2020 review: Millions mark end of the year in economic despair
- However, 12 months on, this phrase couldn’t be further from the facts as millions mark the end of the year in economic despair attributed largely to the COVID-19 pandemic which seemingly struck out of the blues.
- The tourism sector would be the first to fold from the pandemic as the government banned all international flights at the end of March, denying the sector the very propellant that drives it.
- In spite of optimism, the awaiting new dawn carries with it an extra burden as the government reinstates higher tax rates to recapture lost exchequer revenues.
Like any other year, the start of 2020 was premised on high hopes for better fortunes and tidings by Kenyans with many coining the unofficial phrase ‘2020 Vision’.
However, 12 months on, this phrase couldn’t be further from the facts as millions mark the end of the year in economic despair attributed largely to the COVID-19 pandemic which seemingly struck out of the blues.
Like the start of a horror film, the year begun on ‘normal’ footing with the economy expanding by nearly five percent in the first quarter according to data from the Kenya National Bureau of Statistics (KNBS).
Mid-March would however serve as the interjection to observed growth with the pandemic edging the economy from the rails and off its wheels.
What begun as a health emergency would gradually transition to an economic crisis as measures effected to contain the spread of the virus cut off livelihoods for millions of Kenyans.
The tourism sector would be the first to fold from the pandemic as the government banned all international flights at the end of March, denying the sector the very propellant that drives it.
Its hospitality extension would subsequently see the wrath of the virus as the government temporarily shut all hotels, restaurant, bars and other entertainment joints rendering millions jobless.
Moreover, the education sector was caught up in the cross-fire as all learning was halted.
The devastation from the containment measures became clearly as the storm begun to clear with the economy being reported to have contracted by 5.7 per cent and for the very first time since 2008 between April and June this year.
During the same period, the unemployment rate more than doubled to 10.4 per cent as 1.7 million Kenyans lost jobs.
While the storm clouds have decapitated since from the gradual reopening of the economy since July, economic experts argue the worst is still within.
“Kenyans are now at a worse place. Many came into the year with jobs and livelihoods but are leaving empty handed. The impact has carried a multiplier effect. Think of it in the example of a Kenyan earning Ksh.50,000 a month from employment and supporting a secondary job paying Ksh.6000. When one person loses income, this affects an estimated four persons due to the country’s high dependency ratio,” said David King’oo a business and economic analyst at 14F Consulting Group.
To cushion the economy against the devastating economic effects and ensure a soft landing, the government which also lost a sizable chunk of its revenues to support the budget employed a multi-layered stimulus plan.
This included the implementation of tax relief measures including the variation of value added tax (VAT) to 14 from 16 per cent and pay as you earn (PAYE) and corporation tax from a higher 30 to 25 per cent.
Additionally, the government included a Ksh.58.6 billion stimulus plan in the 2020/21 budget which was aimed at injecting liquidity to key economic sectors such as tourism and small businesses.
At the same time, the Central Bank of Kenya (CBK) came handy with monetary measures to further the spread of money in the economy including the lowering of the cash reserve ratio (CRR) and the benchmark lending rate (Central Bank Rate) to 4.25 and 7 per cent.
The reserve bank further allowed banks to restructure customer loans while giving a temporal relief to Kenyans on listings with credit referencing bureaus (CRBs) and waiving mobile-money fees on transactions of up to Ksh.1000.
Nevertheless, the blanket measures have been fingered as ineffective as they fail to hit the bullseye in cushioning Mwananchi.
“It would be hard to quantify gains from the government COVID-19 relief package when one has fails to see a reduction in the cost of living. Despite thinning disposable incomes; transport, housing and food costs have soared,” added Mr. King’oo.
Better 2021 prospects?
Whether 2021 carries better economic returns for Kenyans remains a matter of perspective even as optimism grows for a better year given positive vaccine news.
Nevertheless, the new dawn carries with it an extra burden as the government reinstates higher tax rates to recapture lost exchequer revenues.
At the same time, businesses in the country are set for a higher tax burden as a duo of levies- the minimum tax and digital services tax take effect from January 1.
Similarly, Kenya appears to be falling behind the acquisition of a vaccine in the near-term as more developed countries gobble up the bulk of recently available vaccine doses.
While the economy maybe of its knees, Genghis Capital Head of Research says the economy requires more stimulation to restore domestic consumption.
“Private consumption has been severely dented by the pandemic. The economy is yet to fully rebound as mirrored in the present loss of livelihoods where we still have the unemployment rate at a high 7.2 per cent,” he said.
Meanwhile, Kenyans appear eager to kick out the old year and welcome 2021 with hope for improved economic gains.
“I didn’t realize the irony of it all, that hindsight in 2020 would be 20/20 (20 divide by 20). What a year! But on the balance of I see life lessons about what really matters, what we took for granted-life, health, freedom, family, neighbours, our connectedness, an act of kindness sprouting new shoots,” CBK Governor Patrick Njoroge said in a tweet on Wednesday.
“It took an unprecedented crisis to relearn these truths, at a high price. Stand down, 2020! We are ready for 2021.”
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