Effects of COVID-19 on international trade and post-recovery strategies in Kenya
COVID-19 lead to a drop in GDP dropped due to reduced aggregate demand when businesses closed, while others laid off many workers as Kenya entered into a recession and unemployment increased.
Kenya’s foreign exchange reserves fell to 7.8 billion dollars by the end of 2020, down from 8.96 billion dollars in 2019 due to reduced net inflows as a result of international lockdowns to contain the COVID-19 pandemic.
Effectively Kenya's national currency depreciated by 8.9% to Kshs. 110 per US dollar in 2020, down from Kshs. 101 in 2019.
COVID-19 further disrupted exports of EAC countries. The advent of COVID-19 in 2020 led to a drop in imports in all EAC countries.
The largest negative impact of COVID-19 is observed on imports and exports of industrial
supplies. Imports reduced by 15 to 23% while exports reduced by 25 to 35%. This shows that
manufacturing sectors that are dependent on these industrial supplies were the most affected by COVID-19.
Specifically, the results reflect a situation where COVID-19 led to a shutdown of some manufacturing industries. This led to a decline in the demand and supply of industrial supplies in the country.
Activity in the accommodation sector and the restaurant subsector was severely impacted by the pandemic as international travel was suspended for much of 2020. Hotels closed or significantly scaled down their operations since movement restrictions were imposed in most countries. From March 2020 to June 2021 receipts from services exports fell sharply reflecting the collapse of international travel and transport. The subsector contracted by 57.9%.
Economic recovery
Even as the Government of Kenya is optimistic of Economic Recovery in 2021 gauging by the 2020-2022 Economic Recovery Strategy, COVID-19 is not yet over. The pandemic is still with us and Kenya is now experiencing the 4th wave of the pandemic.
The prospect of re-imposing lockdowns and other restrictions, while necessary to bring the pandemic under control, could have devastating economic and social consequences for many Kenyans.
At the same time, the initial Kenya Government’s economic stimulus plans that provided cash assistance to the most vulnerable, reduced taxes, among others have already come to an end.
The situation of most Kenyan individuals as well as households still remains uncertain. It is therefore important for the government to put in place strategies that can cushion individuals and households against falling into the poverty trap. Some firms that closed when the pandemic struck have not opened as yet.
Kenya still faces the risk of weak external demand for its exports as countries continue to put in measures such as lockdowns and travel restrictions to prevent the spread of new COVID-19 variants.
There are also risks of reduced international tourist arrivals and increased public expenditure pressures to cushion the public and private sectors against continued reduced demand and rising cost of living. Thus means that the Government of Kenya needs to come up with strategies that require use of appropriate monetary and policy measures to preserve macroeconomic and fiscal stability while strengthening the resilience of the economy.
These strategies will help Kenya in its journey of economy recover and achieve sustainable development. The economic recovery strategies are supposed to mitigate the adverse socioeconomic effects of the COVID-19 pandemic and facilitate the opening up of the economy.
Proposed strategies
The proposed strategies are designed to accelerate economic recovery and the attainment of sustainable economic growth.
Some of the strategies should be implemented in the short term such as making sure that all adult Kenyans are vaccinated, others medium term such as lowering taxes, temporary basic income for those who lost their jobs due to the pandemic, subsidies on essential commodities such as energy, gas, water, food and transport in order to reduce the cost of production and increase consumption, job retention programs in the form of compensation for firms with income equivalent to wages or salaries retained during this time would provide an impetus to allow for continued operation and rehiring of workers by the firms, restructuring public debt towards longer maturity loans and uptake of new loans on concessional basis as well as use resources efficiently by reducing corruption.
Long term strategies include restructuring the economy towards more domestic production in order to achieve goal of being self-sufficient by becoming both consumer and producer of goods and services; harnessing digital technology can accelerate Kenya’s way to economic recovery after Covid-19 devastating effects.
Digital gig economy apps offer opportunities for autonomy and self-employment and aggregation of demand for services and products. This requires investment in electricity, digital tools and infrastructure to make internet enabled devices and internet services affordable and accessible to majority of Kenyans. Strengthening E-commerce which is considered the engine driving the economies can hence greater reliance on online services connecting supply chains and facilitating merchandise trade is one strategy that Kenya should fully embrace.
This requires automation and streamlining of border procedures, simplification of fees and fostering inclusion of MSMEs in the consultation. Need for digitalization and simplification of import, export and transit procedures such as paperless trade should be accelerated as well as expediting electronic lodging of documents in advance, electronic payment of all trade-related taxes, digital certificates and signatures, or 24/7 automated processing of trade declarations.
Conclusion
The Government of Kenya should pursue strategies to support lives and livelihoods of its citizens, support industries to remain in operation. At the same time, the government should take advantage of the opportunities offered by the regional integration, African Continental Free Trade Area, development partners in the form of trade facilitation as well as aid for trade. This will chart the path to sustained economic growth and development.
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