OPINION ARTICLE: BY ELIUD OWALO
Our beloved country Kenya is in the grip of multiple socio-economic crises of unprecedented proportions. Never since Independence have we had to juggle between such concurrent and parallel critical threats to our well-being as a nation, all coming together amidst extremely challenging economic times. Currently our Health, Wealth and Well-Being as a Nation are under critical threat by the corona virus pandemic. This comes at a time when we are yet to resolve yet another significant threat to our food security, the desert locust invasion.
The Government of Kenya should be lauded for the efforts it has made thus far in responding to the corona virus. Commendable mitigation measures initiated so far include: restricting entry into the country to Kenyan citizens and residents only and requiring entrants to self-quarantine; advising on health and hygiene measures including hand-washing, social-distancing and usage of masks; enhanced testing internally and at various points of entry into the country; suspension of learning in all educational institutions; advising Kenyans to use cashless transactions; restricting unnecessary public congregations; closing open-air markets in various counties; closure of morgues and requiring burial within 24 hours of the dead bodies in various counties to avoid unnecessary and lengthy congregation; recommendation that both public and private sector entities allow their employees to work from home; and restricting non-essential travel both locally and internationally.
However, it is my considered believe that more can be done through a collective and unified national effort with a 360-degree view of the problem. As with every prescription; the side effects of the interventions by the Government have to be carefully managed lest we cure one disease, the corona virus, but create yet another more deadly disease to replace it in the form of an economic meltdown. This would become a case of the medication becoming more adverse than the disease itself. For example, whereas the Government has put in place requisite emergency measures to reign in the corona virus pandemic, otherwise referred to as the COVID-19, the measures have the potential to occasion an economic downturn of disastrous proportions unless parallel and concurrent measures are put in place to stabilize the economy, cushion ordinary Kenyans and minimize the effects of containment of the virus on the economy.
With the projected rise in infections in Kenya and worldwide we anticipate that the Government of Kenya and others globally will take even more stringent measures to protect their citizens and stem the spread of the virus. These measures will potentially lead to partial and in extreme cases total lockdown in various countries and Kenya may not be an exception. Already, the effects of the corona virus pandemic and the resultant measures against it are causing debilitating effects on the economy.
Cases in point include the following; The Nairobi Securities Exchange (NSE), was hit as soon as the first case of corona virus was reported in Kenya with panicked investors making indiscriminate sale of shares resulting into total market capitalization shrinking by Ksh.120 billion in one of the largest declines in a single day in the history of the Nairobi Securities Exchange. By March 16, the NSE wiped off more than Ksh.500 billion in paper wealth for investors. The tourism industry which in 2018 earned Kenya Approximately Ksh.157 Billion while employing 1.1 Million Kenyans directly and indirectly is expected to experience significant losses in jobs and revenue given the measures already taken by the government in shutting down borders and restricting entry in an attempt to lock out the virus and slow down transmission. The 30-day ban on all conferences of international nature and those that have more than 15 participants will further impact the performance of this sector. Several counties including Mombasa and Nyeri counties have banned nightclubs and social gatherings, while several beaches have been closed as well. Already several hotels, lodges, tour operators, restaurants, entertainment centers and recreational facilities are reporting closures, limited operations and inevitably job losses anticipated to be in their thousands.
With most countries locking out airlines from countries that have reported cases of the corona virus; the aviation sector will also be significantly affected. Kenya Airways for example has been forced to stop or in cases limit flights to China, Rome, London, Paris, USA, Geneva, South Africa and all other countries that have already reported the virus and estimates that it is losing at least Ksh. 800 million a month, noting that the situation could change more dramatically in coming days as more restrictions in global travel materialize. This will also have a significant hit on various sectors of the economy including importers, exporters, tourism and availability of essential goods including medicines and other supplies not to mention the knock on effect of job losses and price hikes necessitated by resultant shortages.
