In Summary

• The Kenya Private Sector Alliance (KEPSA) has rolled out a five-pillar strategic plan aimed at achieving this year’s goal of emerging economically stronger.
• It calls for peace and stability as the country heads towards the general elections, to avoid a double impact of election uncertainties and the Covid-19 pandemic.

Kenya’s economy has been battered by the Covid-19 pandemic for the past one year with GDP growth decelerating to 1.4 per cent, from 5.4 per cent in 2019. Key sectors were hard hit as both domestic and international trade and investment activities reduced. The Star’s Martin Mwita spoke to the Kenya Private Sector Alliance (KEPSA) CEO Carole Kariuki, on the private sector performance, Covid-19 pandemic and road to recovery.

Which are the most affected sectors of the economy by the pandemic and what is the impact?

Most of the Covid -19 impact was due to the containment measures imposed by governments locally and abroad. Sectors like education, tourism, sports, entertainment, events, among others have experienced intermittent closures over the period and were the most affected. This is also reflected in the Quarterly GDP reports by KNBS that indicate that the economy contracted in the second and third quarters of 2020 by -5.5% and -1.1% respectively.Accommodation and food services (tourism) was the worst hit contracting by -83.3% in Q2 and -57.9 in Q3, education (-56.2% and -41.9%); professional, administrative and support services (-15.3% and -12.3%), wholesale & retail trade (-6.9% and -2.5%); manufacturing (-3.9% and -3.2%) while transportation and storage recorded -11.6 growth in Q2 but rebounded to 2.9% in Q3.

Were there any sectors that gained?

Fortunately yes. Not all sectors were as badly affected as agriculture grew by 7.3 per cent and 6.3 per cent over the two quarters, mining and quarrying (10% and 18.2%), construction (3.9% and 16.2%), ICT (4.6% and 7.3%), finance and insurance (4.2% and 5.3%), health (10.3% and 5.6%), and real estate (2.3% and 5.3%). These sectors anchored the economy allowing an estimated growth of 0.6% in the year.

How many jobs have been lost to date?

According to the most recent Quarterly Labour Force Report by KNBS for Quarter 3 of 2020, the unemployed had increased from 994,642 in quarter three of 2019 (5.3%) to 1,841,918 in Q2 of 2020 (10.4%). However, this reduced in the third quarter to 1,368,606 (7.2%). Similarly, the time-related under-employed increased from 602,745 in Q3 of 2019 to 1,199,602 in Q2 of 2020 but again reduced to 908,997 in Q3. This indicates that most of the job losses were experienced during the April – June lockdown last year but have since reduced as businesses resumed economic activities. This is also reflected in the monthly reports by Stanbic Bank Kenya PMI – which indicates sustained, although weaker expansion in business activities with increased output, new orders and employment.

What has been the biggest challenge during this pandemic?

From the KEPSA survey in September-October, the biggest challenges faced by businesses apart from the government closures included reduced demand with drop in sales for 66 per cent of the respondents. There was increased financial/liquidity challenges (54%), high cost of operation (46%), reduced labor productivity (42%), inability to meet financial obligations such as paying employees’ salaries, and challenges accessing markets (38%).

What measures did businesses put in place to survive? 

To ensure continuity 70 per cent of the surveyed businesses reported reducing expenditure on non-core business activities, 47 per cent temporarily suspended new investment or expansion plans, while 34 per cent resorted to laying off employees. However, a majority of businesses innovated and adapted to the new normal using technology to reach more customers, allowing employees to work from home, restructuring business and products to fit new needs, relocating to new markets, etc. The fourth quarter of 2020 faired relatively better but the reintroduction of partial lockdown in March amid the third wave slowed down business activity as businesses grappled with rising costs of fuel and shortage of supplies due to challenges in global supply chains/logistics.From the May 2021 CEOs Survey by CBK, businesses are more optimistic about growth prospects in the next 12 months. However, the World Bank notes that the recovery remains uneven across sectors with some especially the services still heavily affected and hinging on the vaccination efforts.

There are concerns about the cost of doing business still remaining high despite businesses struggling to break even during the pandemic period. What are some of the challenges the private sector is facing and how can they be addressed?

