We are headed for tough times, CS Health warns as Positivity rate hits 15% and fears of restrictions across the economy loom large.
BY NBM writer
The fast rising cases of COVID-19 in the country over the past one month have sent shockwaves into the wobbly economy, pointing at a possible further decline, which could lead to more job losses and severe disruptions.
On the last day of October, positive cases passed the 55,000 mark, with daily reported cases averaging over 1000—a positivity rate of over 15%. This is way above the recommended positivity level of 5% set by the World Health Organization (WHO).
The number of deaths is also fast rising, as was the number of people admitted in hospitals. In October alone, Kenya recorded 12,000 positive cases, 20% of the cases since March when the pandemic was reported in the country. During the 30 days, 200 patients succumbed.
The turn of events has seen medical experts favouring a resumption of restrictions and lockdown to battle the second wave of the deadly virus. President Uhuru Kenyatta is expected to announce new measures early November after hosting a National and County Government summit to assess the state of the pandemic and the required interventions.
Globally, things are getting worse. On October 31, British Prime Minister Boris Johnson announced a month long lockdown in England, joining several European countries who have in the past few weeks tightened movement restrictions. This came as global infections rose to 46 million, with close to 1.2 million deaths.
Back home, the Government is scrambling to contain the resurgence, with a possible re-imposition of restrictions. Community infections are growing fast across counties with the Ministry of Health attributing this to Kenyans flouting guidelines meant to stop the pandemic, such as wearing face masks, frequent hand wash, physical distancing and avoiding handshakes. The Ministry said the virus is being spread at social gatherings, with political meetings the biggest source of the crisis. “We are headed for tough times,” said Health Cabinet Secretary Mutahi Kagwe warned on October 24.
Economists said this could have serious ramifications to the economy, which was beginning to show some signs of recovery following the easing of measures in September.
When the Central Bank of Kenya Monetary Policy Committee (MPC) met on September 29, 2020, against a backdrop of the worsening pandemic, it raised caution that the economy was facing growing pressures, which could get worse in the coming months.
The global economic outlook for 2020 remains uncertain, largely due to the unpredictability of the COVID-19 pandemic, international bodies like the International Monetary Fund have warned.
“Risks to the recovery remain elevated, largely due to resurgence of infections in some countries which had commenced re-opening,” said the CBJK governor Dr. Patrick Njoroge after the meeting.
The MPC retained the Central Bank Rate (CBR) at 7%. “We will continue to closely monitor the impact of the policy measures so far, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary,” said the Governor. The Committee meets again this November.
The outlook numbers don’t look good at all. The International Monetary Fund expects Kenya’s Economy to grow by 1.0% in 2020 but the economy should recover to grow at 4.7% in 2021.
Data released by the Kenya National Bureau of Statistics showed that the economy contracted during the second quarter of 2020 compared to the corresponding quarter in 2019. The economy recorded a contraction of (5.7%) in Q2’2020, from a growth of 5.3% in Q2’2019, this was the first contraction since the third quarter of 2001 when the country recorded a contraction of (2.5%).
“The poor performance was characterized by substantial contractions in accommodation and food services, education, taxes on products and transport and storage,” KNBS said in a statement.
Accommodation and tourism and the Education sectors were the hardest hit, declining by 83.3% and 56.2% respectively. The COVID -19 pandemic has meant that businesses in accommodation and food services sector either operated under minimum capacity or completely closed down. The significant reduction in the number of visitor arrivals through Jomo Kenyatta International Airport (99.5%) and Moi International Airport (99.9%) adversely affected the sector’s performance.
A survey of hotels by the CBK conducted between September 21 and 23 reported recoveries from the COVID-19 disruptions that had led to closures in April and May. In particular, 89% of respondents are now open, compared to 35% in May. Respondents also indicated that bed occupancy and employment have been improving since May.
“We expect the sector to pick up in the coming quarter as some of the restrictions have been lifted and eateries are opening up for business,” said Cytonn Investments in a research note.
“In our view, the economy has already felt the full effects of the pandemic and with some of the worst affected sectors, Education, accommodation and food services, showing signs of recovery which we believe will also be transmitted to the rest of the economy. We expect slight recovery in the subsequent quarters given the continued partial reopening of the economy. However, given the uncertainty of the tenor and the severity of the pandemic, we maintain our expectations of a best case scenario of a 1.4% economic growth for 2020,” said Cytonn.
