CORONAVIRUS HIT ON ECONOMY

Covid-19 pandemic will wreak havoc to a feeble economy

Globally, analysts are projecting severe impacts of Covid-19 on employment

In Summary

• It is no secret that the fundamentals of our economy have been feeble, before the Covid-19.

• The pandemic will likely enfeeble the economy further and make our path to recovery both uncertain and painful, socially and economically.

President Uhuru Kenyatta signs Bill cushioning Kenyans and economy against pain of Covid-19 pandemic.
SIGNS TAX BILL: President Uhuru Kenyatta signs Bill cushioning Kenyans and economy against pain of Covid-19 pandemic.
Image: PSCU

The release of the 2020 Economic Survey might have gone unnoticed. The news media and our public conversation are overrun, dominated by the devastation of the Covid-19 pandemic.

We all remember the deep, precipitous economic collapse following the disputed elections of 2007 and the rabid violence and bloodletting that ensued. As a result, the economy grew by 0.2 per cent compared to the impressive 6.9 per cent growth in the previous year. Given the feeble, epileptic economic performance over the last five years, it is likely that Kenya’s economy will experience a modest contraction.

Here is why the Covid-19 pandemic will make our growth and economic recovery supremely complicated. Growth in the agriculture sector, the backbone of our economy, declined from 6.1 per cent in 2018 to 3.6 per cent in 2019. Maize production declined by about 11 per cent. Moreover, the manufacturing sector posted a 3.2 per cent growth in 2019 compared to 4.3 per cent in 2018.

 

Tourism and travel will be most hit by global restrictions on travel in the wake of the Covid-19 pandemic and it will take three to four years before we return to 2019 global travel levels. This is not a thrilling prognosis given that international visitor arrivals increased by 0.4 per cent in 2019 compared to 14 per cent in 2018.

According to the 2020 Economic Survey report, total exports declined by 2.9 per cent, while imports increased by 2.4 per cent in 2019 compared to the previous year. Similarly, imports by the Export Processing Zone increased by 15.8 per cent, while purchases of local goods and services declined by seven per cent in 2019. Moreover, Kenya’s financial account net inflows declined by 3.9 per cent in 2019 due to declines in net inflows of foreign direct investments.

Globally, analysts are projecting severe impacts of Covid-19 on employment. It is estimated that 33 million Americans have lost their jobs in just two months. Kenya’s economy has a checkered record of job creation.

The rate of job creation in the formal sector has declined from 5.3 per cent in 2015 to 2.3 per cent in 2019. Similarly, job creation in the public sector has declined from three per cent to 2.6 per cent in the last five years.

Our record in job creation has been characterised by fits and starts. But our capacity to create formal sector jobs is feeble and troubling. The rate of creation of formal sector jobs has declined by about 41 per cent in the last five years. Of the 846,300 jobs created in the economy, only 9.3 per cent were in the formal wage sector, and only 16 per cent of Kenya’s workforce is employed in the formal wage sector.

It is no secret that the fundamentals of our economy have been feeble, before the Covid-19. The pandemic will likely enfeeble the economy further and make our path to recovery both uncertain and painful, socially and economically.

While there is no silver bullet, reckless plunder, an outsized public sector, unbridled debt, not attending job creation and half-hearted support for manufacturing and agriculture do not define a plausible path to post-pandemic prosperity.

 

 

Alex O. Awiti is Vice Provost at Aga Khan University. The views expressed are the writer’s