In the period between 12th – 16th March 2020, more than 37 cargo ships that supply goods to Kenya and the rest of the region had failed to dock at the Mombasa port, having cancelled their arrivals. Mombasa is the gateway through which Kenya, Uganda, South Sudan, Rwanda, Burundi and parts of Tanzania, Ethiopia and the Democratic Republic of Congo (DRC) import their goods. This is likely to see a surge in prices of consumer goods including critical supplies such as medicines in the entire region. It will also impact clearing and forwarding businesses, the transport and warehousing sectors among others, which will also potentially lead to business closures and job losses.
The suspension of learning in Kenya’s approximately 50,000 learning institutions with a student enrolment of about 18 Million and 350,000 Teachers and Lecturers supports millions of businesses that provide supplies to about 18.5 Million students. They risk losing their livelihoods apart from the obvious disruption to learning in our institutions.
Flower exports from Kenya to the EU markets have dropped by fifty percent in the last couple of weeks due to the financial crisis caused by the Corona virus. There are over 100 flower farms in the country which directly employs over 200,000 workers. This decline in demand has occasioned losses of over 1,000 jobs in the flower farms in Naivasha alone. This will inevitably have a ripple effect on other supporting sectors such as agro-chemicals, transportation, and cargo services. The mass closure of open-air markets countrywide also spells disaster for millions of ordinary village folk, farmers and households who rely on these markets not only as a source of livelihood but also as a source of food and daily supplies.
The list of the sectors of our economy impacted by the corona virus pandemic is inexhaustible but just to summarize other often overlooked sectors like the boda-boda sector which is estimated to comprise close to 500,000 motor bikes transporting an estimated 14.4 million people every day with earnings averaging about Ksh. 400 million in a day which translates to Ksh.146 billion annually. Job losses in this sector would potentially impact millions of Kenyans. This is not to mention farmers, fisherman, construction workers, water vendors and many others whose livelihoods will be affected by the COVID-19 Impact.
It is therefore clear that the Corona Virus pandemic poses a significant existential threat not only to the physiological health of Kenyans but also to the economic well-being of all sectors of our economy and society at large and the effects are projected to be far reaching with devastating impact upon our livelihoods. According to the Kenya National Bureau of Statistics, Kenya’s active working population employed in the formal sectors comprises about 17.9 Million Kenyans out of which approximately 6.5 Million are part-time, casual or seasonal workers who are at high risk of lay-offs as a result of the corona virus instigated economic downturn. There is another approximately 7.1 Million informally employed Kenyans engaged in the traditional economy who directly or indirectly supply goods and services to the formal sector and households. They too risk losing their livelihoods due to depressed demand for goods and services or due to restrictions in place to control spread of the virus.
Based on the above situation analysis, it is my hypothesis that between 30% – 50% of Kenyans fall into the high risk category that could lose their economic livelihoods or be adversely affected as a result of the Corona Virus Pandemic to the extent that will require government interventions in the form of an economic rescue package. Apart from the economic impact on Kenyans directly, the companies and organizations that provide goods and services, employment and pay taxes to the exchequer will also be greatly affected.
Several countries have already recognized the negative economic impacts of the corona virus on their citizens and constructed safety nets to reduce its severity. Countries like the USA, the United Kingdom, Japan, Italy, Germany and Japan have put rescue measures in place focused on their citizens directly and stimulus packages of tax rebates and incentives to stimulate their economies and save their countries from a financial crisis. Some of these measures include; financial, salary and credit support for small and medium sized enterprises, increasing unemployment benefits for those that are laid off and tax breaks for corporates.
Considering the magnitude of the problem in Kenya, potentially affecting up to 50% of the population adversely, I urge the Government of Kenya to urgently come up with a rescue plan and an economic stimulus package. As responsible citizen; I hereby make feasible suggestions on how the impact of interventions to the corona virus pandemic can be effectively-managed.
One, I propose enhancement of the national capacity for e-commerce. To minimize movement and physical interactions whilst retaining delivery of goods and services to the populace and keeping businesses afloat, to facilitate ‘reduced physical contact’ trading and delivery of goods and services by tested and health certified personnel operating under protection. This would minimize movement yet keep the economy vibrant.