Education decreased by 3.7% points to 3.2% in Q2 2020 from 6.9% in Q2’2019. The decline is attributable to the decreased activity in the sector due to the coronavirus pandemic as the Government implemented social distance measures and schools were closed for the since April.
The biggest gainers in terms of sectoral contribution to GDP were Agriculture, real estate and construction sectors, where agriculture increased by 2.9% points to 25.7% from 22.8% in Q2 2019 while real estate and construction sectors increased by 0.7% points and 0.6% points, respectively from 8.3% and 5.5% recorded in Q2’ 2019.
In July, global ratings agency, Standard and Poor’s (S&P) lowered its outlook on Kenya’s economy to “negative” from “stable” on projected slowdown due to the ravages of the Covid-19 pandemic. “The negative outlook reflects Kenya’s deteriorating fiscal and external position and also the risk of wider external financing gaps if funding from official lenders is not as forthcoming as we forecast,” said S&P in a statement.
Moody’s and Fitch Ratings, downgraded Kenya’s credit outlook to negative from stable, on May 7 and June 19 respectively, citing the shock caused by Covid-19 pandemic to key sectors of the economy.
KNBS estimates that around 1.7 million people have been made redundant due to the outbreak during this time, with the number expected to rise with the second wave. Employers are pessimistic about the future of jobs.
“The worst is yet to come as workers continue to grapple with the impact of the pandemic, especially the consequences of the abrupt shutting down of economic activities,” Jacqueline Mugo, the FKE executive director was recently quoted in the media saying.
On October 29, NCBA, one of Kenya’s biggest banks associated with the family of President Kenyatta announced it would fire some staff in light of ‘economic realities arising from the pandemic’.
“Some banks expected to reduce the number of employees within theyea largely due to weak business prospects following the effects of the pandemic, increased utilization of digital platforms, and rationalization of staff costs because of reduced profitability,” said the CBK in a September survey.
“However, hotels expect to maintain fewer employees to cut labour costs due to low business volume,indicating that most staff members remained on unpaid leave, while other sectors remained cautious about rehiring, preferring to maintain their numbers as they gauge the impact of the current economic situation,” said the CBK.
Households have been going through a rough patch as the cost of living edged up gradually. According to KNBS, inflation rose to a five-month high in October, on the account of higher transport, electricity and food prices. Inflation, which is a measure of changes in the cost of living year-on-year, rose to 4.84% from 4.20% in September, the highest growth since 5.33 per cent in May 2020.
The MPC Private Sector Market Perception Survey conducted in September 2020, revealed a further improvement in optimism since July, with greater expectation of increased economic activity in the next two months as more sectors and businesses re-open with the lifting of COVID-19 restrictions.
“Respondents, however, pointed out that uncertainties around the pandemic, loss of jobs in the private sector due to closure or low business, slow post-COVID-19 recovery of some sectors such as tourism, a possible second wave of the pandemic were the main risks to the expected increase in economic activity” said the CBK survey.
“Risks to economic growth over the medium term included a possible resurgence of the COVID-19 pandemic, delayed discovery of a vaccine, non-performing loans, slow credit growth at the SME and individual level, and heighted political activity,” it said.
The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.6 percent in August, compared to 13.1 percent in June. NPL increases were noted in the real estate, personal and, transport and communication sectors, due to a subdued business environment.
According to the CBK, loans amounting to Sh1.12 trillion have been restructured (38% of the total banking sector loan book of Sh2.9 trillion) by the end of August, in line with the emergency measures announced by CBK on March 18 to provide relief to borrowers. Of this, personal/household loans amounting to Sh271b (33% of the gross loans to this sector) have had their repayment period extended. For other sectors, a total of Sh849.9b had been restructured mainly to trade (20.7%), manufacturing (20.2%), real estate (18.3%) and agriculture (11.1%).
But it’s not all doom. Government response measures, including the stimulus package and fiscal policies meant to mitigate the negative COVID-19 impact on companies and individuals, are however expected to continue supporting production and private consumption, the CBK says. Economists and business players said payment of outstanding pending bills by county and national Government, and improved access to credit by SME’s, would enable reopening of more businesses and contribute to economic growth in 2020.