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Lockdowns , the informal sector and the prospects of the Kenyan Economy

By XN Iraki | Apr 3rd 2021 | 5 min read
By XN Iraki | April 3rd 2021
President Uhuru Kenyatta

The lockdown of five counties came on the heels of a big rise in fuel prices and uncertain rains. Can our economy absorb such shocks? I have no doubt that Kenyans would get a Nobel prize on resilience if such an award was ever given.

The number of employees in the informal sector is the best evidence of our resilience. In Kenya, 83 per cent of the citizens work in the informal sector. It seems a global phenomenon. International Labour Organization(ILO)  in 2018 gives some interesting statistics, “ In Africa, 85.8 per cent of employment is informal. The proportion is 68.2 per cent in Asia and the Pacific, 68.6 per cent in the Arab States, 40.0 per cent in the Americas and 25.1 per cent in Europe and Central Asia. “  There is no continent without hustlers.

The ILO report debunks a myth that women are more represented in the informal sector, it adds, “Informal employment is a greater source of employment for men (63.0 per cent) than for women (58.1 per cent).” In Kenya?

This informality might have shielded lots of economies from covid -19 shocks. The reaction of informal sector to economic shocks is more muted than the formal sector. Who is more worried over the covid-19? The rich and affluent or the poor? You can guess by checking who is hoarding gas cylinders.   Formal or developed economies suffered faster and sharper GDP growth rates declines compared with informal ones. They have more efficient systems that react to new information faster.    That does not mean we celebrate poverty. 

One of the unintended consequences of covid -19 is demonstrating the importance of the informal sector as the driver and saviour of the economies. Hustlers are our new heroes.

The covid -19 pandemic third wave hit with vengeance, as the virus fought back through mutations. That has necessated the lockdown of five counties, seen as epicentres. The lockdown and high fuel prices will slowdown the economy. Casual observation shows reduced traffic jams except for drivers rushing to beat the curfew hours.  Could we collect less revenue from fuel taxes as a result of that fuel price hike? KRA ?

The locked counties contribute 38 per cent of our GDP which increases the prospects of an economic decline. Remember these counties are not islands. Last year’s lockdown was coupled with a stimulus package and low fuel prices. We got a  growth rate of about 1 percent.  The rains were good with low food prices holding down inflation. Let us pray for the rains.

The first lockdown lasted for about 4 months from March 15 to July 7th 2020. It covered two key cities, Mombasa and Nairobi. By extrapolation, if the second  lockdown  goes for the same period of time we could lose another  year.” I would half the 2021 GDP growth to 2.5 percent down from around 5 projected by African Development Group.  Did you notice things were just picking up with schools open and tourism reviving when the second lockdown came ?  UK ban of flights from Kenya is not good news. How will the rest of the world affect our economic recovery?

It’s the memories of the first lockdown that is upsetting Kenyans. They know both the health and economic ravages of covid-19. Like the government, they have to make a choice, heath or their economic livelihood. Most citizens going by the first lockdown had chosen economic livelihood.  Fortunately, the first wave was not that serious, we feared and followed directives, then relaxed leading to the second and third wave.

The government has made its decision; our health then the economy. The national anger is arising from  the fact that government priories are not citizen priorities. Remember majority are in the informal sector.

If you are keen you find that lobby groups like the Kenya National Chamber of Commerce are not pro- lockdown. Its members have tasted the fruits of an economic turnaround.

The anger over lockdown is emanating from another source, vaccine. Many are asking why we should go for a lockdown just when the vaccine became available. Conspiracy theorists opine there is a connection between the second lockdown and vaccines; lockdown forces us to take vaccines. The truth will one day be known

Paradoxically , the third wave could have resulted from vaccines as we became ccomplacent. Economic recovery as a result of vaccine discovery led to more travel,  interactions and spread of the virus. The anticipated   return to normalcy as vaccines are rolled out has upped the demand for oil leading to higher oil prices. But our high oil prices can’t be entirely explained by vaccines.

We hope that each wave has a smaller crest and the waves are dying out. The best way to damp the waves , borrowing from physics is to vaccinate a critical number of citizens as soon as possible. Lockdowns have not worked well, each is followed by a spike in cases after opening.

That is why the private sector should complement government efforts in vaccination. We also need choices of vaccines, not just one. I would love a single jab without waiting for second visit to a vaccination centre. We have no luxury of time. This is a war; in fact, the economic decline from covid -19 mimics the economic decline during  WW I and II.

We lost 2020, we can’t afford to lose 2021. Let’s spare a thought for the next generation as we make our decisions. They’ve to finish school and start working. A declining economy is not good for them. We have tried lockdowns and seen their effects , we have never tried a 24 hours economy. This would not only disperse the crowds, but increase the productivity capacity of the economy, doing more with what we have , time.

We can say it more loudly, a stimulus package is needed particularly with high fuel prices. We can improve on the stimulus package after the first lockdown. Did it work ? Did we save the money or spent it and stimulated the economy?

If we can wake up at 4.00 am to vote for a government, it’s only logical for us to get a payback. After all, government come in when markets fail. Covid -19 has failed the markets . Such a stimulus package on top of Kenyan resilience would put us back on the path to economic progress. 

With our ingenuity, creativity and innovativeness, we can save both lives and the economy; we need both.

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