The Coronavirus will have a lasting impact on economies in both the short and long run. Whether the impact is positive or negative will be based on the actions that we take now. Our actions will make or break the Kenyan economy and the impact will be felt in the foreseeable future.
The outbreak started in Wuhan, China, and will definitely impact trade in the world. China is an economic giant, exporting products to the entire world. The travel restrictions will impact the entire world.
Kenya imports from China stand at $3.66 Billion in 2018, according to the United Nations COMTRADE database. These imports range from machinery, electronics, household goods, aluminum, beauty products, iron and steel amongst other products. The products range from raw materials for use to finished products for sale to the final consumer that touch in the manufacturing industry.
No goods to sell
If these products are not moved because of the resulting quarantine measures, then the companies that depend on the raw products from China and such countries will grind to a halt. They cannot manufacture without the raw materials. There would be lost time in both machine hours and human resources.
The companies will have no goods to sell and these may lead to closures of factories and retrenchment or redundancy of staff. It also means that these companies are not able to pay taxes to the government.
Kenya relies on finished products from china including beauty products, animal vegetable and fats, clocks and watches, other electronics amongst other products. These products are evidently in the Kenya market and create cheaper options for consumers who cannot afford more expensive products. There will be unavailability of these products in the market or stock-outs.
This will push up prices of similar or substitute products. Tuskys and Naivas supermarkets have already issued price warnings indicating that products will cost more now than in the past. This will result in an increase in the cost of living. The inflation in February 2020 was at 6.37% up from 5.78% on January 2020. There is already an increase in inflation which signals tough economic times ahead. The inflation rate in February 2020 of 6.37% was the highest since April 2019, driven by prices of food amidst the widespread shortage.
The finance sector namely banks, Micro Finance Institutions and SACCOs will feel the impact from non-performing loans from retailers who are not able to service their loans since they are not able to import goods for sale. In a study done by FinAccess in April 2019, the report notes that high default loan types are goods and services from shopkeepers at 45.4%, mobile loans at 18.1% and loans from family at 12.7%.
As monies from business transactions become scarce, the default rates will increase. The shopkeeper will be poorer, the mobile loan defaults will increase and the monies we owe our family members will increase.
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The hospitality sector is usually the first to feel the impact of travel restrictions. Data released by a survey conducted by Statista in June 2019 for the period 2013 to 2018 indicated that there would be a bed occupancy rate of 50.8% in 2020, 51.1% in 2021. The study indicated that in 2018, the occupancy rate was at 53.2% and had projected and decrease to 49% in 2019.
With the cancellation of flights and conferences to Kenya, these rates may not be achieved. Hotels in Kenya are currently experiencing very low occupancy rates. The tourism sector in Kenya contributes about 10% of the GDP. The risk is that they will be negatively impacted by the effects of the cancellation of flights which bring in the much-needed foreign currency and conferences. The result will be loss of jobs and increased unemployment, further straining the economy and the working population.
The government should introduce a requirement of listing of Kenyan manufactured products in the local supermarkets.
The government has projected to collect Ksh2.91 trillion in taxes during this financial year. This may be difficult to achieve due to the eminent economic slow down anticipated in the country. But the government can decide to turn the tide. One of the Big 4 agenda is to enhance manufacturing. The government has initiated a number of key projects geared towards supporting value addition and raising the manufacturing sector’s share of GDP to 15 percent by 2022.
This creates an opportunity for the government and the citizenry to think critically and support value addition. This will reduce reliance on imports that can be manufactured in Kenya. The government should support SMEs on value-addition. There should be support towards increasing the manufacturing capacity of government-owned Kenya Industrial Research and Development Institute (KIRDI) where SMEs take their products for manufacturing.
We have SMEs waiting for as much as five months for their turn to manufacture. This slows down value addition and demotivates these entrepreneurs. They are not able to make substantive business due to such arrangements.
Build Kenya, Buy Kenya
The government of Kenya signed and ratified the Africa Free Trade Area (AfCFTA) in 2018. which provides a market of 1.2 billion people in Africa. This is another huge opportunity to trade within the continent. We need to build on this manufacturing through the cottage industry.
The government should introduce a requirement of listing of Kenyan manufactured products in the local supermarkets. SMEs owners in Kenya are selling their wares in car boots, handbags and hawking them as they are not able to list them in supermarkets. It is time that the government supported the slogan of Build Kenya, Buy Kenya.
The first consumers of Kenyan products should be Kenyans themselves through the channels we have including both locally and foreign-owned supermarkets. This way there is a guaranteed market for Kenyan entrepreneurs. This will, in turn, increase their chances of access to finance both debt and equity since there is an already existing addressable market.
We need to address issues that affect SMEs and have a candid conversation with the policymakers. This is a golden opportunity that may never present itself again. If we don’t act, we shall remain a net importer for years to come.