There is no doubt that Covid-19
pandemic has shaken humanity to
the core. The pandemic has now
spread to almost all countries in the world
recording over 6.4 million infections
and close to 380,000 deaths as per time
of filing this piece, as numbers still rise
exponentially.
With large portions of the world on
lockdown and various containment
measures, global focus has largely
shifted from economics to saving lives.
Evidently this pandemic has occasioned
unprecedented suffering to human kind
and a massive downward spiral on the
world economy.
Various economic think-tanks, global
entities and Central Banks have signaled
an unprecedented slow-down 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.
Unlike the causes for most past recessions
the Corona pandemic, which is the
PERSPECTIVE
Collective
Responsibility In
Navigating The Covid-19
Pandemic.
underlying causative factor for this one,
has not only advanced rapidly but it
has done so in a multi-layered manner,
advancing from country to country within
short time lags and affecting various
facades of life, be they economic, social,
religious or even cultural.
Perhaps the bigger challenge is that no one
can quite predict how long the pandemic
and therefore the recession will be with
us or its real effect on the global economy
and social order. But the one fact that
everyone seems to agree on is that things
are not looking good at all.
There is therefore no doubt that the first
half of this year will be disastrous for the
global economy as supported by various
statistics. The International Monetary
Fund (IMF) has revised its forecast for
global economic growth for 2020 to 2.9%
down from the 3.3% announced in January
this year while the Organization for
Economic Cooperation and Development
(OECD), an economic and social policy
think tank, projects the global GDP to
decline from 2.9% to 2.4%. Some pundits
Perhaps our biggest challenge shall be to
cushion employees during this time. Firms
have a golden opportunity to distinguish
themselves by doing everything in their
power to keep their staff in employment.
This perhaps is the most compassionate and
heroic act that any employer can do at this
difficult moment.
Dr. Fred Mugambi Mwirigi
however project the decline to hit a low
of 1.5%. The Institute for International
Finance paints an even grimmer picture
placing global growth at no more than 1%
for the year.
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. For instance, China which has
consistently grown at above 6% could spiral
down to as low as 3%. It is instructive that
about 18% of China’s GDP is supported
by exports and although the country
seems to be getting out of the pandemic,
with the world supply chains in shambles
and with many of its external markets just
sliding into lockdowns it will be a tough
call for China to bounce back within the
first half of the year.
On other fronts, oil prices have crashed
to their lowest levels in 20 years, stock
markets are on a tailspin and several
airlines and shipping companies are
already in the red and could go under
in the next few months if they are not
handed urgent lifelines.
Countries in the developing world,
especially in Africa, are perhaps the most
vulnerable as most African countries have
weak public health infrastructure and
economic shock absorbers. The United
Nations Economic Commission for Africa
(UNECA) has already revised the Sub-
Saharan Africa GDP growth downwards
to 1.8% from 3.2% which it had projected
earlier in the year when it released its
World Economic Situation and Prospects
report for the year 2020. Back home, the
Central Bank of Kenya has just revised
its annual economic prospects for the
country for 2020 from 6.2% to 3.4%.
So what is our likely direction in the
next few months? As I mentioned earlier
the focus right now is, and rightfully so,
on saving lives and not necessarily on
economic numbers. However it would
be foolhardy for us to entirely relegate
economics to the back banner since
Covid-19 or no Covid-19 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 in the coming days. For
instance, international markets for our
tea and flowers are already shutting down
and owing to travel restrictions Kenya’s
tourism numbers have collapsed to zero.
Moving forward, domestic demand is
likely to largely shift to basic needs as
households hold back on unnecessary
expenditure to cushion themselves. Many
organizations 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 already becoming a
huge need for the locked up countries.
Although import numbers are likely to
remain steady in the month of April owing
to delayed servicing of local and regional
demand by China for February and March
(orders were placed in February and
early March but China couldn’t supply),
imported stock is likely to hit the market
at a point when consumption might have
been largely eroded. The likely net effect
could be a demand-driven reduction
of imports from China to the region in
the coming months. Obviously, if we can
flatten the curve fast enough there is still a
small window to allay this possibility.
The overall structure of the market is
also likely to shift significantly at all
levels mostly in the short term. Many
organizations have been forced to move
work online and this could herald a
complete shift in how we do business
post pandemic. Based on how well firms
perform online many of them are likely
to keep a lot of their operations there
even after this period. This dynamic will
certainly have huge implications on labor,
taxation, regulation and governance and
discussions must start happening around
it now.
Government spending will shift from
capital projects to interventions geared
towards management of the pandemic
and cushioning of small businesses and
low-income citizens. This is important
because any other approach could further
fuel the pandemic and risk social order.
Large companies that rely on government
spending are likely to slow down on
expenditure and even cut-down on labor.
It will certainly become difficult for
many business and individual borrowers
to service debt and banks should brace
themselves for this and possibly prepare to
enter into loan deferment and forbearance
arrangements at scales never recently
witnessed. Generally, private finance will
remain somewhat frozen in the short term
as the business community engages a ‘wait
and see’ attitude.
It is noteworthy that Kenya’s economy
is largely supported by agriculture, ICT,
financial services, manufacturing, real
estate, transport and tourism. Although
the contribution by agriculture to the tax
net remains below 3%, this is an important
contributor to GDP (about 34%) with
the sector’s most important contribution
being food security. This sector is critical
and must be protected during this difficult
time.
With restricted movement most operations
and transactions have moved to ICT
platforms and I expect this sector to be
some kind of an economic savior not just
in Kenya but globally during this period.
There is however no doubt that financial
services, manufacturing, transport and
tourism will receive a major beating and
may need to be cushioned in due course.
Various measures continue to be rolled
out at the National and County levels to
cushion the economy. At the National
level the National Treasury and the Kenya
Revenue Authority (KRA) are already
implementing the Presidential directive
to lower various taxes. These include 100%
tax relief for persons earning Ksh. 24,000
and below, reduction of PAYE from 30%
to 25%, reduction of Turnover Tax from
3% to 1% and reduction of VAT from 16%
to 14%. These measures are expected to
cushion low income earners by protecting
income and lowering prices of basic
products.
However, Kenyans must appreciate that
taxation during tough economic times is
delicate and always a catch 22 situation
for any Government. This is because a fair
balance between cushioning tax payers
and funding recovery interventions must
be attained.
The KRA together with other Multi-
Agency entities is also supporting
the fight against the pandemic by, for
instance, making available confiscated
ethanol to manufacture the much needed
free sanitizers. At KRA we have also
significantly enhanced our online services
to serve citizens better during this time.
This means that one need not come to
Times Tower for most services as these
can be transacted online.
It is noteworthy that even under the
prevailing tough conditions the staff
family at KRA and other government
agencies continue to do everything in their
power to support the Country to fund the
Covid-19 pandemic reversal initiatives.
As Government does everything in its
power to manage the current situation
there is need for all other entities including
the private sector, religious organizations
and Non-Governmental organizations
to step up their support to fight this
pandemic.
Perhaps our biggest challenge shall be to
cushion employees during this time. Firms
have a golden opportunity to distinguish
themselves by doing everything in their
power to keep their staff in employment.
This perhaps is the most compassionate
and heroic act that any employer can do at
this difficult moment.
Dr. Fred Mugambi Mwirigi is a
Commissioner at Kenya Revenue
Authority (KRA) and the Head
of the Kenya School of Revenue
Administration (KESRA). You
can engage him on this via mail at:
[email protected].
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