COVID-19 ON KENYAN ECONOMY

Boost and expand cash transfer program during coronavirus lockdown

Urging Kenyans to go on lockdown without providing a safety net is not very wise.

In Summary

• In any event, Kenya is dealing with a crisis. The cash transfer is not meant to be permanent.

• With offices, factories and other forms of economic activities closing, sharp economic problems will start manifesting in Kenya soon.

President Uhuru Kenyatta at State House, Nairobi where he received the initial report of the National Emergency Response Committee on coronavirus.
President Uhuru Kenyatta at State House, Nairobi where he received the initial report of the National Emergency Response Committee on coronavirus.
Image: PSCU

I take this opportunity to thank the government for the good work it is doing to manage the current coronavirus crisis.

It is clear the government is making every effort to ensure Kenyans are safe and healthy.

However, the economic problems arising out of this lockdown will linger.

With offices, factories and other forms of economic activities closing, sharp economic problems will start manifesting in Kenya soon.

Whereas every leader is urging Kenyans to ‘stay at home’, few have taxed their minds on how the majority of Kenyans will survive during the lockdown.

Whereas a ‘lockdown’ is currently the standard response to the pandemic in most societies, Kenya (and third world in general) must take into account the local dire economic situation that precedes the crisis.

It is important to compare Kenya’s economy with that of other countries effecting coronavirus ‘lockdown’.

The average wealth of a Kenyan as measured by Gross Domestic Product per head is 1,507.81 USD (2017).

Compare this to badly hit  Italy’s  31,952.98 USD (2017) or Spain’s 28,156.82 USD (2017).

These two countries can always tap on emergency European Union resources.  

Whereas in comparative terms  China GDP per capita of 8730.00 USD (2018) seems modest, it’s sovereign wealth fund held by China Investment corporation is worth US$941 billion in assets.

It is now the second-largest sovereign fund after Norway’s.

It can always tap on the fund in times of crisis like this one.

Kenya does not have such a fund.

Its Sovereign Wealth Fund Bill, which was mooted due to the stillborn oil boom of Turkana, is still stuck in the National Assembly.

Whereas calls for lockdown in Kenya are good, it must be understood that this means more poverty and penury.

A balance between necessity for lockdown and economic needs of Kenyans must be obtained.

This calls for application of Keynesian economics, named after  British economist John Maynard Keynes.

His theories were about how in the short run – and especially during crises – economic output is strongly influenced by aggregate demand (total spending in the economy).

Keynesian economics was developed during and after the Great Depression from the ideas presented by Keynes in his 1936 book, The General Theory of Employment, Interest and Money

Keynes contrasted his approach to the aggregate supply-focused classical economics that preceded his book.

His approach served as the standard economic model in the developed nations during the later part of the Great Depression, World War II and the financial crisis of 2007–08 in the West.

Keynesian economists state market economy often experiences inefficient macroeconomic outcomes in the form of economic recessions (when demand is low) and inflation (when demand is high), and that these can be mitigated by economic policy responses, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, which can help stabilize output over such cycles. 

This calls for a managed market economy – predominantly private sector, but with an active role for government intervention during recessions and depressions.

In Kenya under this crisis, my remedy would entail boosting and expanding the current cash transfer programme.

Currently, the programme targets old persons aged over 70 years.

I propose expanding it and targeting all households that have been categorised by 2019 Kenya Population and Housing Census as low income.

Such households should get cash transfers for two months assuming the problem linger for that period.

As per the 2019 census, Kenya’s population is 48 million and has about 12 million households. I assume every household has four persons.

The Institute of Economic Affairs estimates about three million Kenyans are in the formal sector.

Add another two million Kenyans who are in the informal sector but are doing well.

These can be excluded and hence households within the low-income bracket can be estimated to be seven million.

A cash transfer of Sh10,000 per every low-income household would thus translate into Sh70 billion.

For two months, that would translate into Sh140 billion.

Such a figure is not huge. It is far less than the money allocated to either infrastructure or security ministries.

Parliament can be convened urgently to reallocate money for this fund.

Various issues may be raised in regard to this approach.

Criticism for such transfer includes the argument that some recipients would spend it on alcohol and other drugs.

However, studies of the impact of other direct cash transfer programs provide evidence to the contrary.

A 2014 World Bank review of 30 scientific studies concludes: "Concerns about the use of cash transfers for alcohol and tobacco consumption are unfounded".

Another argument against such a transfer would be that if people have free and unconditional money, they would "get lazy" and not work in the future after the crisis. 

They may view the transfer as a perpetual entitlement.

Critics argue that less work means less tax revenue and hence less money for the state and cities to fund public projects.

A recent study of the Alaska Permanent Fund Dividend—the largest scale universal basic income program in the United States which has run since 1976—seems to show this belief is untrue.

The researchers—Damon Jones from the University of Chicago Harris School of Public Policy and Ioana Marinescu from the University of Pennsylvania School of Public Policy and Practice—maintain that although there is a small decrease in work by recipients in some cases, there was been a 17 per cent increase in part-time jobs.

In any event, Kenya is dealing with a crisis. The cash transfer is not meant to be permanent.

Another possible merit of this would be the promotion of gender equality.

Such an initiative should take account of all gender inequalities and not just transfer cash to men as heads of households but it should promote gender-neutral transfer.

Such a transfer would be a much simpler and more transparent system than other interventions that would benefit either the rich (for example, recent directions on loans by CBK) or the corrupt state officials (food reliefs ).

This could require less paperwork and bureaucracy to check eligibility.

Identifying actual recipients is easy. Mobile phone service providers possess important data for most Kenyans.

Huduma numbers registration process did capture household data for the majority of Kenyans.

These two types of data (Huduma and mobile phone) can be harnessed to map out recipients.

Otherwise, urging Kenyans to go on lockdown without providing a safety net is not very wise.

Senator Irungu Kangata is the Muranga County Senator and Deputy Chief Whip-Senate