Sunday, Apr 18
Kenya Flower Exports Take a Blow from Second Lockdowns Across Europe

Kenya Flower Exports Take a Blow from Second Lockdowns Across Europe

Kenya is the largest and the most advanced economy in the East and Central African (EAC) region with strong growth prospects supported by an emerging, urban middle class and an increasing appetite for high-value goods and services.

Agriculture is key to Kenya's economy, contributing 26 percent of the Gross Domestic Product (GDP) and another 27 percent of GDP indirectly through linkages with other sectors. The sector employs more than 40 percent of the total population and more than 70 percent of Kenya's rural people.

The agriculture sector, according to the Food and Agriculture Organization (FAO), accounts for 65 percent of the export earnings, and provides the livelihood (employment, income, and food security needs) for more than 80 percent of the Kenyan population, and contributes to improving nutrition through the production of safe, diverse and nutrient-dense foods.

The sector is also the main driver of the non-agricultural economy including manufacturing, providing inputs and markets for non-agricultural operations such as building/construction, transportation, tourism, education, and other social services.

According to a report published by Brookings, Kenya is the major exporter and importer of the East African Community (EAC), accounting for around 46 percent of the exports and 41 percent of the imports for the whole region. Kenya is also responsible for more than half of manufacturing value-added produced by the EAC.

According to the KNBS, in 2019 up to 84 percent of all jobs in Kenya were in the informal sector excluding small-scale farming and pastoral activities.  COVID-19, declining revenues, growing public debt, and locust invasions pose major threats to Kenya’s economic recovery despite strong signs of a rebound in economic activities.

Growth Forecast

The African Development Bank Group (AfDB) has stated that the demand and supply shocks that culminated from the outbreak of COVID-19 hit all sectors especially tourism, industry, and agriculture which is still suffering from the locust invasion.

On the demand side, containment measures will reduce household consumption, slow investment, and reduce exports and imports. As a result, real GDP growth in 2020 is projected to decelerate to 1.4% (baseline), from 5.4% in 2019, and to 0.6% in the worst case.

Projections from Fitch Solutions indicate that Kenyan real GDP growth will slow from 5.4% in 2019 to 1.1% in 2020. Fitch Solutions however expects that an uptick in private consumption will lead Kenya’s economic recovery over the coming quarters, helping GDP growth to pick up to 4.4% in 2021.

Kenya’s Treasury expects growth of less than 2.5 percent compared to 5.4 percent last year, and international institutions are making lower forecasts.

COVID-19 ERA

Kenya confirmed its first COVID–19 case on 12 March 2020 and has since been battling to recover from the damages caused by the pandemic on its health system, lives, and livelihoods. 

The impact of the COVID-19 on the Kenyan economy became glare when GDP shrank 5.7% year-on-year in the second quarter, swinging from the 4.9% growth recorded in the first quarter, which marked the first contraction in at least a decade, according to Kenya’s Statistical Institute (KNBS).

The contraction is Kenya’s first quarterly contraction since the global financial crisis 12 years ago, as the Covid-19 pandemic shut businesses and kept people at home

Moreover, indicators suggest that the economy started to recover in Q3, as exports remained robust, agricultural production was strong and hotels reported a recovery in the tourism sector.

The OCHA situational report in October showed that approximately 1.7 million people are projected to be affected in the urban informal settlements in Kenya because of the COVID-19 pandemic. In urban areas, the most significant shocks usually faced affecting food security are an increase in food prices and a decrease in income or the loss of a job. Female-headed households, who constitute 30.2 percent of the poor population, are at particularly high risk.

The urban poor spend an estimated 50 percent of daily income on food, and the slowdown in economic activity due to movement restrictions has affected their ability to buy their minimum food and non-food needs.

Inflation

The AfDB indicated that escalation in supply shocks could stoke higher prices for imports and domestically produced products, fueling inflation, which is projected to tick up 5.6–5.7% in 2020, against 5.2% in 2019.

Kenya’s inflation jumped to a five-month high in October, largely driven by increased transport, electricity, and food prices.

To keep the recovery on track, at its 29 September meeting, the Monetary Policy Committee of Kenya’s Central Bank decided to maintain the Central Bank rate unchanged at 7.00%, where it has been since 29 April.

Declining Revenues & Debt

Revenue collection underperformed by Sh40 billion in the first two months of the financial year, July and August, amid the coronavirus-related disruptions. Tax collections in the three months to September dropped 14.69 percent to Sh317.6 billion, raising fears Kenya’s budget deficit for this financial year could increase due to revenue shortfalls, says the Business Daily on 3rd November 2020.

