Impact of Coronavirus on Kenya’s economy

By Nancy Marende | Coronavirus may have a 10.0 percent impact on Gross Domestic Product (GDP) in the event the outbreak is contained and a 25.0 percent in the event it is not contained.

It could reduce Kenya’s GDP growth to a range of 4.3 percent to 5.2 percent for the year 2020 depending on the severity of the outbreak and economic implications for Kenya. This is according to a report by Cytonne Investment.

This follows the first case of the virus which was reported on December 31, 2019 in Wuhan, Mainland China that has since seen more than 200,000 confirmed cases, and death toll has exceeded 8,000 worldwide according to World Health Organization (WHO).

On March 31, The cabinet secretary for health Mutahi Kagwe announced the first case of Coronavirus in the Country after a Kenyan lady flew into the country from the United States of America via London.

President Uhuru Kenyatta further confirmed two more cases and on Wednesday, March 19, three other cases were confirming bringing the total to seven in Kenya. The outbreak has since prompted the government to shut down schools at all levels and suspend travel for all persons coming into Kenya from any country with reported Coronavirus cases.

Cytton’s report says the virus has affected both the developed and developing countries in terms of international trade, financial and commodity markets as well as macroeconomic indicators.

It further says that investors into Kenya’s stock are beginning to sell their stocks as the virus even as the virus keeps spreading across the globe.

Many foreign investors, who often purchase blue-chip stocks, have been selling their equity holdings to purchase gold and fixed income securities due to much uncertainty in the market.

Fixed income from Government T-bills remained oversubscribed during the week with the subscription rate coming in at 264.0% with investors moving into the fixed income market to avoid uncertainty.

All yields on shorter-dated government papers between one and seven years recorded Year To Date (YTD) declined while  Eurobond yields increased significantly this week, an indication that investors are now attaching a higher risk premium on the country due to the anticipation of slower economic growth.

This has also been attributed to the locust invasion, coupled up with the Coronavirus infection within Kenya’s borders. Cytonn reported.

According to a report done by the Kenya Private Sector Alliance (KEPSA), 61.0 percent of businesses surveyed reported that COVID-19 has had a direct negative impact on their businesses due to Stock-outs and delayed deliveries due to the lockdown,

It has also reduced the demand for export products and increased cost of goods which will consequently increase the overall cost of production.

Reduced capital flows, restrictions on travel, and reduced staff time, difficulty in obtaining credit from financial institutions as well as reduced ability to meet their targets has also affected business.

The tourism sector is also facing hard times due to lockdowns in major economies such as Italy and India which have seen the reduction in revenues to the aviation industry.

The agricultural sector has adversely been affected due to  freezing of orders on fruits and vegetables to China, coupled with reduced orders from consumers in Europe & Middle East

The supply chain disruption and uncertainty may also affect the wholesale and retail sector due to delays in the importation, reducing customer confidence wholesale and retail traders since imports from China account for 21.0 percent of total imports.

Cytton, however, is urging the Government to grant tax breaks to companies seeking to increase their capacity to produce import substitute goods, which could even mean zero-rating Value Added Tax (VAT) for the next 3-months to buffer the economy in the wake of the deadly virus.

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