What is the true cost of Covid-19 to Kenya?

Covid-19 in Kenya, Africa and the world

The unprecedented Covid-19 pandemic that has resulted in well over one million confirmed cases globally, threatens nations’ economic, financial and social well-being. More than 90,000 people have already succumbed to the virus. Within just a couple of weeks, the virus has spread to almost every country in the world and governments are racing to slow down the spread of the virus in the hope of eventually eradicating it and bouncing back from its aftermath.

In Africa, there have been over 10,000 confirmed cases, out of which 1,174 have recovered and over 500 have succumbed. In Kenya, as of Saturday, (April 11, 2020), the country has 191 cases and this number is projected to rise.     

Direct costs of the pandemic

Adverse financial implications are expected from this pandemic, given the rapid spread that denies countries enough time to acquire resources to counter its effects. The demand for personal protective equipment (PPE) such as masks, gloves, eye protection as well as suits for health workers is on the rise, which in effect leads to inflated prices to the end consumer. The wholesale price of masks, initially at Sh500 for 50 masks now trades at Sh1,700 and is expected to continue to rise.

The directive requiring all citizens to wear masks in public places is expected to further lead to surges in prices. The price of hand sanitizers also went up drastically following the confirmation of the first case in Kenya but has since normalized as a result of the Government’s intervention.

Kenyans will be subjected to high out-of-pocket expenditure during this pandemic. A Covid-19 PCR-based test costs as much as Sh13,000. Thanks to automated testing machines such as the one hosted at the Kenya Medical Research Institute which has a high throughput, capable of delivering over 5,000 tests per day, the cost of tests is expected to reduce.

The cost of treating the different symptoms of Covid-19 such as fever, headaches, coughing and pneumonia further contribute to the heavy financial burden on individuals in the fight against the pandemic due to the increased demand for pharmaceutical products.

Severe cases of Covid-19 necessitate intensive care. The number of ICU beds and ventilators is limited and the capital and operational expenditure associated with increasing the number of these infrastructures is high with the cost of setting up an ICU unit averaging at Sh9 million.

Indirect and broader costs of the pandemic

Beyond the direct impact of the pandemic on the healthcare system, the opportunity costs of the pandemic are significant. As governments focus on Covid-19, resources are inadvertently repurposed away from addressing other pre-existing disease areas – a fact that will likely result in a worsening of health outcomes in other disease areas.

In the middle to long term, countries are likely to experience a downward reclassification of their economic status. For instance, lower-middle-income countries like Kenya may be downgraded to lower-income levels. Considering that several global financing mechanisms (such as the Global Fund and GAVI), are pegged on co-financing from beneficiary country governments and the fact that the share of co-financing is computed in part based on a country’s income level, there is a risk that these governments will fail to meet their co-financing obligations.

This portends the risk of reversing the gains made so far in terms of both health outcomes and the transition of developing countries away from over-reliance on external financing towards sustainable domestic financing mechanisms.

What should Kenya do?

Efforts by the Government such as salary and budget cuts, provision of a 100 per cent tax relief on persons with income of up to Sh24,000 as well as reduction of the income tax rate from 30 per cent to 25 per cent, reduction of turnover rates for SMEs and allocating funds to help the elderly and less fortunate will go a long way in helping citizens cope during the harsh economic times ahead.

Reduction of the Central Bank Rate (CBR) by 100 basis points during the last Monetary Policy Committee (MPC) meeting in a bid to increase credit available to individuals is also expected to cushion the economy against the expected shocks as a result of Covid-19.

The war has only begun, and the country is yet to experience one of the worst economic times in history as confirmed cases as well as the death toll keeps rising.

In response to the crisis, there are certain initiatives and enhancements that merit consideration. This includes an expansion of the emergency response fund composition to include healthcare professionals in addition to corporates and institutions and seeking low-cost debt in addition to the contributions made so far. Beyond this, there is value in considering floating a “Covid-19" bond with proceeds ring-fenced to fund Covid-19 response. 

Governments ought to also proactively engage its creditors and negotiate moratoriums on existing debt. Beyond this, there is merit in exploring debt swap agreements where expected debt repayments are redirected towards interventions that address the on-going pandemic.

Dr. Rono is the Managing Partner at E&K Consulting Firm

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Eileen Bonareri and Jacinta Waruguru are Business Analysts at E&K Consulting Firm.