The novel coronavirus (COVID 19) has been the topic of discussion since the turn of the decade, with the first case of the virus being reported on 31st December 2019 in Wuhan, China. Since then, the coronavirus has affected both developed and developing countries in terms of;
- International Trade – Due to the lockdown, the disruption of the global supply chain is likely to cause input shortages causing most manufacturing plants and retailers to suspend operations,
- Financial and Commodity Markets – Most investors in the equities market have become net sellers, wiping out any year to date gains that major indices had made. Most investors have moved to place their money in safer haven assets such as gold, and,
- Macroeconomic Indicators – The global economic growth for 2020 is likely to come in at a slower pace due to the spread of the coronavirus.
The first case of Coronavirus infection within Kenya’s borders was reported on the 13th of March 2019.
Despite this, the country had already begun experiencing the adverse economic effects of the pandemic. The table below shows the macroeconomic impact on key sectors of the Kenyan economy:
|
Key Sectors |
Impact |
Level of Impact |
|
Tourism Sector |
|
High |
|
Agricultural Sector |
|
High |
|
Manufacturing Sector |
|
High |
|
Health Sector |
|
High |
|
Wholesale and Retail Sector |
|
Moderate |
|
Finance and Insurance Sector |
|
Moderate |
|
Construction Sector |
|
Low |
|
Professional Services Sector |
|
Low |
Based on the impact to other economies, Cytonn Investments believes that coronavirus may have a 10.0% to 25.0% impact on GDP growth for the year 2020. The 10.0% impact is an optimistic case in the event the outbreak is contained, and 25.0% in the event it is not contained.
Credit has to be given to the Kenyan Government on its swift handling of the medical side of the pandemic. However, work needs to be done on the business angle to ensure as little disruption as possible. As it stands, the coronavirus could reduce Kenya’s GDP growth to a range of 4.3% to 5.2% for the year 2020 depending on the severity of the outbreak and economic implications for Kenya.
We believe the Kenyan Government can borrow a leaf from the other governments and possibly;
- Grant tax breaks to companies seeking to increase their capacity to produce import substitute goods, which could even mean zero-rating VAT for the next 3-months,
- Release VAT refunds to assist businesses with managing their cash flows,
- Encourage banks to give concessionary loans at low rates to facilitate businesses, and as well provide moratoriums on loans that are due,
- Announce and provide for a Business Stabilization Fund to cushion the impact of the coronavirus, especially for Small & Medium Enterprises (SME’s),
- Consider reducing corporate tax for industries that have been highly affected by the virus such as the aviation industry, or waiving corporate tax for a 3-month period as well as a reduction in payroll tax for the next 3-months for the low-income bracket workers, and,
- Strengthen the local supply chain for traders to be able to access import substitute goods.
To read more on this, please see the full report here
