Though future looks bright, it is no bed of roses
Treasury Cabinet Secretary Ukur Yatani yesterday launched the Economic Survey 2021 painting a brighter picture of the economy despite Covid-19 knocks contracting growth by -0.3 per cent last year.
This is in sharp contrast compared to 2019 when Kenya’s Gross Domestic Product grew by five per cent, an indication that Covid-19 dealt a serious blow on the economy.
“Contraction was spread across all sectors of the economy but was more dismal in accommodation and food serving activities, education, professional and administrative service activities,” said Treasury CS, Ukur Yatani while presenting the report.
There is, however, a rider to the projections: Election years have always seen the economy take a beating, as a result commentators warn that should the run-up to next year’s election experience toxic politics, then the growth will be impacted.
Similarly, a haphazard and poor take up of Covid vaccination will negate any positive growth, as will poor short rains towards the end of the year.
Yatani said full resumption of activities in key sectors of the economy will spur growth even as the country faces an election amid virus uncertainties with the economy projected to grow by six per cent, leveraging the manufacturing sector.
“Resumption of activities in the education sector and the hotel industry, which were almost halted for the better part of 2020, is likely to significantly boost the growth,” said Yatani while presenting the report.
He said key macroeconomic indicators will most probably remain stable and supportive of growth in 2021 with the manufacturing and transportation sectors likely to rebound to support economic growth.
University of Nairobi economic lecturer Samuel Nyandemo says the fact that the Treasury came to town with the data four months late could be an indication of some despair from the data.
“Truth of the matter is that IMF and World Bank had already revised growth downwards. It is now that the economy is picking up.
I project a 3.5 per cent growth,” he said, adding that election shocks notwithstanding, the service; construction, manufacturing and ICT sectors will spur the growth.
Economic survey published by the Kenya National Bureau of Statistics (KNBS) noted that more than 740,000 people were laid off in 2020 due to the negative economic growth.
Survey was released after a four-month delay, prompting Parliament to probe the delay, usually released in late April or early May, ahead of the budget reading. Analysts wondered what information the Treasury leveraged to anchor key economic estimates including the budget.
Yatani said the delay was necessary because Treasury wanted to release data “that would stand to support itself”.
According to the report, informal sector employment is estimated to have contracted to 14.5 million jobs and accounted for 83.4 per cent of the total employment outside of small-scale agriculture.
“Within the public sector, wage employment increased from 865,200 in 2019 to 884,600 in 2020.
During the review period, informal sector employment is estimated to have contracted to 14.5 million jobs,” he said.
Most of these people worked in sectors that largely depend on person-to-person contact, which were made worse with the containment measures announced in the wake of the pandemic.
In the public sector, wage employment registered a slowed growth of 2.2 per cent in 2020 compared to a growth of 2.7 per cent in 2019.
Education had the highest share of employment in the public sector accounting for 43.2 per cent, followed by public administration and defence; compulsory social security at 35.1 per cent, respectively, in the review period.
“The Teachers Service Commission, the largest employer in the public sector, registered a growth of 2.0 per cent in employment in 2020,” the report.
Education’s dismal performance (10.7 per cent contraction) was attributed to the lengthy closure that followed after March 2020 when the first Covid case was announced in the country.
Total expenditure for the Ministry of Education is expected to go up by 8.9 per cent to Sh506.2 billion in the financial year 2020/21 up from Sh464.7 billion in 2019/2020.
A global lockdown to stop the spread of Covid-19 saw the number of international visitor arrivals decline sharply from two million in 2019 to 579,600 in 2020.
This saw the number of hotel night beds occupied declined by 58 per cent to stand at 3.8 million in 2020 while the total number of conferences reduced from 4,961 in 2019 to 1,204 in 2020.
Despite most sectors recording contraction in growth, the economy was somewhat supported by accelerated growths in agricultural production (4.8 per cent), construction activities (11.8 per cent), financial and insurance activities (5.6 per cent) and health services activities (6.7 per cent).
Agriculture remained the dominant sector posting 4.8 per cent growth and accounting for 23 per cent of the total value of the economy in 2020, according to the report.
“This was despite the poor short rains, Covid-19 pandemic and desert locust incidence in various parts of the country,” said Yatani.
CS observed that the sector benefited from sufficient rains that were well distributed throughout the year, saying the registered growth had increased from 2.3 per cent recorded in 2019 though it is a 0.7 per cent dip compared to 5.5 per cent posted in 2018.
During the General Election year of 2017, the sector returned a negative 1.3 per cent.
Survey estimated that the formal manufacturing sector shed 10.3 per cent of its workforce to 317,000 as the sector laid off personnel to survive the Covid-19 pandemic shockwaves in the economy.
This saw the real value addition declined by 0.1 per cent, compared to a 2.5 per cent increase in 2019.
Despite the general decline in the sector, the volume of output grew by one per cent, partly attributed to manufacturers repurposing their businesses and buying more chemical and pharmaceutical products to manufacture Personal Protective Equipment like surgical face masks, to mitigate against spread of the pandemic.
According to the survey, the sector also leveraged greater production of sugar, cement and tea, slightly shoring up the value of outputs by 2.8 per cent from 2.3 trillion in 2019 to 2.4 trillion last year.
Government expenditure is expected to grow by 16 per cent from Sh2.95 trillion in 2019/20 to Sh3.4 trillion in 2020/21.
“Recurrent and development expenditures are also estimated to grow by 21.8 per cent and 11.5 per cent, to Sh2.74 trillion and Sh 678.4 billion, respectively.
Total revenue, including grants, is expected to grow by 6.5 per cent from Sh1.8 trillion in 2019/20 to Sh1.9 trillion, during the review,” the report.
Going forward, the economy is expected to remain on a growth path supported by full resumption of activities in education and hotel industry.