Economic Impact of Covid-19 Worsens Despite Government Interventions
The Novel Coronavirus keeps spreading across the world. People suddenly have to deal with curfews and shutdowns. Kenya is not spared.
In the wake of this devastating virus all parts of the society are affected: the work force, manufacturing, businesses, and production industry. Every aspect of the economy had to slow down or grind to a halt as social distancing and lockdown reigns everywhere so that lives can be saved.
Different countries have since responded in their own ways with a view to cushion their citizens against the economic impact. The first sector to get a hit is the service industry especially the tourism sector. Tourism slowed down and technically stopped as people fear to infect themselves.
The Kenyan government partially shut down restaurants countrywide and only allows take away and delivery services. Considering that most workers in this sector are daily wagers, it’s obvious that many are going without daily wages and the ripple effect is dire.
Hotels and restaurants closed
Some hotels closed , the Weston Hotel in Nairobi sent out an advert advising the public that they will close down until the situation normalizes. This has a ripple effect since suppliers cannot supply their products and services due to lack of demand.
The primary producers of perishable goods like vegetables are now stuck with whatever they have and losing money. Families are now starved of the much-needed income hence their purchasing power is reduced.
In the financial sector, especially microfinance and banking, the effects are equally serious. Mr Norris Digo of Connect Credit LTD, a mid-tier lender is worried about the current uncertainty.
His company specializes on advancing unsecured loans specifically to the employed staff. “We expect massive layoffs from various companies which we have checkoff arrangements with. This will negatively affect our business,” said Digo.
Jean Namai, a credit staffer with Equity Bank said that the bank is offering to restructure existing credit facilities for their customers. “It cannot be business as usual. We believe that some changes have to be made in order to deal with the harsh reality,” said Namai.
Impact of curfew
The Kenyan government issued a partial curfew which started on the 27th of March, 2020. The curfew is in effect between 7pm to 5am daily until further notice.
Businesses are already feeling the burden of low productivity since employees are required to leave work earlier than usual as per the Public Order Act (Cap 56) State curfew Variation order 2020 . According to the Act, it is mandatory for employers to release workers latest 4pm so that they can get home before curfew time.
Small traders who only operate at night are also greatly affected. RoGGKenya spoke to Mr James Njeru who sells mutura (African sausage) along Langata Road in Nairobi.
According to Njeru, he appreciates the government’s effort in curbing the spread of the virus but does not support the curfew. “How will I survive when I have to be in my house at 7pm? Usually that is the time when I start selling mutura,” said Njeru, adding that it is a Kenyan culture to eat mutura when it is dark.
Social distancing has also affected the transport sector since public vehicles have been ordered to carry much fewer passengers than they used to. This has increased the cost of doing business. Unfortunately, this was directly passed on to consumers, so the fare prices went up .As a result, their budget is strained.
An economic survey by the Institute of Economic Affairs indicates that 82% of the Kenyan workforce is in the informal sector.
http://www.ieakenya.or.ke/blog/number-of-the-week-82-employed-persons-in-kenya
Government interventions
President Uhuru Kenyatta in his presidential address to the nation on the 25th of March, 2020, announced various measures which were aimed at reducing the financial impact of Covid-19.
The measures taken:
- 100% Tax Relief for persons with a gross income of up to ksh24,000 per month.
- Reduction of Income Tax Rate ( Pay-As-You-Earn) from 30%to 25%
- Reduction of Resident Income Tax (Corporation Tax) from 30% to 25%
- Reduction of the Turnover tax rate from the current 3% to 1% for all Micro, Small and Medium Enterprises (MSMEs).
Financial experts however feel that some of the measures announced have very little impact .According Ms Jacqueline Mugo, Executive Director, Federation of Kenya Employers, the government should have done more. “VAT should have been reduced by 50%, as well as scrap the turnover tax since most businesses are already making losses,” said Mugo.
Economist Tony Watima agrees that the government should have reduced VAT on fuel by a bigger margin since fuel is a major factor to keep the economy running. “If the price of fuel is reduced then the cost of production will go down and the retail price will definitely reduce,” said Watima.
Most measures are aimed at helping the established and registered enterprises. Experts fear that majority of Kenyan employees working in the informal sector are likely to be left out unless the government intervenes.
Learning institutions were closed due to the coronavirus pandemic. This has also affected so many people since it is a multi-billion business industry employing hundreds of thousands directly and indirectly.
According to a report by Kenya Private Sector Alliance (KEPSA) released on March,10th, 2020, 61% of businesses in Kenya surveyed ,reported that coronavirus has had a direct negative impact on their businesses https://kepsa.or.ke/downloads/
Other useful links:
- An extensive analysis by Cytonn ,a financial investment firm https://cytonn.com/topicals/impact-of-coronavirus-1
- Business perspective on the impact of coronavirus on Kenya’s economy
- NSE hit by coronavirus pandemic as shares tumble
https://www.nation.co.ke/business/Economic-cost-of-coronavirus-Kenya/996-5492854-gnf7jh/index.html
What journalists should do
- Research more on the economic impact of coronavirus on the Kenyan economy and inform your audience.
- Follow up on government interventions to cushion Kenyans from the economic impact of coronavirus and inform your audience on the details.
- Talk to experts to explain the economic situation for factual and accurate reports.
- Inform the public on areas where they can benefit economically and point out opportunities available during the coronavirus pandemic period.
By Vitalis Rugie
