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Hope as clouds over economic growth scatter

By Macharia Kamau | October 17th 2020 at 12:00:00 GMT +0300

Julius Kimani, a tomato trader at Marikiti Market in Nairobi.

The country witnessed its darkest three-month period between April and June when it closed for business, resulting in the economy shrinking by a staggering 5.7 per cent.

As a result, a record 1.7 million people lost their jobs as hotels, restaurants and schools remained closed.

Flights in and out of the country were also restricted, negatively impacting the aviation and hospitality industries.

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A dusk-to-dawn curfew, from 7pm to 5am, meant people had a shorter window to conduct business as the government tried to minimise social interactions to tame the spread of coronavirus. 

Movement into and out of four counties, including the capital city, Nairobi, was curtailed. This not only affected the transport sector, including the Standard Gauge Railway, it also hampered the flow of money.

Passenger service vehicles were directed to reduce the number of passengers by half thus slashing earnings in the sector. Some employers asked their workers to operate from home leading to a steep drop in spending.

Although measures were put in place to increase the supply of money in circulation, banks stopped lending due to fears they would lose their money in the volatile economy. Investors also tightened the purse strings in what was an unpredictable environment.

“The poor performance in the quarter was characterised by substantial contractions in accommodation and food services, education, taxes on products, and transportation and storage, which consequently occasioned the significant downturn,” said the Kenya National Bureau of Statistics in a report on Thursday.

Other hard-hit sectors included accommodation, which contracted by 83 per cent, education (56.2 per cent) and transport and storage (11.9 per cent). Manufacturing, a critical pillar of President Uhuru Kenyatta’s Big Four agenda, shrunk by 3.9 per cent.

The economy was, however, supported by sectors such as agriculture, health, construction and ICT. A few of these posted higher growth when compared to their performance over a similar quarter last year.

Kuria Kamau, Stanbic Bank’s economist for Kenya, noted that the poor economic performance was expected and it mirrored performance by other economies. He, however, added that the economy has been on an upward trajectory over the third quarter that ended September.

Contractions

“The performance of the Kenyan economy over the second quarter was largely in line with what we are seeing in Africa... we have seen a lot of contractions at least in the second quarter because it was the epi-centre of the pandemic particularly April and May when the lockdown measures were put in place.

“The big surprise was on education, which contracted much more than it was expected to. The decline of accommodation was largely expected based on the lockdowns and other measures,” he said.

Kamau added that the economy has started showing signs of recovery, supported by sectors such as agriculture, construction and ICT. “There is a bit of confidence coming back which is seen in the activity over the third quarter.”

Sam Nyandemo, a University of Nairobi senior economics lecturer, said that while Kenyans need to acknowledge that the economy is in a recession, the economy has certain firm fundamentals that will enable it bounce back fast. This follows the gradual easing of measures the Government had put in place to control the spread of the pandemic.

“We need to come to terms that we are in an economic recession because of the serious impact of Covid-19, which translated into lockdowns that in turn affected both internal and international transactions. It also slowed down economic activities within the Kenyan economy resulting to the shrinking of economic activities and led to the abnormal downward performance,” Nyandemo said.

He added that he expects horticulture, construction, infrastructure and manufacturing to be key drivers in resuscitating the economy.

But Nyandemo cautioned that politics of the day could derail the recovery. “It remains the duty of the government to cool down the political temperatures to enhance growth.”

Gloomy as the second quarter was, it could have been worse were it not for a few sectors that propped up the economy. These include mining and quarrying, which grew by a significant 10 per cent, as well as agriculture and public health.

“The overall performance during the review quarter was cushioned from a deeper slump by growths in agriculture, forestry and fishing activities (6.4 per cent), financial and insurance activities (4.2 per cent), construction (3.9 per cent), health services (10.3 per cent), public administration (5.7 per cent), real estate activities (2.2 per cent) and mining and quarrying activities (10 per cent),” the KNBS report said.

Agriculture stood out as among the sectors that posted higher growth this quarter (6.4 per cent) compared to a similar quarter last year (2.9 per cent). KNBS noted that the sector’s performance was supported by a notable increase in tea production, sugarcane deliveries, milk intake and fruit exports.

When the country announced its first case of Covid-19, the following months were brutal for Kenyans. The slowdown in economic activity saw small businesses suffer with many closing down due to low demand for their products while the larger ones embarked on mass layoffs in a bid to stay afloat.

In the three months to June, more than 1.7 million Kenyans lost their jobs, according to recent data from KNBS, while the number of unemployed Kenyans shot up by more than half to 4,637,164 between April and June, from 2,944,724 in the January-March period.

The number of economically inactive Kenyans — which also includes the sick, students and retirees — increased by one million to 9,774,700, according to KNBS.

Majority of those who fell out of the labour market were young people aged between 20 and 34. About 904,147 youth fell out of work while the number of those aged 35 and above was 816,439.

A separate household survey by KNBS showed many Kenyans are struggling to pay rent or put food on the table due to reduced income. At the same time, experts have warned the pandemic could see an increase in mental illness cases as anxious Kenyans remain jobless and with limited options.

The World Bank projects the Kenyan economy to grow by 1.5 per cent from an average growth of 5.7 per cent between 2015 and 2019. This is, however, a best-case scenario, with the bank adding a rider that “if it takes longer than expected to bring the Covid-19 pandemic under control, GDP could contract by one per cent in 2020, and see a delay in the projected recovery to 5.2 per cent growth in 2021.”


World Bank Economy
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