What coronavirus outbreak would mean for Kenya’s economy


What coronavirus outbreak would mean for Kenya's economy
Passengers wearing masks walk outside the Shanghai railway station in Shanghai, China, as the country is hit by an outbreak of a new coronavirus, February 2, 2020. REUTERS/Aly Song

In Summary

  • According to the World Bank, the global economy could decline by as much as five percent to include a slowdown in manufacturing.
  • Being a regional hub for foreign direct investment and capital movement, Kenya is expected to feel the full impact of the projected global slowdown.
  • KEPSA has moved to engage members in calculating the projected economic impact of the Coronavirus outbreak in each sector even as the virus remains at bay.

Kenya is yet to confirm any cases of the novel coronavirus (COVID-19) with the government emphasizing its intent to retain the status quo.

Nevertheless, the ongoing outbreak has manifested its impact on economic growth be it largely at the global stage.

A survey published last week by Citi Bank paints the stakes at play by giving a glimpse of the potential economic impact from the now widespread outbreak.

According to the report, the outbreak has already caused material impact to daily life including disruption to business, work and school.

In China, the substantive change has seen shortages to supply, far reaching travel bans and strict border controls.

In Shanghai and Tianjin, schools remain closed until further notice while Japan has shut down all elementary and high schools for the next month to April.

A total of 16 cities in China are under lock and key with residents seeing extended breaks to the recent Chines New Year celebrations.

Further, work from home policies have been implemented for the majority of white-collar jobs in finance, logistics, insurance and law.

The Henan municipal government has ordered all business operations shut to impact companies including Disney (Disneyland), Uniqlo, Starbucks, Ralph Lauren, McDonalds and H&M.

Moreover, travel bans have been imports to see North Korea and Russia close their border with China. Israel is meanwhile refusing entry for anyone who as been to China in the past 14 days while major airlines have been scaling back services to China including British Airways, Delta, United Airlines and Virgin Australia.

The impact of the outbreak is projected to cost an estimated Ksh.4.3 trillion ($43 billion) while trimming about 0.25 per cent from the projected economic output in 2020.

In mainland China, hotel occupancy levels have fallen by at least 85 per cent while disruption in travel has resulted in a 70 per cent dip in passenger travels.

Global public markets have taken a beating from deteriorating investor sentiments with US markets closing the week to February 28 at their worst since the 2008 financial crisis.

Oil demand continues to plummet with China’s consumption needs dipping by three million barrels per day (bopd) or an equivalent 20 per cent of total consumption.

The demand for gold- a safe haven item has grown considerably to push prices upwards.

China’s economy is expected to grow at 4.5 percent at its worst this year from an original projection of 5.9 percent to erode much of the country’s contribution to global growth.

The Chinese economy is vital for global growth as it holds the largest manufacturing base. Further, China is the second largest importer of goods, the largest exporter of goods and likewise, the largest trading nation.

With the fastest growing consumer market, China’s contribution to the global economy stands at an 18.1 per cent high.

The Chinese Purchasing Managers Index (PMI) is projected to fall below 48 as labour shortages and plants shutdowns mount.

The auto and logistics sector is set to feel the pain of the outbreak with further protracted impacts seen in financial institutions, real estate, construction, oil & gas and consumer staples.

According to Bloomberg Chinese Banks are set to a three time growth in their exposure to bad loans with non-performing loans (NPLs) being expected to hit $800 billion.

Nevertheless, sectors such as pharmaceuticals, online games, media streaming and e-commerce are expected to see a lift from announcements in vaccine and drug development, the shunning of brick/motar stores and the wide-spread buying of take-home essentials.

A successful containment of the virus in the next couple of months is deemed to facilitate a speedy recovery of the global economy while a prolonged outbreak is seen dislocating economies and markets.

According to the World Bank, the global economy could decline by as much as five percent to include a slowdown in manufacturing, a decline in consumption and the potential cancellation of key global events planned for the year such as the Summer Olympics in Japan.

Structural implications arising from the outbreak cover the re-evaluation of supply chain strategies and the globalization model.

Being a regional hub for foreign direct investment and capital movement, Kenya is expected to feel the full impact of the projected global slowdown.

Already, the largely foreign exposed Nairobi Securities Exchange (NSE) saw the wiping out of Ksh.149.5 billion last week as global investor sentiments took a tumble from renewed fears on the virus’s spread.

Back home, the Kenya Private Alliance (KEPSA) has moved to engage members in calculating the projected economic impact of the Coronavirus outbreak in each sector even as the virus remains at bay.

“The collated input will inform the development of a rapid response mitigation plan to minimize the impact of the outbreak on the Kenyan market. It will also allow the private sector to measure the impact of the expected global slowdown of trade on Kenya,” noted KEPSA Chief Executive Officer Carole Kariuki.

The alliance is expected put out a report summarizing its findings within the course of March.

The collaborative efforts between government and the private sector come as deaths from the outbreak surpass the 3000 mark with infections standing at 89,527 across 67 countries around the globe as per data from the World Health Organization running into the afternoon of March 2.

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Story By Kepha Muiruri
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