FINANCIAL TURMOIL

Tough times ahead as economic growth risks falling to 1.8%

The economy grew 5.4% last year, economic survey indicates.

In Summary

• Treasury CS Ukur Yatani says the economy will grow by 2.5 per cent and could drop further to 1.8 per cent because of the coronavirus crisis.

• Companies and businesses have been forced to lay off or send employees on unpaid leave, with numbers running into thousands.

Treasury Cabinet Secretary Ukur Yatani receives the 2020 Economic Survey Report from National Bureau Statistics Zachary Mwangi at the Treasury on April 28, 2020
Treasury Cabinet Secretary Ukur Yatani receives the 2020 Economic Survey Report from National Bureau Statistics Zachary Mwangi at the Treasury on April 28, 2020
Image: /FREDRICK OMONDI

Kenyans should brace themselves for tough economic times as the National Treasury moves to downgrade this year’s growth to a possible 1.8 per cent, after growing 5.4 per cent last year.

Economic growth dropped to 5.4 per cent in 2019 compared to 6.3 per cent the previous year, the Economic Survey 2020 indicates, amid an irony of increased jobs.

Some 846,300 new jobs were created last year, compared to 840,000 new jobs in 2018.

"The informal sector is estimated to have created 767,900 new jobs in 2019 compared to 744,100 new jobs in 2018,” National Treasury CS Ukur Yatani said on Tuesday.

According to the Kenya National Bureau of Statistics, employment in the modern sector recorded a growth of 2.4 per cent in 2019 compared to 2.8 per cent in 2018.

In the year under review, 67,800 jobs were created in the formal sector.



The CS has, however, revised downwards this year’s economic growth from a previous projection of 6.2 per cent, saying it is likely to decline to 2.5 per cent and even possibly slump to 1.8 per cent.

This is on the back of the current slowdown in major sectors of the economy that have suffered the brunt of the coronavirus, with tourism, aviation, and non-food retail sectors facing the highest exposure to financial distress.

Manufacturing, chemicals, media, oil and gas, mining, and agriculture are also feeling the impact of the crisis, which has hit the local economy hard. The government has cut on its spending to channel funds towards containing the virus.

“All the sectors have been affected,” Yatani said during the release of the Economic Survey in Nairobi, adding, “There is a lot of loss of jobs."

 
 

About 5,000 people in the flower sector and more than 10,000 in the hospitality industry have so far been affected.

Tens of companies and businesses also have been forced to either lay off or send employees on unpaid leave, with numbers running into thousands.

Inflation was at 6.06 per cent by the end of March, compared to January’s 5.78. It was at 6.37 per cent in February.

Yatani said the Treasury is undertaking a survey to ascertain the impact of Covid-19. The results of the survey to be launched next week is expected out by mid-next month.

“We will be able to ascertain the impact at the household level and the economic level,” Yatani said.

Most of the economic activities have so far been slowed down by restrictions resulting from containment and cessation of sections of the population, the nationwide curfew, and the stoppage of international passenger travel.

On Tuesday, the CS said a weak global economy is likely to hurt Kenya’s exports, more so horticultural products, and the tourism sector.

The global economy was projected to remain suppressed in 2020 because of the slowdown in industrial output, weak business confidence, and increased trade tensions, even before the rapid transition of the coronavirus disease into a worldwide pandemic.

The Treasury hopes the onset of the long rains will cushion Kenyans from high food prices as they navigate through tough economic times occasioned by the virus.

Weather forecast points to a possibility of near-normal long rains in most parts of the country while most of the key agricultural zones are expected to receive slightly above normal rainfall, according to the KNBS.

However, the growth of the horticulture subsector is expected to be constrained by impacts of Covid-19, primarily suppressed external demand and increased costs of production arising from operational challenges.

Early in the year, the country experienced the invasion of the desert locusts, mostly in the arid and semi-arid areas.

“We hope food [production] is not affected,” Yatani said, wishing away the locust effects on the country’s food basket.

The restriction of movement in certain counties has significantly slowed transportation and storage, education, accommodation, and food services.

Other sectors whose activities have been constrained include manufacturing, construction, wholesale and retail trade, mining, and quarrying.

“Demand for financial and insurance services, real estate and other services are also expected to be suppressed due to the slowdown in economic activities and declining disposable incomes,” KNBS notes in its 2020 outlook captured in the Economic Survey, 2020.



Last year, key sectors of agriculture, manufacturing, mining, construction, transport and storage took a beating, with annual inflation increasing to 5.2 per cent in 2019 from 4.7 per cent in 2018, an indicator Kenyans dug deeper into their pockets to survive.

Agriculture, forestry and fishing sectors accounted for a sizeable proportion of the slowdown, from 6.0 per cent growth in 2018 to 3.6 per cent in 2019.

This was mainly on account of suppressed long rains that disrupted the normal planting season in key agricultural zones.

“The decelerated growth was occasioned by the extreme weather phenomenon characterised by drought during the first half of 2019,” Yatani said.

Similarly, growth in the manufacturing sector slowed to 3.2 per cent compared to 4.3 per cent in 2018, partly owing to a constrained supply of raw materials from agricultural activities.

The construction sector recorded a slower growth for the fourth year running, with last year’s gross value added for the sector slowing to a 6.4 per cent rise, down from 6.9 per cent in 2018.



The KNBS survey has attributed the decelerated growth to the gradual cessation of activities related to the construction of the standard gauge railway that was completed in the year under review.

The mining sector equally experienced a drop as most of the major minerals recorded a decline in quantity produced during the review period. Earnings from crude oil produced were Sh1.5 billion in 2019.

The Information and Communication Technology sector also slowed down, growing by 8.8 per cent in 2019 from 11.3 per cent in 2018.

Tourism, accommodation and food service activities were among the few vibrant sectors, in spite of pockets of insecurity concerns experienced during the year under review.

Growth in tourism was supported by heightened security, relaxation of travel advisories by governments of key tourism markets and political stability that prevailed in the country.

Performance in service activities was boosted by accelerated growth in financial and insurance services (6.6 per cent) and real estate (5.3 per cent).

Growth in the number of jobs created leaves a lot to be desired, the country, mainly the private sector, witnessed a massive lay-off.

Top on the list were betting firms SportPesa and Betin, which closed up shop over tax issues with the government, cumulatively sending home more than 652 employees.

The East African Breweries Limited laid off 100 employees, East Africa Portland Cement 520 workers, Telkom 575, while startup Andela fired 175.

Stanbic Bank Kenya offered voluntary early retirement as it sought to eliminate at least 255 employees. Other companies were Sanlam Kenya and Ola Energy.

(Edited by F'Orieny)