COVID-19 IS HERE- WHAT NEXT? : Economic Impact of Coronavirus in Kenya

April 6, 2020 - Reading Time: 3 minutes - By Abigael Ndanu

Per a report on published by the Kenya Private Sector Alliance (KEPSA) titled Business Perspectives on the Impact of Coronavirus on Kenya’s Economy, reported that 61percent of 95 companies surveyed incurred average losses of less than Kshs. 1 million while 21 percent reported losses of between Kshs. 1 million and Kshs. 5 million.
This has been as a result of disrupted supply chains owing to restricted travel which has resulted in stock outs and delays in delivery of raw materials. Since the onset of the virus, there has been a significant drop in airfreight volumes, cancelled shipping vessels and increased expenditure in implementing emergency response strategies.
Whereas the Central Bank of Kenya (CBK) has insisted upon Kenya’s diversity in response to a fear of the country’s overdependence on the Chinese supply market, the Economic Survey, 2019 noted that the value of bilateral trade between the two countries stands at Kshs. 382 Billion with Kshs. 371 Billion being imports and Kshs. 11 Billion being exports. Following the outbreak and continued spread of the virus across the globe, main areas of risk exposure are shortages in raw materials due to reduced supplies from China, increased logistics costs at 36% due to increased lead time, constrained delivery to customers and increased cost of goods and services.
To mitigate some of these risks, per the KEPSA report, about 57% of manufacturers have been forced to seek alternate sources of imports, with 29% resorting to sourcing for alternate export markets outside of
chine and 13% have downsized their production capacity.
Globally, the stock market has swung wildly in the past week as investors have struggled to get a handle on the economic damage the fast spreading coronavirus might cause, as the number of cases continues to rise and companies step up measures to contain them.
Until the first recorded case in the country, Kenya financial and insurance sectors had initially recorded low risk. However, following the announcement by the CS of Health of the first confirmed case in Kenya,
the risk levels have increased significantly. This is partly evidenced by the plunge in the benchmark index at the Nairobi Securities Exchange (NSE) by 15% attributed to panic-selling. This led to the NSE halting activity at 2:38 pm as provided in the NSE Equity Trading Rules:

“As per the provisions of Rule 9.4.1 (ii) of the NSE Equity Trading Rules, should the NSE 20 Share Index decrease by more than 5 percent at the opening session compared to its closing value or during the continuous session, compared to its opening value, the Exchange may temporarily halt
trading for not more than 30 minutes.”

Per the NSE Kenya’s market capitalization fell by Sh345 billion during the week to close at Sh2.04 trillion against Sh2.38 trillion on 06th March, 2020. It is however expected that normal market activity will resume on Monday 16, March 2020.

Further, since the announcement of the virus’ debut in the country, Nairobi has witnessed a surge in panic purchasing in middle to high income areas owing to higher disposable incomes. Other regions have reported no spikes in purchasing with the trend in panic purchasing expected to taper off in the next few days on condition that the status quo remains.
This is however not unique to Kenya with a lot of markets around the world recording panic selling caused by rising fears of the spread of the virus. On 12th March, 2020 for instance, shares around the world plunged as investors showed fear of the spread of the coronavirus. According to the BBC, the main UK index dropped by more than 10 percent while Bank of England announced an emergency cut in interest rates to shore up the economy in the wake of the coronavirus outbreak. Policymakers reduced
rate from 0.75% to 0.25%, taking borrowing costs back down to the lowest level in history,
On the other hand, in the US, the Dow and S&P 500 were also hit by their steepest daily falls since 1987, making the bourse suspend trading for 15 minutes. However, shares continued to fall after the break, taking cues from the slide in European markets with shares of airlines plunging and industrial, financial and energy stocks also falling sharply. Because of their relative safety, government bonds are in high demand during bouts of panic over the economy.

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