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Kenya's economy recovering amid Covi-19 effects

FINANCIAL STANDARD
By Dominic Omondi | February 23rd 2021
Muted recovery seen in increased manufacturing output, reopening of schools, slight reduction in unemployment rates and improved consumer spending.

It was the legendary Greek philosopher Aristotle who said that man is by nature a social animal.  

This maxim held until the novel coronavirus disease started to spread like wildfire from its Wuhan epicentre in China, with Kenya reporting its first case of the deadly disease on March 13, last year.

Spooked by a virus that was horribly stretching the healthcare systems of developed countries, Kenyans locked themselves indoors.

Schools were closed and offices were abandoned. The doors of bars and pubs and restaurants were bolted tight. Sidewalks in cities and towns were deserted as the characteristic din of marketplaces fell silent.

April was perhaps the darkest month in the country’s recent history, so much so that even April Fool’s Day, a day of pranks and practical jokes, went unnoticed. There was just no time to fool around as a deadly virus that was taking lives and destroying livelihoods with abandon took hold.

Kenyans venture out

But by December 2020, with the fear of succumbing to the deadly virus receding and being replaced by that of dying from hunger, Kenyans thought it was time to venture out.

A poll that was done in August 2020 by Twaweza, a non-governmental organisation, found that seven in 10 Kenyans named negative business and economic impacts when asked about the impact of Covid-19, compared to just a quarter who said they feared contracting the virus itself. 

This, coupled with friends and families growing fonder of each other after a long period of separation, saw Kenyans revert to the earlier described Aristotelian disposition of being social.

So, when some of them were let loose by their employers during the festive season, they bundled into their cars, swarmed around various bus stations, or booked air tickets to visit their loved ones in different parts of the country.

This saw the consumption of super petrol, which powers the engines of most vehicles on Kenyan roads, jump to an all-time high of 145,290 tonnes, official data shows.

Skies open up

The lifting of the ban on domestic and international passenger flights in September 2020 saw a lot of the wealthy take to the skies, with the quantity of jet fuel consumed by aeroplanes in December rising more than six-fold to 40,260 tonnes compared to 6,320 tonnes in April.

The passenger services on the Standard Gauge Railway (SGR), which had also resumed after a two-month hiatus in May and June, saw 128,922 people use the train in December on the Nairobi-Mombasa route.   

While a lot of urban dwellers visited their relatives in the countryside, a few went on vacation, boosting the tourism sector which had been hit the hardest by the adverse effects of Covid-19.

They flocked into various hotels around the country, particularly at the Coast, pushing up bed occupancy rates to 26 per cent from a low of 10 per cent in May, according to a perception survey by the Central Bank of Kenya’s Monetary Policy Committee (MPC), the apex lender’s highest decision-making organ.

A month later, bed occupancy rates declined slightly to 21 per cent as the people who had travelled for Christmas festivities returned home, respondents who included CEOs and senior employees of 120 hotel enterprises told CBK.

A surge in the movement of people was accompanied by an increased flow of money in the economy, with the total cash supply nearly reaching Sh4 trillion in the last month of December 2020.

In the period under review, cash outside the banking system hit a record Sh233 billion, while the value of transactions on mobile phones hit an all-time high of Sh605.6 billion.

The value of card payments on ATMs, credit cards, debit cards, and POS (points of sale) machines also rose to an all-time high of Sh70.9 billion, a 15 per cent increase from Sh61.7 billion in November and nearly double the transactions in April.   

Although economist Ken Gichinga of Mentoria Economics, a consultancy, does not agree that the increased supply of money in the economy necessarily means that it is reaching all places, he reckons increased mobile money transactions cushioned the economy.

More money meant more transactions. At the height of the pandemic, global supply chains were broken as countries went into lockdown.

This disrupted importation of most commodities. It proved devastating given that most of the goods consumed in Kenya, either as inputs or finished products are imported, from mitumba (second-hand clothes) at Gikomba Market in Nairobi to aircraft parts.

In December, the value of imports rose to Sh161.5 billion, the highest level in 31 months.

And, a good chunk of the imports included petroleum fuels that were used to power the movement of people, which, in turn, translated into increased economic activities.

Muted recovery seen in increased manufacturing output, reopening of schools, slight reduction in unemployment rates and improved consumer spending.

Increased output

Tony Obare, who imports electronics, said while demand has gone up compared to the April-May period last year, there are still problems with higher shipping costs and products taking long to arrive.

“When schools reopened, movement and businesses have been rekindled. Things are normalising,” said Obare.

