Businesses in the East Africa region, just like elsewhere in the world, will have to look into new opportunities and challenges that have emerged and re-organize themselves to remain afloat in post- Covid-19 period.
In an interview with K24 Punchline yesterday, East African Community Cabinet Secretary (CS) Adan Mohammed told viewers that capital was now looking for safer havens after business environment was significantly affected by coronavirus world over.
Before disruption, this was Africa’s best decade since the capital was finding its way into the continent since the region had the best returns, the CS said.
For instance, the African Union has already created the Africa Continental Free Trade Area (AfCFTA), which is the world’s largest free trade area by number of countries once it’s fully up and running, with a goal of establishing a single market for goods and services across 54 countries.
“We were having the best returns on capital. Capital was looking for a new home. Just as we were taking off, coronavirus hit us,” the CS said
In the one month that the continent has experienced lock down to curb spread of coronavirus, 2.5 percent of Africa’s GDP has been eroded, translating to US $ 65 billion, the CS said. The hardest hit sector include tourism, transport and aviation as well as hospitality industry.
However, those that have embraced technology recorded a boom during this time of pandemic. This is now likely to influence emergence of more industry focused on the technology in post- Covid 19 period, with Kenya, according to CS well placed to take advantage of the new order due to reliability of its internet technology.
A report released by Deloitte on May 8th analyzed some of the impacts of Covid 19 in the East African region with views of the effects on the general economy, as well as sectoral ones touching on industries such as aviation, tourism agriculture, and manufacturing.
In Kenya, projected GDP growth in 2020 was revised downward to 1% from 5.7% due to the gravity of the pandemic; with the economy seeing a decline in tourism activity, export revenues, and a disruption in the supply chain.
In Ethiopia, the country is expected to grapple with high unemployment, and GDP growth has been revised to 3.2% from 6.2% in 2020.
Similarly, the outlooks in Tanzania and Uganda show a similar trend with GDP growth being revised to 2% and 3.5% respectively (decline in 3.3% and 1.8% percentage points).
Tanzania is witnessing waning demand for mineral exports considering global supply chain interruptions. The economy in Uganda is also faced with the disruption of supply chains and weakened global demand for goods.
In addition to economic outlooks, the publication looks at how governments in each country across the region have responded to the pandemic through social and health-related measures and the fiscal and monetary interventions introduced to safeguard the economy.
Kenya’s GDP growth averaged 5.4% in 2019 and had been projected to grow at about 5.7% in 2020 amid robust private consumption, higher credit growth, and rising public and private investment.
Further, as the COVID-19 pandemic hampers revenue base collections, the negative outlook on Kenya’s financing risks becomes exposed, the Delloite report noted.
“As such, the large gross borrowing requirements, which include amortization of external bilateral debt and the need to refinance a large stock of short-term domestic debt have seen rating agency Moody’s change Kenya’s sovereign credit outlook to “negative” from a previous outlook of “stable” notes the report.
In Kenya, the downward revision is majorly due to reductions in household and business spending of about 50 percent due to liquidity constraints; disruption in supply chain for key inputs in machinery and chemicals of about 30 percent and decline in imports from affected countries of about 3.1% estimated decline in total import value.
Also a decline in tourism activity of about 20 percent due to a standstill in the global aviation industry and a decline in government spending in different sectors due to a USD 658m shortfall in revenue collection in the 3 months to the end of the current fiscal year.
A survey carried out recently by the Kenya Association of Manufacturers (KAM) and KPMG on the impact of Covid-19 on the manufacturing sector in Kenya offered a number of recommendations that needs to be implemented to rescue a sector that is fast sliding into a distress.
The recommendations were based on the analysis and feedback received from the participants of the survey, who were drawn from KAM membership. The Government should prioritize clearing all outstanding Value Added Tax (VAT) refunds and pending bills owed to the manufacturers, the survey report said.
The survey report also asked the government consider establishing an emergency rescue fund, supported by development partners, to identify and support the most vulnerable businesses and entrepreneurs affected by Covid-19.
Coverage of social protection measures already instituted by the government through the emergency response fund that are targeting vulnerable groups in society and workers who have lost their jobs, the report proposed, should be widened
To further enhance the liquidity of the manufacturing sector, commercial banks with the support of the Central Bank of Kenya and the national Government should consider instituting additional measures to restructure loan repayments.
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