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How The Financial Crisis Impacts Kenya

After a second consecutive quarter of GDP contraction in September 2020, Kenya’s economy entered a recession for the first time in almost two decades.

As reported by the Kenya National Bureau of Statistics (KNBS) on Wednesday, economic production fell by 1.1 percent in the third quarter and 5.5 percent in the second quarter of 2017.

In addition to a decrease in the hotel and education sectors, the economy as a whole slowed down.

According to the World Bank, Kenya’s recession is in line with the continent’s overall pattern of recession for the first time in 25 years. An estimated $115 billion in production losses are anticipated, and 40 million people would be pushed into poverty as a result of the slowdown in economic activity.

Kenya’s restaurant and hotel industry fell by 83.2% in the second quarter and by 57.9% in the third quarter, while education shrank by 56.8% in the second quarter and by 42.8% in the third quarter.

Kenya last experienced a recession in 2002, during the transition of power from Daniel Arap Moi to Mwai Kibaki.

The last time the Kenyan economy shrank was in the third quarter of 2008 when the effects of the global financial crisis and the post-election violence of 2007-2008 combined.

However, the Central Bank of Kenya (CBK) predicted on Wednesday that the economy would “rebound robustly by the end of 2021.”

As stated by the bank, the recovery will be bolstered by “education, manufacturing, resilient exports,” and agriculture, along with the government’s economic recovery strategy.

Beginning in January, students returned to school after a nine-month absence due to a substantial decrease in the number of Covid cases from August’s peak and another wave in November.

Covid Pandemics and Kenyan Economy

The projected real GDP growth rate for Kenya in 2020 is 0.4% lower than the actual growth rate. Because of decreased government revenue, Kenya’s Debt to GDP ratio increased from an average of 62.1 percent in 2019 to an anticipated 68.7 percent in 2020 and is expected to reach 71.5 percent in 2021. In 2020, more than 1.7 million jobs would be lost as a consequence of 604 businesses having to let rid of their workers. As a result, the unemployment rate increased from 2.6% in 2019 to a projected 6.2% in 2020. At USD 9.5 billion (5.8 months of import cover), according to Kenyan Forex brokers, Kenya’s foreign currency reserves were sufficient as of 30 June 2021. KES 106.0/USD was the average exchange rate on May 8, 2020. The Kenyan shilling depreciated by 1.8% versus the dollar. In 2020, the current account deficit was 4.8% of GDP, down from 5.8% in 2019. This was an improvement above the 5% to 6% deficit previously predicted for 2020. As a result of robust agricultural sector development and a restructured industrial sector, Kenya’s GDP is projected to rebound from a modest increase in 2020 to record a 6.3 percent rise in 2021. Kenya’s FDI inflows fell by 36.4% in 2020 to USD 0.7 billion from USD 1.1 billion in 2019.

Agriculture continues to be important to Kenya’s economy, accounting for 33.0% of GDP and 56.0% of total employment (both formally and informally). As a result, Kenya’s positive growth of 5.1% in 2020 went a long way toward keeping the economy from contracting.

The number of tourists arriving from outside Kenya has plummeted by 78.4%, from 2.0 million in 2019 to an anticipated 439,500 in 2020. In 2021, the number of foreign visitors is expected to grow by 183% to 806,000, with tourist revenues rising by 40% from KES 0.5 billion to KES 0.7 billion.

Will The Kenyan Economy Recover?

The success of the vaccine campaign will determine how quickly Kenya recovers from the epidemic. The recovery is uneven across sectors, with some still reeling from its effects. Basic assumptions include sufficient agricultural production and an increase in industrial activity fueled by increasing global demand. Many service tasks, on the other hand, will need more time to recuperate.

There is still a lot of uncertainty about how the epidemic will play out. This recovery is expected to be uneven, with certain sectors recovering more quickly than others, thanks to Kenya’s government’s goal to immunize the whole adult population by mid-2022.

This economic report’s special emphasis part gives an update on Kenya’s labor market as the nation enters a critical demographic transition phase. Kenya’s labor force population is expected to grow by an average of one million people each year over the next decade as the biggest youth cohorts reach working age. A demographic dividend may be realized by building on Kenya’s current development accomplishments, reviving economic change, and gradually redistributing the labor force. The COVID-19 epidemic has exacerbated an already difficult situation by destabilizing the economy and resulting in the loss of jobs. Human capital and social protection investments and reforms are at the heart of allowing Kenya’s rapidly expanding workforce to engage in and drive job creation and economic change on the labor supply side.

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