Kenya plans to spend Sh904.7 billion on debt repayments this financial year ending June 2021 from Sh707.8 billion the previous year against expected taxes of Sh1.52 trillion. This means that nearly 60 percent of taxes will be committed to debt repayments.

The fiscal deficit is projected by the AfDB Group to widen to 7.9% in the baseline, mainly due to increased health spending and the social and economic stimulus package, and expected low revenues. Public debt is forecast to increase to 68.2% of GDP in 2020 from 58% in 2019 as a result.

Broke Kenya seeks second Covid-19 loan from IMF

Kenya has for the second time in less than six months reached out to the International Monetary Fund (IMF) for budget support to weather the coronavirus economic hardships.

IMF resident representative Tobias Rasmussen said the government had asked the Bretton woods institution for another loan following the $739 million (Sh79.3) billion received in May that Kenya sought to help it respond to the economic shocks caused by the pandemic.

This signals the gravity of the country’s rapidly deteriorating cash-flow situation that is marked by falling revenues and worsening debt service obligations.

The loan will be the third from the World Bank after the Washington-based lender started issuing such financing to Kenya last year.

The Jubilee administration looks set to borrow an average of Sh2.5 billion daily before the end of President Uhuru Kenyatta’s final term in August 2022, highlighting its growing appetite for foreign debt.

Treasury Chief projects in a draft Budget Review and Outlook Paper new loans of Sh1.87 trillion in the two years to June 2022 or Sh2.5 billion daily, pushing Kenya’s debt to Sh8.06 trillion.

According to the Business Daily, if that comes to pass, Mr. Kenyatta will have borrowed at least Sh6.1 trillion to implement his manifesto in 10 years in power having inherited slightly more than Sh1.89 trillion in June 2013.

 Kenya Flower Exports Take a Blow from Lockdowns

Kenya’s flower industry, the largest exporter of blooms to Europe, saw export earnings increase in the period through July, as did those of tea and fruit compared to last year, according to data from the statistics agency.

However, the Kenya Flower Council (KFC) laments that the recent lockdowns across Europe are a blow to Kenya’s flower subsector. According to KFC CEO, Clement Tulezi, thousands of flower workers’ jobs hang in jeopardy following fresh lockdowns in England, Germany, and France.

The KFC indicated that the ongoing second lockdown will lead to reduced orders saying that prices on the auction have dropped by 20 percent. Kenya flower orders at the Royal Flora Holland’s auction in the Netherlands have fallen by 20 percent occasioned by the significant decline in demand from the United States, United Kingdom, Germany, and France.

On October 30, France began its second lockdown in just seven months in a nationwide effort to curb the resurgence of COVID19 infections. Supermarkets were ordered to close sections that sell non-essential items with the directive affecting clothes shops, florists, toyshops, and jewelers.

According to the Horticultural Crops Directorate, the European Union is Kenya’s principal market in horticultural export produce with the UK, Netherlands, and France being the main markets.

KFC stated that the first lockdown in Europe between March and August adversely affected the flower export industry. A slump in demand saw millions of stems destroyed, a rise in losses for growers, and a reduction in salaries and manpower across the board.

Tulezi calls on the Kenyan government to hold stakeholder engagement with the European authorities to lift these restrictions to safeguard jobs for thousands of Kenya flower workers. He said that there are talks with partners in Europe to push for the listing of flowers as essential products to maintain sales margins during the peak season.

Kenyan fresh flowers will use sea transport as an alternative to air transport to reach international markets. According to the Kenya Flower Council chief executive, Clement Tulezi, sea transport is cheaper compared to airfreight.

Tulezi added that the port of Mombasa has been optimized to facilitate horticultural exports through the creation of more than 560 points for the packaging of different horticultural products. Tulezi said that Kenya should emulate Colombia which exports more than 70 percent of its horticulture by sea.

In May 2020, the export value of cut flowers had a substantial decline in Kenya and amounted to roughly 6.2 billion Kenyan shillings (KSh) (about 58 million U.S. dollars). The value is also lower in comparison to the same month in 2019. The flower industry has a significant impact on Kenya's earnings.

Kenya's flower exports are projected to decline to 130,000 tons in 2020 compared to an average of 160,000 tons for the past two years due to the effects of COVID-19, the industry said.

Clement Tulezi, CEO of Kenya Flower Council said the country is only able to airlift about 3,600 tons per week to overseas markets compared to some 4,000 tons before the outbreak of COVID-19.

Kenya, now third largest economy in Sub-Saharan Africa and safest tourist destination in the world.

