The Kenyan economy contracted by an estimated 1 per cent in 2020 compared to a 5.4 per cent growth in 2019 according to the World Bank.
The contraction came in as the economy took a hit from Covid-19 which led to reduced consumer demand both globally and locally, disruption of supply chains, job losses coupled with the Covid-19 prevention measures announced by the government.
Most economic activities in the service sector that demand manufactured goods such as the hospitality industry came to a near halt.
There is optimism that there will be a recovery in 2021 with economic output forecasted to rebound with real GDP increasing by 6.9 per cent on the assumption that there will be increased domestic and global demand following the easing of containment measures and increased international travel.
The East African economy is expected to experience normal weather that will support agricultural production and its strong linkage to industrial and services sectors.
According to the Kenya Association of Manufacturers (KAM), Kenya’s economy continues to be dominated by the services sector with a 49.7 per cent contribution to GDP. In the association’s latest report Manufacturing Priority Agenda 2021, it is worth noting that the share of agricultural output in the economy has been increasing from 31.1 per cent in 2015 to 34.8 per cent in 2019 while the services sector’s has declined from 52.5 per cent in 2015 to 49.7 per cent in 2019.
In the same period, the industrial sector contribution to GDP exhibits a declining trend, shrinking from approximately 16.4 per cent to 15.5 per cent. The continued dominance of the tertiary (service) and primary (agricultural) sectors signals a slow pace of structural transformation towards an industrialized economy.
Since Kenya trades a lot with countries in Africa, the effects of the pandemic which also hit the region saw trade decline substantially.
The International Monetary Fund (IMF) notes that Sub Saharan Africa (SSA)’s economy contracted by an estimated 2.6 per cent in 2020 in comparison to a growth of 3.2 per cent in 2019. The hardest hit are the oil-exporting and resource intensive countries which are projected to witness the sharpest contraction of their economies.
Covid-19 triggered expansionary fiscal policy responses across all categories of economies in Africa. The expansionary fiscal policy widened fiscal deficits in the continent heightening the likelihood of a widespread sovereign debt crisis if debt is not properly managed.
SSA’s economy is forecasted to grow by 3.2 per cent in 2021. Risks to the region’s economic recovery include continued spread of the coronavirus, subdued commodity prices; tight and volatile global financial conditions; and natural catastrophes—such as floods, other extreme weather events, and the desert locust swarm invasion in East Africa, according to the AfDB.
Globally, the economy is projected to recover in 2021 with a growth of 5.5 per cent. Emerging and developing economies are expected to post a 6 per cent growth while growth in advanced economies is projected to be 4.3 per cent. However, the forecasts rests on public health and economic factors that are inherently difficult to predict.
Risks to economic recovery include public health response towards the pandemic especially for contact-intensive sectors; the extent of global spill overs from reduced consumer demand, weaker tourism, and lower remittances; financial market sentiment and its implications for global capital flows.
According to KAM, the manufacturing sector is the engine of growth that drives an economy.
KAM Chief Executive, Phyllis Wakiaga, says that there is consensus among policymakers, academicians and researchers that hope rests in promoting industrial manufacturing for countries mired in poverty. Kenya, which is East Africa’s investment hub is already making efforts to industrialize, guided by aspirations set out in Vision 2030 among other development programmes.
In 2020, the unprecedented health crisis and economic crisis due to the Covid-19 pandemic ravaged economies and businesses and destroyed livelihoods.
A KAM, KPMG Survey revealed that Covid-19 severely impacted the manufacturing sector in Kenya.
Nonetheless, manufacturers are optimistic that they will weather the storm created by the pandemic. To address the challenges in the manufacturing sector, KAM has come up with a Manufacturing Priority Agenda (MPA) themed, ‘From surviving COVID-19 to thriving: Manufacturing sector rebound for sustained job and investment growth’.
The MPA outlines proposals to support robust economic and manufacturing sector recovery, consistent with the government’s post-Covid-19 recovery strategy. The Priority Agenda highlights the importance of a competitive local manufacturing sector.
With the globalization of world economies, it is impossible to insulate production or demand from global competition and changes. As such, manufacturers in Kenya must battle it out with formidable competitors such as China, India, Egypt, and South Africa. Improving regulatory efficiency, promoting access to quality, affordable and reliable energy, reducing transport and logistics costs, and enhancing cash flow for manufacturers will drive our competitiveness.
The Agenda also outlines the need to enhance market access. Promoting the consumption of locally manufactured goods will forestall the overdependence of the Kenyan economy on imported goods. Additionally, diversifying our export markets will overcome limitations arising from small domestic markets.
Need for business certainty is also prominent in the Agenda. Of particular interest is the need to create a healthy manufacturing ecosystem through sound policy, regulatory and institutional framework to foster innovation, forward and backward linkages and dynamic economies of scale.
Small and Medium Enterprises (SMEs) development is also crucial. For SMEs to thrive, we must address access to markets, access to finance and governance challenges. Industry’s resilience and sustainability are essential to our economic growth. We will continue to spearhead the advancement of a sustainable and inclusive sector through green growth and skills development.
Wakiaga says that in this regard, the MPA is aligned to Sustainable Development Goals on Sustainable Cities and Communities, Responsible Consumption and Production, Affordable and Clean Energy and Quality Education, and the UN Global Compact Principles. We will also nurture nascent and emergent business opportunities uncovered by the Covid-19 pandemic. To achieve this, the Association will work closely with both national and county governments and development partners towards Kenya’s industrialization vision.