Remittances to Kenya from the diaspora is expected to fall to its lowest as the effects of lockdown in Europe due to coronavirus outbreak that is felt across the globe. In 2019, Diaspora remittances stood at Sh280 billion.
Diaspora remittances have become the largest contributor to forex reserves, which the Central Bank of Kenya (CBK) uses to keeping the shilling stable.
And with the rising uncertainty on global markets, CBK is already in the process to purchase Sh40.5 billion from banks in the next four months to bolster its dollar reserves that was at Sh8.4 billion as at March 13.
According to Cytonn Investments, if Europe is feeling the severe effects of coronavirus pandemic, the reduction in economic activities across the world will result into a massive reduction in disposable incomes. This added to the increase in prices of household goods abroad will lead to reduction in money being expatriated to kenya.
Just after the first case of coronavirus was reported, the stock markets reported decline with stocks such as Safaricom and Kenya Commercial Bank declining by 5.4 per cent and 7 per cent respectively in a day.
Nairobi Security Exchange 20 halted tradings on March 13, after it dropped more than 5 per cent as per the provisions of rule 9.4.1 (ii) of the NSE Equity Trading Rules.
Eurobond proceeds increased significantly, a pointer that now investors are considering to attach higher risk premium on the country as a result of anticipated of slow economic growth attributed to locust invasion that is destroying crops and farm produce.
According to Cytonn, coronavirus pandemic has disrupted supply chain. The manufacturing industry is heavily affected as imports from China accounts to nearly 21 per cent of Kenya’s total imports.
“Reduced supply of imports from China and South Korea especially in terms of electronics could see process rise to exorbitant levels,” Cytonn investments said in a report.
Kenya Association of Manufacturers has warned that the outbreak could cause a shortage of intermediate goods used in manufacture products meant for export.
Another report compiled by the Kenya Private Sector Alliance (KEPSA) show that 61 per cent of businesses surveyed reported that the coronavirus has a direct and negative effect on their operations.
They are also warned that if the situation worsens many companies will ask employers to work from home and negatively affect business in the service sector.
The report also pointed at possibilities of stock outs and delayed deliveries due to lockdown, reduced demand of export products, capital flow and increased cost of goods.
Restricted travels and difficulty in obtaining credit from financial institutions as well as reduced ability to meet loan interest payments and slowed investments appetite from foreign and local investors will have a long and negative impact on the country’s economy.
Already tourism sector which contributed about 1.3% to Kenya’s Gross Domestic Product (GDP) in the third quarter of last year is facing hard times due to lockdown in major economies such as Italy which is a key source market in Europe.
Agricultural sector has also been hit hard with a drop in export volumes, shrinking orders on fruits and vegetables to China and increased prices of imported inputs used in processing food.
Property and Construction sector will also feel the affects as mega construction projects will be pushed forward hence impacting on revenues in the industry.
so far professional services have recorded delays in payment from clients in China, which in return has caused delays in project implementation leading to another negative impact on revenue.
Cytonn is raising serious economic concerns that coronavirus could reduce Kenya’s GDP growth to a range of between 4.3 % to 5.2 % this year. It is therefore calling on the government to grant tax breaks to companies seeking to increase their capacity to produce good that can substitute import goods by zero rating Value Added Tax (VAT) for at least three months.
It also calls for release of VAT refunds to help businesses manage cash flow and banks to give concessionary loans at low rates , provide a Business Stabilisation Fund to cushion the impact of the global pandemic to Small and Medium Enterprises.
More measures would include reduction of corporate tax for industries affected by the pandemic such as aviation or waiving corporate tax and reducing in payroll tax for three months for low income workers.