Coronavirus might slow down Kenya’s growth prospects

The coronavirus outbreak is sending ripples around the world given its effect on human life

The pandemic highlights pitfalls in the globalisation narrative and may present a challenge for global governance as mistrust among countries emerges most notably on China’s statistics about the outbreak.

As Kenya steps up efforts to contain the spread of the virus, it is now obvious that this will need to go beyond public health preparedness. Sovereigns will need strong buffers — fiscal and monetary to cushion their economies from the impact of this threat.

The rising cost of the outbreak on businesses and economies should become clearer in March with preliminary manufacturing and factory data from China, US and other key markets in the European Union and Asia.

The delayed reopening of factories after the Lunar New Year and the ongoing quarantine to contain the spread of the virus is already taking a toll on businesses.

Firms with considerable Chinese exposure are downgrading earnings outlook for the first quarter of 2020.

Apple has indicated that the slump in iPhone demand in China, as well as shortages due to the closure of its plant in China, could hurt overall sales. Jaguar is projecting it could run out of car parts if their plant in China is not reopened by this week.

According to the International Air Transport Association, air travel is expected to fall for the first time in more than a decade — slashing $29.3 billion in revenues this year.

Whereas the bulk of the current analysis has focused on a scenario where the virus is contained and its effects short-lived, the risk of further spread and persistence cannot be gainsaid.

Kenya may not be immune to public health issues and resultant supply chain disruptions.

While no case of coronavirus has been confirmed in the country, the continued flow of human traffic from China and other infected countries risks having the country flagged as highly exposed to the deadly virus, dampening travel into Kenya due to its limited capacity to contain the virus.

This would have ramifications for the travel industry with a potential negative spillover to the tourism sector as people cut back on non-essential travel. The rising infections in Europe, notably Italy, pose risks to the sector, the main source of tourist to the country. Already, Kenya Airways has indicated that it stands to lose more than $10 million in revenues after it suspended its flights to China. Moreover, the reliance of some domestic manufacturers and retailers on imports from China may prove catastrophic.

China is undoubtedly Kenya’s single largest source of imports. Over the last two years, supplies from China represented 20 percent of total imports, with the bulk of it being industrial supplies and household goods.

Some traders are already reporting dwindling business confidence on increased supply chain disruptions, which have hit stocks.

A step up in action to contain the spread beyond the self-quarantine increased allocation of funds to the health sector may go a long away in sustaining confidence not only in the economy but also in Kenya.

The writer is senior economist, NCBA Group.