Two,I propose increased countrywide internet access. According to the Communications Authority of Kenya, mobile phone penetration stands at 100.1 per cent in Kenya.[Number of Active Sim-Cards vs. the Total Population].Universal mobile phone penetration backed up by 89.7% active Internet users as of Jun/2019, E-Commerce is viable for a large part of Kenya’s population. The government should therefore consider incentivizing telecommunications service providers to significantly lower the cost of internet services and cloud hoisting to increase nationwide access.
Three, I propose enhancement of the national capacity for e-learning. To reduce student’s exposure whilst retaining delivery of quality education, the government should equip schools with e-learning facilities or alternatively centralize the service within the Ministry of Education and make it accessible to learners by increasing internet access countrywide in collaboration with telecommunications services providers as already stated above.
Four, the Government should cushion low income earners. There are approximately 6.5 Million workers who are either casual, seasonal or part-time employees in the formal sector and another 7.1 Million informally employed Kenyans engaged in the traditional economy who directly or indirectly supply goods and services to the formal sector and households. The majority of these approximately 14 Million Kenyans are low income earners who live in informal settlements or rural settings and are at the highest risk of losing their livelihoods as a result of a corona virus instigated economic downturn.
Five, I propose the following measures to cushion the economy against adverse effects; Adjust tax threshold upwards in the short-term to increase take home salaries of low income earners; subsidize maize millers and producers of essential foodstuffs and other commodities to offer them at highly subsidized rates to retain consumer affordability of essential commodities; Incentivize petroleum producers and marketers to bring down the cost of fuel that creates a knock-on effect to reducing the cost of transport and manufacturing and hence lower the price of manufactured goods; offer tax-breaks or waivers to employers to eradicate possible lay-offs; lower interest rates to reduce the cost of borrowing and encourage uptake of loans; undertake free screening of corona virus in high density population areas; and provide social workers in the informal settlements to assess the state of well-being of residents of informal settlements and other vulnerable groupings. The tax cuts should target high employing sectors such as manufacturing, construction, education, tourism, wholesale and retail, communication and telecommunication. Equally, I propose that the Government considers allowing companies to retain VAT remittances during a specified period to be used to support payroll expenses and cushion against job losses; defer remittances of employee income taxes to also support payroll expenses and spur growth and increased investment; incentivize banks to put moratoriums on loans or offer debt-restructuring or deferment during the crisis period; and consider reduction of corporate tax from 30% to 15%.
Six, it is my considered opinion that any intervention by the Government to avoid job losses and keep the private sector afloat must make SMEs central to such a plan because they employ more than 80% of the working population in Kenya and play a central role in the country’s economic growth. It is on this premise that I propose that apart from lowering interest rates and offering SMEs the tax breaks already discussed above; the government should additionally consider a loan guarantee scheme for SMEs to enable them gain access to fast and affordable credit to support operations and cushion them against the expected economic downturn.
Seven, the various levels of government should revise their budgets to cut down on non-essential spending and redirect their expenditure to stabilization of the economy against the backdrop of an anticipated economic downturn occasioned by the corona virus pandemic. The savings realized can be used to fund the economic stimulus programs in this proposal. For Example the auditor general reported that in the 2018/2019 financial year all the 47 devolved units spent a total of Ksh.16.2 billion on foreign and local travel while during the same period the national government spent nearly Ksh.12 billion on both local and foreign trips during the first nine months of the 2018-2019 fiscal period. This totals approximately Ksh.28 Billion. Such expenditure among other non-essentials is unwarranted and can be redirected to fund a stimulus package.
I now wish to conclude with a famous quote from Frances J. Berigan who once said that; ‘Citizens do not measure development in such abstract indexes as gross domestic product or gross national product. Consciously or unconsciously they measure development in terms of the defenses you have constructed against their most natural adversaries such as hunger, ignorance poverty and disease’.
Eliud Owalo is a Management Consultant specializing in Strategy’ formulation, implementation and control.
