Ray of hope for firms, households as economic gloom starts to lift

Traders at Marikiti market, Nairobi. October 2020. [Elvis Ogina, Standard]

Kenya’s economy is gradually pulling out of the Covid-19 morass, with last week’s lifting of the 18-month night-time curfew tipped to offer tailwinds for continued recovery across sectors.

Economic indicators for businesses and individuals in sectors such as banking, insurance, education and manufacturing are looking up, raising hope of returning to pre-pandemic levels.

The recovery and the accompanying hope is in stark contrast with March last year when the discovery of the first case of the infectious virus led to mass layoffs, salary cuts and business closures or scaling down of operations.

Now, the storm clouds are clearing in line with Central Bank of Kenya (CBK) Governor Patrick Njoroge’s prediction at the onset of the pandemic in March last year.

“The cloud will pass, and when it does, we want to recover quickly and strongly. There will be sunshine after the rain,” said Dr Njoroge at the time.

Coincidentally, the banking sector leads in the recovery, with the profits of the leading lenders surpassing pre-Covid-19 levels.

Data by the industry regulator shows banks’ pre-tax profit for seven months to July hit Sh113.4 billion, overtaking the Sh112.8 billion posted in the 12 months to December last year.

The record profits point to continued recovery from the Covid-19 menace as customers step up loan repayments.

Non-performing loans have now dropped for the fifth straight month to close at Sh433.3 billion in July this year. The defaults had hit a high of Sh444.2 billion in February.

The falling stock of bad loans amid increased lending signals that the financial health of businesses and households is improving, helping them to start honouring interest and principal payments.

KCB Group Chief Executive Joshua Oigara, who had described last year as “a period of survival,” agrees that green shoots are beginning to appear across sectors, including agriculture, energy, telecommunication, construction, trade and manufacturing.

“Our customers were affected much last year, but have come back strongly this year. I see bold optimism,” said Mr Oigara in an interview in August.

KCB Group Chief Executive Joshua Oigara. [File, Standard]

President Uhuru Kenyatta’s move to lift the nationwide curfew on the back of falling coronavirus infections and a heightened vaccination drive is expected to extend recovery to other businesses, including hotels, bars and restaurants.

The lifting of the curfew offers the promise that long-distance transporters and tourist-focused hotels will also quicken their recovery.

Kenya Association of Hotelkeepers and Caterers (KAHC) said the curfew had hurt tourism activities. But tourists will now have flexible schedules with the lifting of the curfew.

“The curfew was one of the things that were holding back tourism recovery. Potential guests were not ready to travel for vacation to destinations with travel restrictions that altered their freedom,’’ said Sam Ikwaye, KAHC Coast branch executive officer.

Eyes are now on how many jobs the economy can bring back given that 737,500 jobs drawn from wage employees, the self-employed and those in the informal sector were lost last year.

Official data showed private-sector jobs shrank by 206,700 to 1.856 million last year on the back of the coronavirus pandemic.

Many firms are now expanding their workforce as demand for their goods and services rise, in what could help bring back the jobs that were lost.

Sectors such as education, hospitality and aviation, had last year cut jobs as Covid-19 control measures halted their economic activities. The gradual reopening of the economy has come to their rescue.

Thousands of teachers serving in private schools had lost jobs, but many were reabsorbed when learning resumed in January after a nine-month disruption.

Private sector jobs for September expanded at the fastest pace since January as firms raced to clear order backlogs, the Stanbic Bank Kenya’s Purchasing Managers Index (PMI) showed.

Companies have also stepped up hiring for the fifth month in a row, while salaries have grown at the fastest rate in three months, a stark contrast with last year.

Salaries have grown at the fastest rate in three months, a stark contrast with last year. [Wilberforce Okwiri, Standard]

The improving economic situation for households has spread the recovery to firms in the insurance sector, which had been hit by policy surrenders last year. Now requests for policy cancellations have dropped, and new business in classes such as life covers is coming in.

Increasing investment income and a rise in the value of shares at the Nairobi Securities Exchange (NSE) has added to the sector’s recovery.

The NSE has since January gained over Sh500 billion and even touched Sh2.921 trillion on August 17, driven by banks and Safaricom rallies.

This was the highest level in the history of the bourse.

The rise in market share prices is a reprieve to investors given that they saw a Sh322.74 billion loss of their wealth last year as equities lost the shine at the height of Covid-19 uncertainties.

The State is also feeling the impact of the increased pace of economic activities as seen in the 25.8 per cent growth in tax revenues to Sh441.8 billion in the quarter ended September.

The July-September collections were Sh17 billion above target, raising hope that President Uhuru’s 13-point economic stimulus rolled out on Mashujaa Day would serve as a sweetener to the ongoing economic recovery.

“It is now time to shift our focus from survival to co-existing with the disease,” said Uhuru, adding that the stimulus package would accelerate the recovery.

While the economic indicators are looking up, the State will have to keep an eye on threats such as a new wave of infections, the drought situation in northern Kenya and rising political tensions going into next year’s General Election.