A new estimate by the International Monetary Fund (IMF) has placed Kenya as the 3rd largest economy in Africa, after surpassing oil-rich Angola. According to The World Bank, Kenya is likely to see a GDP growth of 1% while Angola is expected to see a contraction of 1.4%.

The new estimate comes after Angola’s chief source of revenue, oil output, declined substantially following a sharp drop in oil prices and demand globally.

Angola is the second-largest oil producer in the Sub-Saharan Africa, having an output of approximately 1.37 million barrels of oil per day, with 75% of this coming from high-cost off-shore fields.

With China, the top destination for Angolan oil reducing its demand, the Southern African country has been heavily hit by the pandemic. The recent estimates are not surprising considering that Kenya has recently stood out as one of the top African countries when it comes to crypto and bitcoin adoption in the recent months.

Kenya still maintains its position as the largest economy in East Africa and the third largest economy in sub-Saharan Africa after Nigeria and South Africa in first and second respectively.

The USAID indicated that Kenya has the largest, most diversified economy and the second largest population in East Africa. Kenya also has a young, ambitious and well-educated workforce eager to contribute to the development of the country, which has helped Kenya become a leader in mobile-money and information-and-communication technology.

The economy of Kenya is a market-based economy with a liberalised external trade system and a few state enterprises. Major industries include agriculture, forestry, fishing, mining, manufacturing, energy, tourism and financial services.

In 2019, Kenya’s economic growth averaged 5.7%, placing Kenya as one of the fastest growing economies in Sub-Saharan Africa. The recent economic expansion has been boosted by a stable macroeconomic environment, positive investor confidence and a resilient services sector.

The International Monetary Fund (IMF) indicated that Kenya’s macroeconomic fundamentals were sound before the pandemic and the authorities’ policy initiatives were directed at raising medium-term growth and reducing vulnerabilities.

Projections for 2020

Real Gross Domestic Product (GDP) growth is projected to decelerate from an annual average of 5.7% (2015-2019) to 1.5% in 2020. However, if it takes longer than expected to bring the COVID-19 pandemic under control, GDP could contract by 1.0% in 2020, and see a delay in the projected recovery to 5.2% growth in 2021.

The Economist however, expects Kenya to enter a recession in 2020, with real GDP contracting by 3.3%, owing to severe disruption to the global and domestic economy caused by the pandemic. The IMF projects that real GDP growth will drop to 0.8 percent in 2020, 5 percentage points below the pre-COVID baseline.

In the first quarter of 2020, the unemployment rate in Kenya stood at 4.9 percent, same as that for the previous quarter. The rate decreased substantially in comparison to the first quarter of 2019, when it was 6.2 percent.

Rising debt stock

One of the major challenges that emanated from the outbreak of the coronavirus is the issue of huge debt stock. Most countries across the globe are in dire needs of money to help manage the spread of the virus as well as to protect lives and livelihoods and to sustain businesses.

Kenya’s public debt is expected to soar on the back of a steep economic downturn and massive coronavirus rescue spending, which will spur government’s appetite for external loans amid requests for waivers.

The fiscal deficit as at the end of 2018 was 7.8 percent of GDP, mainly attributed to a disappointing revenue outturn and higher recurrent expenditure. Due to inadequate control of spending commitments, payment arrears of about 0.6 percent of GDP accumulated. Gross public debt rose to 62.4 percent of GDP in June 2019. 

The Budget Policy Statement (BPS), prior to the outbreak of the pandemic, planned a deficit reduction of about 1.5 percent of GDP, but further dipped to 6.3 percent of GDP. This according to the BPS, will be achieved with a combination of revenue measures (including a one-off transfer of 0.7 percent of GDP of dividends from SOEs), spending cuts, and tight expenditure controls. Given shortfalls in revenues, the IMF predicted a deficit outturn of 6.7 percent of GDP in 2020.

The Economic Survey 2020 released earlier this year shows that the national government expenditure is expected to grow by 10.6 per cent this year. It is expected to rise from Sh2.94 trillion spent in 2018/19 to Sh256.1 billion in 2019/20 financial year.

According to PDONLINE, the national debt as at the end of the first quarter of 2020, stands at some Sh6.05 trillion with a total of Sh640.8 billion expected to be spent on public debt servicing in the current fiscal year.

The country’s deficit is expected to escalate as a result of the recent borrowings which are aimed at cushioning the economy.

