Today from Hiiraan Online:
Kenya’s Ecomonic Woes During Global Pandemic
By Mohamed Hussien
Monday 29 June, 2020
Downtown at night - Nairobi, Kenya - CREDIT: Yonko Kilasi
In the lead up to the June 6th Uhuru address to the nation, many Kenyans shared memes jokingly asking the president to lift the curfews. Others were far more serious and downright begged for their freedoms with the BBC reporting some citizens saying, “Mr President, we beg you - please, please set us free!". Following the announcement, President Kenyatta warned that the huge impact the coronavirus was having on the country could only be worsened by the full lifting of the restrictions in place that could lead to more harm in the long run and in lieu extended the lockdown period. The ominous calls of the common Mwananchi (citizen) prelude to a far more serious economic crisis facing Kenya.
The coronavirus pandemic has been projected to have the potential to cause a global economic recession thus far resulting in adverse economic climate in numerous sectors. In Kenya, economic growth projections of 1 per cent to ensure that a recession is avoided for the meantime. Perhaps the most immediate casualty of the restrictions put in place to limit the spread of the coronavirus is the tourism industry. The industry has weathered other crises in the past such as kidnappings and terrorist attacks. Despite this, the industry has created more than a million jobs in 2019 as a result of growths of upwards of 5.6 per cent injecting Ksh 790 billion into the economy, it has taken the biggest hit in the pandemic shut down measures. Drastically withering occupancy rates of more than 50 per cent reported by hoteliers as well as rural communities, in particular, suffered as a consequence of collapsing tourism have served to increase the inequality in the country.
Secondly, the pandemic and resulting restrictions have resulted in over one million Kenyans either losing their jobs or being put on unpaid leave especially in the informal sector. These job losses have increased the penurious state of the disadvantaged population in Kenya especially informal workers who are most vulnerable. Furthermore, job cuts have extended to the aviation industry. The industry has not been spared the looming economic woes culminating in Kenya airways seeking a government bailout. The Kenyan economy is set to lose $1.1 billion USD from reduced traffic by Kenya airways of 2.5 million passengers leading to further job cuts in the industry and reduced income for the country.
Kenyan cities such as Nairobi and Mombasa that have been placed on further lockdowns that prevent people from getting in or out have also presented their own set of issues. Thokozile Ruzvidzo Director of the Gender, Poverty and Social Policy Division of the ECA has described African cities home to 600 million people as the “engines of economic growth,” and observed that they hold the key to the “continent’s resilience to the pandemic” (Africa News, 2020). Furthermore, Africa’s cities have been found to drive consumption with their growing middle class with “per capita consumption spending in large cities being on average 80 per cent higher at the city level than at the national level.” In Kenya, government expenditure on health per Capita, for example, was a meagre $32.74 in 2017 compared to the United Kingdom’s $3,064.25 in the same period. The limited spending by the Kenyan government is tantamount to the inability of the authorities to contend with the onslaught of the pandemic at hand. The lockdown of much-needed city economies that account for over 70 per cent of the region’s GDP as well as a reduction in urban consumption will, therefore, compound the economic woes experienced.
Kenya, among other African countries such as Angola, South Africa, Congo, South Sudan and Namibia, has been particularly hard hit by the lockdowns as they depend heavily on trade with China resulting in worsening current accounts deficits in the country. This is further compounded by debt repayments to foreign debtors that are set to mature. With China taking up 87 per cent of Kenya’s loan interest repayments, there is a heightened risk of Kenya’s economic infrastructures such as the Mombasa port being seized by China as collateral for loans to Kenya used to fund the controversial standard gauge railway project. This has fuelled ominous fears of China’s ‘debt-trap diplomacy’ which further threatens to inundate the economic condition currently faced in the country.
Despite the bleak predicament that Kenya finds itself, the country has overtaken crises-hit Angola to become the third-largest economy in Sub-Saharan Africa. Kenya is now only behind Nigeria and South Africa. Despite the increase in the status of Kenya in the region economically, this upgrade in status should be taken with a pinch of salt. Albeit commendable, Kenya’s seeming economic resurgence has not been achieved by a more effective means of economic restructuring but rather by Angolan GDP’s consistent contraction since 2016 and the Kwanza’s devaluation in 2019. Angola’s overreliance on oil accounting for 90 per cent of total exports of the country and the oil prices falling below zero have contributed to its downfall.
What does the future hold?
In order to protect the fragile Kenyan economy and to keep at bay a recession as the economy trudges into the third quarter, few steps need to be put place. Firstly, proactive measures should be undertaken to stimulate urban economic recovery including, but not limited to the assistance of local authorities with financial boosts such as short-term bailouts as well as increasing capacities of local authorities to provide social protection to the workers who are most at risk such as informal workers (Jua Kali).
Additionally, there should also be initiatives in place by the Kenyan government and international partners such as the IMF and the world bank to create jobs in the medium term. This is especially important to mitigate the effects of the massive job loses that have occurred in the country. In the long-term, there needs to be a concerted effort to revitalise cities in Kenya to ensure that there is timely planning to harness the economic outputs of cities in Africa. This is especially importnant as the continent is projected to have more than half of its population in cities in 15 years. Foreign lenders could also consider the possibility of partial debt relief to allow the Kenyan government to better manage the financial woes. With an urbanisation rate of 4.3 per cent, adequate investments need to be funnelled to Kenyan cities to offset the risks of poorly planned urbanization that can result in vulnerabilities of future populations to economic and social shocks.
Mohamed Hussien is an online blogger, he holds a BSc (Hons) in Economics as well as an MSc in International Development from the University of Birmingham.
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