When the pandemic hit, KEPSA successfully engaged the government to roll out economic stimulus measures that cushioned businesses from April to December last year. However, the measures were rolled back in January before businesses could recover fully. This has left businesses struggling in a relatively depressed economy. The provisions of regulatory flexibility by CBK that allowed banks to restructure loans also expired on March 2 with CBK giving borrowers three months up to June to regularise payments. Other factors include increased cost of inputs particularly fuel, raw materials and operating costs as consumer demand remains subdued due to cash-flow challenges while uncertainty still remains over the possibility of a fourth wave. Since April, Inflation has increased from 5.76 per cent  in April to 6.32 per cent as of June. To address these challenges, the government must accelerate the vaccination process to enable full reopening of the economy, focus on improving the economic stability, easing the cost of doing business through enabling tax regime and intervene on the cost of inputs.

What is your take on the call to waive licenses for some of the sectors and businesses such as hotels, bars and restaurants? Is it something that needs to be considered and by who?

Yes, these businesses have been adversely affected by a reduced number of customers and the curfew and other restrictions forcing them to operate below capacity and for few hours. To enable them to remain afloat, the national government through National Treasury and relevant agencies such as Tourism Regulatory Authority, NACADA as well as county governments can consider waiving or reduce some of the fees on licenses/permits for at least one year.

How much has the private sector lost in terms of potential revenue as a result of the pandemic?

In 2020, the economy is estimated to have lost Sh560 billion in GDP. Since the private sector is the main contributor to the GDP, a large part of this amount is an economic potential lost by businesses as a result of the pandemic.

How best can the country speed up the return of FDIs which have dropped during the pandemic?

One is by accelerate the vaccination process which will enable the economy to return to normalcy. To achieve this goal, KEPSA has partnered with MoH to mobilize resources from the private sector to support the vaccination drive. We also need to renew strategies to target investors–open up key sectors that have emerged as high potential during the pandemic, target investors seeking new opportunities due to geopolitical realignments e.g. US and China trade disputes, Brexit, etc. For example, the recent visit by President Uhuru Kenyatta to the UK mobilised Sh20 billion to support the Big 4 projects. Another thing is addressing  the cost of doing business in the country to make Kenya more competitive and attractive to investors. There is also need to review the investment opportunities and projects in the country to make them bankable.

Any post Covid-19 recovery strategies by KEPSA? Or how best can the country plot a strong comeback on growth and investments?

On its part, KEPSA has rolled out a five-pillar strategic plan aimed at achieving this year’s goal of emerging economically stronger together. These include Public-Private Dialogue Pillar towards improvement in Global Competitiveness and Ease of Doing Business. The Sustainability Pillar is aimed at contribution to Sustainable Development Goals (SDGs), Green Economy, Blue Economy and mitigate Climate Change. We also have the Governance Pillar focusing on Corporate Governance, National Leadership, anti-Corruption. The Business Hub Pillar focuses on SMEs Development and Economic Diplomacy. There is also a Social Pillar targeting Youth and Women, jobs and enterprise development. For the SMEs, KEPSA continues to support them build resilience and unlock new opportunities for business during and after the pandemic. Key areas of focus include digitisation through Ajira and E-Commerce Booster Programmes, providing affordable financing and capacity building programs i.e. training and mentorship through the Covid-19 Recovery and Resilience Program supported by MasterCard Foundation, facilitating market linkages among others. Supporting the SMEs, improving the ease and cost of doing business, and facilitating investment into sustainable development remains the best bet for the country for a strong economic comeback.

Do you think the government is doing enough to support the country’s private sector recovery?

The government has so far been supportive of the private sector. From the stimulus measures adopted last year to the rollout of economic recovery strategies including credit guarantee scheme for SMEs, increased funding to Big 4 and other high potential sectors, programs aimed at easing trade such as the launch of the Lamu Port, the Electronic Maritime Single Window, fast-tracking payment of pending bills and VAT refunds, efforts to secure Covid-19 vaccines, etc. However, more remains to be done and KEPSA is working in close collaboration to facilitate faster recovery.

Any parting shot?

We need to promote peace and stability as we head towards the general elections. KEPSA shall be engaging all the stakeholders including the media through Mkenya Daima peace campaigns to avoid the double impact of election uncertainties and the Covid-19 pandemic.

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