Abubakar Kidole, who sells second-hand clothes at Gikomba Market, said business is now back to normal after a tough period last year.

Popular opinion has been one of singling out the back-to-back negative economic growth and calling it a recession - a notion that has been disputed by several economists.

Mark Bohlund, a senior credit research analyst, said according to the most common definition of a recession that describes it as two consecutive quarters of negative growth seasonally adjusted quarter-on-quarter, Kenya’s situation does not qualify as such.  

There has been a significant pick-up in economic activities from July, a situation that has been reflected in increased output and employment levels.

True, the economy did shrink in the third quarter by 1.1 per cent, but it was a significant improvement from the previous contraction of 5.5 per cent, with sectors such as electricity and water supply, transport and storage moving from negative to positive growth.

Others such as tourism, education, manufacturing, and transport remained in the red, but the contraction was much smaller compared to the second quarter. Employment levels returned to the pre-Covid-19 levels, with 63.9 per cent of Kenyans in the working-age saying they had a job in the third quarter of 2019, helped by such vocations as Kazi Mtaani as well as other activities by the government.

In the second quarter last year, employment stood at 57.7 per cent.

Unemployment, by the strict definition of people who have been looking for work and have not found one, declined to 7.2 per cent in the period between July and September last year from 10.4 per cent in the second quarter.

However, it was still high compared to 5.3 per cent in the third quarter of 2019.

A survey done by the Kenya Association of Manufacturers (KAM) showed that about four in 10 of the surveyed firms had a positive outlook of the economy in the first quarter of 2021, compared to 17 per cent of surveyed manufacturers who expect a negative performance over the same period.

Experts, however, reckon the economy is still far from realising its full potential. Scholastica Odhiambo, an Economics lecturer at Maseno University, said while the macro-economic indicators look strong, households are still struggling, with many companies yet to recover.

“When more people are still out of jobs, the fundamentals of an economy - production and consumption - suffer,” said Odhiambo, adding that with the prices of goods on the shelf rising, the purchasing power of households is eroded.

Mentoria Economics’ Gichinga noted their analysis showed that the economy was still at the pre-Covid-19 performance of 40 per cent, which means there is a huge chunk of it that is still inactive.

He, however, agreed that there was some recovery taking place, although employment numbers are still “soft.”

“A lot of this consumption is towards household goods and things that are for day-to-day,” said Gichinga, noting that for the economy to move, there is a need for increased investment in capital goods.

Nonetheless, there has been more optimism from the industry captains, buoyed by the reopening of schools, which is expected to increase consumption across value chains in education and other sectors such as transport, retail and financial services.

The World Bank, in a recent report, noted that a rebound in economic growth this year was dependent on the resumption of learning.

Most forecasters expect the economy to grow by over six per cent this year, helped by agriculture and education.

Moreover, CEOs reckon that a decline in Covid-19 infections and expectations of a vaccine will improve business confidence and boost economic activity.

But they are also wary that economic activities may be moderated by an escalation of Covid-19 infections as new variants emerge, curfew hours are extended and disposable incomes are reduced following the implementation of tax reversals.

But this wave of optimism was barely there last April when experts, including the World Health Organisation (WHO), vacillated over the effectiveness of healthy individuals wearing a medical mask. 

The United Nation’s agency said face masks were to be reserved for health workers. The use of medical masks in the community, said WHO in a guideline, may create a false sense of security resulting in neglect of other essential measures “such as hand hygiene practices and physical distancing and may lead to touching the face under the masks and the eyes”.

WHO was also worried that the use of face masks by the public might result in unnecessary costs as essential health workers run short of supply.

Thus, the only remaining solution for countries was to adhere to social distance rules that turned every stranger into a Covid-19 suspect.

There were longer dusk-to-dawn curfews that started at 7pm and ended at 5am, effectively ending the country’s nightlife.

Although official data shows that over 80 per cent of Kenyans ply their trade in the fragile informal sector where their physical presence is required, the mantra then was “stay home, stay safe.”

Even worse, some counties closed down open-air markets, not only threatening to ignite a food crisis, but also rendering millions jobless.

Thus, when numbers came out for economic and employment performance for the period between April and June, over 1.7 million people had lost their jobs.

A lot of Kenyans said they could not pay rent and even had trouble putting food on the table. But this is slowly changing as the economy reopens.

However, the continued existence of the dusk-to-dawn curfews and the increase in political noise is likely to dampen growth.

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Covid 19 Time Series

 

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