Assessing the Economic Impact of COVID-19
The COVID-19 pandemic has taken a toll on human life and brought major disruption to economic activity across the world. The impact of this unprecedented crisis on human life and the global economy reflects the speed and magnitude of the contagion, greater global integration, and the major role that China plays in global supply chains, travel, and commodity markets.
Despite a late arrival, the COVID-19 virus has spread rapidly across Sub-Saharan Africa in recent weeks. As of April 7, 5,425 cases of COVID-19 have been confirmed in 45 of the 48 countries in Sub-Saharan Africa. The insufficient testing capacity in many countries in the region suggests that these figures most likely understate the true number of infections.
In response to the rise of corona virus cases in Kenya to three, on 15 March the government of Kenya closed all schools and directed that all public and private sector workers work from home, wherever possible. Travel restrictions were later imposed to prevent non-residents from entry. Kenyan nationals and residents were required to self-quarantine for a minimum of fourteen days.
On 22 March, following the confirmation of an additional eight cases, bringing the total to 16 nationally, the Kenyan government introduced additional measures and directives to reduce the spread of coronavirus in the country. These measures include a suspension of all international flights effective at midnight on 25 March, with the exception of cargo flights (all persons entering the country will be compelled to undergo quarantine at a government facility). The government further stipulated that any persons, including senior government officials, found to be in violation of quarantine measures would be forcefully quarantine at their own expense. All bars are to be closed until further notice as of 22 March, with restaurants allowed to remain open for takeaway services only. All public service vehicles (i.e., matatus and buses) must adhere to passenger distancing guidelines previously stipulated on 20 March. Further, all churches, mosques, and other gatherings (e.g., funerals), are restricted to no more than 15 persons, and weddings are banned. Public gatherings of more than 15 people outdoors are also barred.
On 25 March, President Uhuru Kenyatta, following the reporting of an additional three cases, announced a nation-wide curfew on unauthorized movement from 7 PM to 5 AM beginning on Friday, 27 March. The government also unveiled measures to buffer Kenyans against financial hardships arising movement restrictions associated with the coronavirus crisis, including:
The government also moved to increase allocation of funds for health care, along with other fiscal adjustments to the economy:
BUSINESS AGILITY AND CONTINUITY
The ongoing COVID-19 socio-economic crisis is forcing business leaders worldwide to take quick actions to respond to the pandemic and its effects on their businesses. Thousands of companies have crafted crisis management plans, with many of them transitioning to a fully virtual workplace.
THE TAX AMENDMENT BILL 2020
The National Treasury of Kenya released the Tax Amendment Bill 2020 necessitated by the presidential directive dated 25 March 2020, with regards to measures announced by the President to cushion the economy and Kenyans from the adverse effects of the Coronavirus pandemic. Some of the major amendments include;
"Success today requires the agility and drive to constantly rethink, reinvigorate, react, and reinvent.” – Bill Gates
Implications for COVID-19
The World Bank projects that economic growth in Sub-Saharan Africa will decline from 2.4 percent in 2019 to -2.1 to -5.1 percent in 2020, the first recession in the region in 25 years. It will cost the region between US$37 billion and US$79 billion in terms of output losses for 2020. The downward growth revision in 2020 reflects macroeconomic risks arising from the sharp decline in output growth among the region’s key trading partners, including China and the euro area, the fall in commodity prices, reduced tourism activity in several countries, as well as the effects of measures to contain the COVID-19 global pandemic.
MEASURES DEPLOYED THUS FAR
Customizing the policy response to reflect the structural features of the Kenyan economy and the peculiar constraints that policy makers face, including much less fiscal space and much less operational capacity to respond. The government has reacted quickly and decisively to curb the potential influx and spread of the COVID-19 virus very much in line with emerging international experience. As the situation evolves, there are more questions about the suitability and likely effectiveness of some of these policies, such as strict confinement. The large size of the informal sector (89 percent of total employment); the precariousness of most jobs; the limited coverage of pensions and unemployment insurance schemes; and the predominance of micro, small, and medium-size enterprises in business activity (98 percent) all need to be factored in, as they may make aggressive containment measures less effective. Protecting vulnerable groups, ramping up testing, and promoting the wearing of masks may be better options. Equally important is the need to differentiate the monetary policy response due to the weak monetary transmission in countries with underdeveloped financial markets. Because of the reduced monetary policy effectiveness, the policy response will be mostly fiscal.
However, economic commentators and the international institutions, like The World Bank, have noted the need for the African region, including Kenya, to implement policies different from those adopted in advanced countries and (some) middle-income countries due to the structure of their economies, as a high proportion of the population is in informal employment. Excluding Agriculture, informal employment accounts for 76.8% of total employment and small and medium-sized enterprises (SMEs), account for up to 90.0% of all businesses and represent 38.0% of the region’s GDP. The World Bank also noted that Monetary Policy stimulus by way of rate cuts may not be effective in the region mainly due to the prevalence of supply effects at the height of the containment measures, which has resulted in reduced labour supply and the closure of businesses, especially in contact-intensive sectors, coupled with the weak monetary transmission in many countries with underdeveloped domestic financial markets and as such there was need for a different type of Central Bank intervention that provides liquidity support through direct credit lines or guaranteed commercial loans to formal and informal businesses.
Therefore, it is recommended that Kenya should implement a differentiated monetary and fiscal policy response customized to specifically reflect the structural features of the economy and the particular constraints that policy-makers face including much less fiscal space and less operational capacity to respond. Given the large size of the informal sector, with 89.0% unemployment, the predominance of the MSME in the business activity, at 90.0%, aggressive containment measures such as total lock-downs will be less effective and could result in a collapse in economic activity that will increase poverty and endanger lives and livelihoods. Going forward, protecting vulnerable groups with social grants and food distribution, wage subsidies to prevent massive layoffs, waivers for basic services such as electricity, water tariffs, and mobile money transaction fees, ramping up testing, and promoting the wearing of masks may be better options with more resources being directed towards protecting and equipping the healthcare system will be critical for success.