IMF on May 6, 2020 approved the disbursement of SDR542.8 million (100 percent of quota, about US$739 million) to be drawn under the Rapid Credit Facility (RCF). This according to the Fund, will help to meet Kenya’s urgent balance of payments need stemming from the outbreak of the COVID-19 pandemic.

As a way of cushioning the economy against the economic impact of the pandemic, the president on 25 March 2020, has outlined some tax interventions the government intends to grant the citizens. This includes a 100 percent tax relief for low income earners, reduction in the top Pay-As-You-Earn (PAYE) rate from 30 percent to 25 percent.

Others include, appropriation of KES 10 billion through cash transfers to the vulnerable members of society, Disbursement of KES 1 billion for the recruitment of additional medical personnel, reduction of the standard VAT rate from 16 percent to 14 percent, and a reduction of the resident corporate income tax from 30 percent to 25 percent.

All these are expected to result in a decline in revenues and increasing expenditures. This will finally culminate into the piling up of huge debts. It is very evident that the debt situation in Kenya will worsen.

UK Support Vulnerable Families Through Cash Transfers

The United Kingdom has announced additional funding totalling Sh717 million to support 50,000 vulnerable families living in informal settlements. The selected families will receive cash transfers through mobile money platforms to help them navigate an economic meltdown triggered by the COVID-19 pandemic. The beneficiaries will be drawn from slums in Nairobi and Mombasa. British High Commissioner to Kenya, Jane Marriott, while speaking on the funding emphasized on the need for global cooperation to defeat the pandemic.

The mobile cash transfer is part of UK's wider support to Kenya in addressing impacts of COVID-19 in Kenya. It will be delivered through UK aid funded Hunger Safety Net Programme (HSNP) which has helped deliver timely and predictable cash transfers to up to 600,000 vulnerable households in four northern Kenya counties since 2007.

Tourism in Kenya

Kenya has come in the forefront recently as the safest tourist destination in the world. This is as a result of the measures put in place by the authorities to revitalize the sector which contributes much to the Kenyan economy. Kenya has already lost more than $750 million (€656 million) in revenue from tourism since the first case of COVID-19 in the country.

The safer tourism seal Award.

Kenya is the first country globally to be awarded the recommended status of the Safer Tourism Seal by Rebuilding Travel.

The Cabinet Secretary for Tourism and Wildlife, Najib Balala, was presented with the award in a virtual event that was attended by global tourism leaders under the Rebuilding Travel umbrella, a global pro-tourism industry group composed of members of tourism boards, ministers of tourism, professional associations, industry stakeholders, researchers and academics, as well as travellers.

The cabinet secretary sees the award as a testimony to Kenya’s continued efforts to ensure travellers’ safety following the global Covid-19 Pandemic.

"

“As a destination, we have put together health and safety measures that are aimed at ensuring the safe reopening of the tourism sector. This is to ensure that our citizens, travellers, and workers are well protected. On behalf of my country I am happy to receive this recognition that shows we are headed in the right direction in regard to the Covid-19 safety protocols,” said Balala.

 

The Safer Travel Seal is crucial in building travellers’ confidence in the destination as International travel resumes and hospitality outlets re-open. The seal which is a recognizable symbol throughout the world will be key to positioning Kenya as a safe and preferred destination.

To receive this recognition, a destination must address key aspects known as tourism surety through ensuring travellers’ safety, security, destination’s reputation, economic viability, and health.

This recognition follows the Safe Travel Stamp award to Kenya by the World Travel and Tourism Council earlier in June this year.

The Destination Crisis and Issues Management Strategy has since been launched and a committee gazetted to oversee the crisis on a long-term basis.

The cabinet secretary after receiving the award encouraged tourists and other travellers to visit the East African Nation with confidence as the right measures have been put in place to ensure their safety.

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“I can say confidently that we have rolled out successfully the protocols we put in place together with the Ministry of Health. If you visit our hotels, eateries, and other tourism outlets in Kenya you will be ensured of safety if you adhere to the guidelines. I encourage all those who wish to visit our country to do so in confidence,” added Cabinet Secretary, Balala.

 

VIRTUAL TOURISM

But several African tourism associations have come up with the idea of supplying avid travellers with digital impressions of the continent during the pandemic. Virtual tourism has been on the rise.

The managing director of the Kenya Tourism Board, Betty Radier, told DW that in June, the tourism authority there initiated a live-stream drive as part of its #TheMagicAwaits campaign. It is meant to give the world a taste of what awaits in Kenya when the country is open to visitors once more.

"People are online and looking for places they could travel to. That is a great opportunity for us to present ourselves live as a destination," she told DW. Sixteen different destinations in Kenya are being live-streamed.

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