the worst beating during pandemics and disasters. The World Health Organisation (WHO) calls them the vulnerable groups.
In the wake of Covid-19, WHO has flagged the aged and those with preexisting conditions and illnesses as the most vulnerable. Others are pregnant mothers and the malnourished.
Yet, disasters easily break through the immediate orbits of concern. They travel on, to wreak havoc in other circles, too. Even here, the first to go down will be those with preexisting conditions. In the investment sector, KQ was always vulnerable to shocks of the kind that the virus has brought.
Towards the end of last year, KQ was showing signs of financial fatigue. There was hope the government could buy it out. The airline’s stock on Nairobi Securities Exchange fell by close to 72 per cent between September 2018 and September 2019. The airline’s woes were in part fueled by managerial instabilities that drove discordant comings and goings in senior ranks.
If the spread of epidemics is a factor of movement and contact, the global transport sector has naturally been among the very first ports of call. An ailing KQ has been caught squarely in the crosshairs of the crisis.
The KQ internal communication of last Friday shows the airline is set to freeze all operations.
“So far, we have reduced approximately 65 per cent of our flights,” the internal communication from the CEO Alan Kilavuka, said. “Should this trend continue, we will have to make the difficult decision to temporarily suspend our operations,” it concluded.
Accordingly, KQ is placing half of its aircraft on long-term storage, while the rest are getting grounded for service. It is not clear where this leaves hired aircraft. KQ has, however, been in a curious tango in which some of the major shareholders are also the owners of some of the aircraft loaned to the airline. They are also represented on the airline’s board of directors by employees in their other firms, such as banks.
Questions of integrity and conflict of interest have previously been raised. How does an interested party sitting on the board of the airline negotiate the right fee for hiring an aircraft in which he also has another interest?
There is the case of a senior board member who is also a senior official in a bank that was at one point a major shareholder and a lender to Kenya Airways. Long before Covid-19 arrived to complicate matters for the ailing airline, Parliament was concerned about the role of the bank in the financial health of the airline.
Meanwhile, as KQ ponders over grounding of operations, the airline’s staff, for their part, will take both paid and unpaid leave. But the pay itself is to be cut down drastically – with the CEO taking the highest cut of 80 per cent. The rest will sit between 50 and 75 per cent temporary pay cut. However, ‘temporary’ is relative as it will depend on how soon Covid-19 is contained not just in the country, but also in KQ’s countries of destination – and indeed in others that could bring people to KQ’s destinations.
It is a grim and thorny affair. Away from recovering from the immediate and long-term inactivity as a factor of the virus, KQ must address old issues, if it has to make a robust return. On a broader matrix, the bad news is that these woes are not restricted to KQ. Kenya airways is only a metaphor of what could be a nationwide challenge.
Kenya’s economy boasts of being the biggest in East Africa, with an estimated Gross Domestic Product (GDP) of $99.2 billion at the end of 2019. World Bank estimates place the country at 62 globally. But all this could sink into the abyss of emptiness if the present uncertainty continues.
Among the first instincts in crises is for everyone to dash into their own safe havens. This happens both at individual levels and in broader community and national circles.
Covid-19 has flung every nation into its own health and economic corners to address their own interests first. Everywhere, health and economic safety nets are of extreme essence. In Kenya, a health team under Cabinet Secretary Mutahi Kagwe is admirably coordinating developments in the sector. Its regular and detailed updates have been admirable.
A corresponding team to address the economy – at the national, institutional and domestic levels – has not been seen. Such a team is now a priority. Survival for the Kenyan economy in the wake of Covid-19 must be a factor of conscious collective and coordinated effort. The task must sit with competent and well-meaning technocrats. Just like the Kagwe team, they must give us regular updates on what is being done to save the economy.
African countries have, regrettably, not been renowned for placing the right professionals in the right places. People are appointed because of who they are to the appointing authority, rather than due to their competencies. That, however, has been in good times. However, the risen times are extra-ordinary. These are the times that redefine a country, its direction and its focus. They call for extra-ordinary and bold decisions and interventions.
Away from the health sector, President Uhuru Kenyatta, on Saturday, hosted religious leaders across a multiplicity of faiths to pray for the country. It is the big irony of fate that the date had been slated as the day for a giant and corrosive Building Bridges Initiative (BBI) rally in Nakuru. Provident had it otherwise. The prayers were, therefore, quite in order. Wider practical action must now follow faith, hope and goodwill.
All eyes will be on the President. He is expected to navigate the country though what could be its most difficult economic times since independence. Yet the President can only lead. He cannot do everything alone. The premium in the leadership begins with practical interventions that various teams the President puts in place will do.
To Uhuru’s credit, the government has rolled out some Sh141 billion to deal with the fallout from the viral threat. The promise has been made to clear pending bills within the next four weeks. Also, in the docket are value added tax refunds. These refunds alone stand anywhere close to Sh30 billion, according to Treasury sources. Pending bills have been placed at about Sh58 billion. Together, the two should make for a healthy jab in the economy.
Yet, the challenge to the country has not always been non-availability of funds. Quite often, it has been abuse of funds. Wrong people arrive into wrong jobs with wrong intents. The notion of ‘lucrative offices’ is uniquely Kenyan. People come into the proximity of massive State funds with the misplaced understanding that they have come to line their pockets.
Over the past five years, the nation has been submerged in narratives of heist in high places. From the infamous water dam stories of Kimwarer and Arror to the scandalous Galana-Kulalu maize irrigation experiment; all the way to the National Youth Service multi-million shilling scam, the national profile has been hugely one of debilitating corruption. The story goes on, with the nation showing amazing capacity to tolerate and live with grand corruption.
Similar narratives abound in counties and in constituency development funds (CDF), in the lap of MPs.
A fragile and shaky economy such as Kenya’s in the season of Covid-19 must steer completely from corruption, if it has to survive.
Even as KQ wrestles with Covid-19-related issues, there were already plans to return the company to the State. The proposed State bailouts of KQ are not necessarily in good faith.
It would seem that highly placed individuals in government have possibly wanted to offload their shares and recover their funds from the troubled company. This is especially so by interested parties in local banks. These banks’ shares in KQ stand at 38.1 per cent. The government owns 48.9 per cent, while Air France and the Royal Dutch Airlines own 7.8 per cent.
About 800,000 small shareholders own another 2.8 per cent of the shares, while staff hold the remaining 2.4 per cent. An unscrupulous nationalisation of KQ could only leave a tattered shell of a company in the lap of the State. Bailout of this kind can only be a rip-off to the taxpayer.
As Kenya comes to terms with both the health and non-health implications of Covid-19, the nation must prepare to kick out both this virus and the virus of corruption. A corrupt Kenya will find it next to impossible to survive the economic effects of Covid-19.
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