By FA Joab O. Odhiambo
While the medical experts and financial analysts/actuaries have always disagreed publicly on whether it was prudent for Kenya to open its economy, especially with the rising number of COVID-19 pandemic cases, as a certified financial analyst and actuary, I would confidently say that it was an excellent idea despite disagreement from many medics.
The question on whether to open the Kenyan Economy was a tough choice between saving lives or livelihoods. Did we need to save lives or livelihood? When President Uhuru Kenyatta announced that there was going to be a slow opening of the economy as a test before full economic opening, it was received with joy and grief in equal measures. This is especially after many developed countries opened their economies to later reverse and reintroduce lockdown measures after the numbers of COVID-19 cases exploded.
Many medics argue that the lockdown measures were aimed at safeguarding Kenyans against the adverse health as well as socioeconomic impacts of the pandemic in the long run, as the country prepares for the peaking that is expected between August and October 2020 (Borah, A. et al.2020).
Lives or Livelihoods? Which One to Save?
Financially and economically speaking it was a huge win for livelihoods especially for the Kenyan economy where 90% of its population is “living from hand to mouth”in informal sectors. This as compared to middle and upper-classes who have permanent jobs and can continue working from home during the pandemic period.
In 2018, the Kenya labour force was estimated at 25 million workers, with agriculture taking almost 60 % of the total (Baldwin, 2020). The number of people employed outside small-scale pastoralism and agriculture was approximately 7 million. In addition, about 20% of the total labour force was formally classified as being unemployed (WTO, 2020). However, a number of estimates place the unemployment rate of Kenya much higher, as high as 40%.
How are the top five contributors to Kenyan GDP likely to be affected by opening the economy?
1. Agricultural Sector – Agriculture is regarded as the backbone of the Kenyan economy and accounts for approximately 25% of the total Kenyan GDP. In addition, the agricultural sector employs about 78% of the country’s aggregate employment and accounting for 65% of total exports. Opening the economy will allow free movement of agricultural products to many parts of the country thus creating market for them to enhance livelihood. Ultimately, it should provide a mean of livelihood of over 78% of Kenyans who relies on it.
2. Tourism Sector – According to Kenya National Bureau of Statistics (2020), tourism is among the top sectors hit hard by the COVID-19 pandemic. The sector contributes about 10 % of GDP thus making it an important consideration. With Jomo Kenyatta International Airport opening this week to international flights, it will rejuvenate the opportunities that exists in the sector, especially for most hotels that have been closed during the lockdown. With international flights expected to begin next month, KQ stock prices has moved up by 30% thus indicating better economic prospects in the sector.
3. Wholesale and Retail Sectors – The wholesale and retail sector contributes about 10% to the GDP. Its opening will provide close to 12% of employment to Kenyans. In addition, the sector links with the agricultural sector due to the high degree of correlation between them (Gourinchas,2020). Although the economy in recession, opening the economy will slow down the rate of recession, while keeping the ever-growing middle class that are likely to plunge into lower class citizens.
4. Manufacturing Sector – COVID-19 has provided an opportunity for manufacturing sector to grow, especially with reduced imports. Opening movement means that more masks will be needed thus growing the sector that contributes immensely to the Kenyan economy. Manufacturing and Agriculture sectors enjoy a symbiotic relationship thus focusing on the value addition on most of the agricultural produce as a way of commercializing the sector (Laborde et al.,2020).
5. Business process outsourcing – Nairobi is currently the top destination for Fast Moving Consumer Goods companies after appearing on the Fortune 500 list that includes Dubai, Johannesburg, Cairo, Casablanca, and Lagos, as among the highly coveted investment destinations, COVID-19 has slowed down the process. Opening the business opportunities will increase the liquidity of the city fostering it to become the “Dubai of Sub-Saharan Africa” at the same time making it competitive globally.
In conclusion, opening the economy was an excellent decision considering the Kenyan economy setup where most of the people live on informal sector with no financial backup despite the disagreement and uproar from majority of Kenyan medical experts.
References
Borah, A., S. Das, A. Dasgupta, A. Deshpande, K. Mahajan, B. Ramaswami, A. Saha, A. Sharma (2020). ‘The Coronavirus Pandemic; Are we ready for the long haul?’. Policy Brief, 1. Ashoka University: Centre for Economic Analysis and Data (CEDA) https://www.ashoka.edu.in/page/CEDA-369
Baldwin, R. (2020). ‘The Supply Side Matters: Guns Versus Butter, COVID-style’. VoxEU.org, 22 March. https://voxeu.org/article/supply-side-matters-guns-versus-butter-covid-style
Gourinchas, P-O. (2020). ‘Flattening the Pandemic and Recession Curves’. In R. Baldwin and B. Weder di Mauro (eds), Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes. London: CEPR Press.
Laborde, D., W. Martin and R. Vos (2020). ‘Poverty and Food insecurity could Grow Dramatically as COVID-19 Spreads’. IFPRI Blog: Research Post, 16 April. Washington DC: International Food Policy Research Institute. https://www.ifpri.org/blog/poverty-and-food-insecurity-could-grow-dramatically-covid-19-spreads
WTO (2020). ‘Trade Set to Plunge as COVID-19 Pandemic Upends Global Economy’. Press Release, 855, 8 April. Geneva: World Trade Organization. https://www.wto.org/english/news_e/pres20_e/pr855_e.htm
Kenya National Bureau of Statistics (2020), Economic Survey 2019.
FA Joab O. Odhiambo, Bsc. (Actuarial Science), Msc. (Actuarial Science), Part-Time Lecturer and PhD Candidate (Actuarial Science)-University of Nairobi, He is also An Actuary and A Certified Financial Analyst.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the policy or position of the University of Nairobi.
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