Economy taking a hit from crisis, but let’s save lives first
Dr Fred Mwirigi
There is no doubt the Covid-19 pandemic has shaken the family unit to the core.
The pandemic has now spread to almost all countries in the world with over three million infections and more than 200,000 deaths already reported. This number is expected to rise.
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With large portions of the world already on lockdown, global focus has largely shifted from economics to saving lives.
Evidently this pandemic has occasioned unprecedented suffering to humankind and a massive downward spiral of the world economy.
Economic think-tanks, global entities and central banks have signaled an unprecedented slowdown of the global economy and warned that this spiral could be long and hard.
In short, we could be entering one of the most horrendous and least foreseen world recessions. Perhaps the bigger challenge is that no one can quite predict how long the pandemic will take.
But the one fact that everyone seems to agree on is that things are not looking good.
There is, therefore, no doubt that the first half of this year will be disastrous for the global economy as shown by various statistics.
The International Monetary Fund has revised its forecast for global economic growth for 2020 to 2.9 per cent down from the 3.3 per cent announced in January while the Organisation for Economic Cooperation and Development projects the global GDP to decline from 2.9 per cent to 2.4 per cent. Some pundits project the decline to hit a low of 1.5 per cent.
Other countries such as the US, major South East Asian Countries and basically all European countries are expected to post the lowest levels of growth in the last 10 years.
Countries in the developing world, especially in Africa, are perhaps the most vulnerable as most countries have weak public health systems as well as economic shock absorbers.
The United Nations Economic Commission for Africa has already revised the Sub-Saharan Africa GDP growth downwards to 1.8 per cent from the 3.2 per cent it projected earlier in the year.
Closer home, the Central Bank of Kenya has just revised its annual economic prospects for the country for 2020 from 6.2 per cent to 3.4 per cent .
So what is our likely direction in the next few months? As I mentioned earlier the focus right now is on saving lives and not necessarily on economic numbers.
However it would be foolhardy for us to entirely relegate economics to the back-burner since people still must eat and pay bills and the economy must recover.
The world is now largely interconnected and mirroring what is happening globally, Kenya’s economy is likely to slow down significantly.
For instance, international markets for our tea and flowers are already shutting down and owing to travel restrictions Kenya’s tourism numbers have reduced to near zero.
Moving forward, domestic demand is likely to largely shift to basic needs as households hold back on unnecessary expenditure to cushion themselves.
Many organisations have already sent more than half of their staffs either on leave or to work from home, factors that are likely to significantly reduce overall productivity given our setting.
As international markets remain locked up exports will suffer in the short to medium term.
However, this might be the right time for us to prop up export agriculture as food is a huge need in locked up countries.
The overall structure of the market is likely to shift significantly at all levels mostly in the short term.
Many organisations have been forced to move work online and this could herald a complete shift in how we do business post-Covid-19 pandemic.
This will certainly have huge implications on labour, taxation and governance and discussions must start happening around it.
Government spending will also largely shift from capital projects to interventions geared towards management of the pandemic and cushioning of small businesses and low-income citizens.
Various measures continue to be rolled out at the national and county levels.
As government does everything in its power to manage the crisis, there is need for other entities including the private sector and NGOs to step up their support to fight this pandemic.
Also, firms have a golden opportunity to distinguish themselves by keeping staff in employment.
This perhaps is the most compassionate and heroic act that any employer can do at this difficult moment. —The writer is a Commissioner at KRA and the Head of Kenya School of Revenue Administration
