Covid impact hurts workers’ ability to send relatives cash

About eight in 10 workers are unable to send cash to their relatives in rural Kenya in the wake of the Covid-19 economic hardships, says a new survey, which reveals that majority of households have not felt the impact of the reduction in VAT from 16 to 14 percent.

According to the poll released Sunday, 79 percent of Kenyan workers interviewed were not in a position to support their dependants financially.

The finding indicates deepening poverty levels, especially in rural areas, where households rely on cash remittances from relatives working or running businesses in towns and cities.

The impact of social distancing, night curfews and closure of businesses like bars and schools has impacted on consumer spending as well as workers’ ability to meet their obligations.

More than half of the respondents interviewed between May 28 and June 2 said that their salaries have been reduced by companies struggling to remain afloat, making it difficult for them to meet basic expenditure needs like paying rent.

About 72 percent of the respondents said households had not seen a drop in product prices after the VAT drop in April 1. The cost of basic goods like detergents, cooking oil, electricity, airtime and services like pay TV subscriptions dropped after the cut in consumption tax. However, the drop was not significant enough to register an impact for consumers.

The reduction in VAT was part of the raft of measures announced by President Uhuru Kenyatta in March to ease the pain on households facing lower incomes arising from the slowdown in the economy caused by the Coronavirus pandemic.

This was the first time in seven years that Kenya had reduced VAT after including more commodities under this tax category in 2013. Among the goods whose VAT was lowered are books, phones, electronics, computer hardware and software and newspapers. Raw foods are exempted from the tax.

“The problem does not end with the inability to pay for basic necessities, the rent crisis facing most urban Kenyans is real with 63 percent of Kenyans saying they are unable to pay their rent on time,” said the survey.

The Infotrak survey signals worsening poverty rates from the loss of income by those in the working age bracket.

Kenya already had a high age dependency ratio of about 82 percent before the pandemic.

Age dependency ratio refers to the proportion of the population that is dependent (those aged zero to 14 and more than 65 years) who rely on the working age population (15 to 64 years).

It is a measure of the economic burden of the productive population, which has suffered from unemployment and underemployment for decades.

Some 771,439 youths lost their jobs in the three months to March and before the imposition of Covid-19 restrictions that triggered further layoffs and pay cuts, recent Kenya National Bureau of Statistics (KNBS) data revealed.

Among those polled, 84 percent of Eastern residents said they can no longer support their dependants, followed by those residing in Coast (83 percent), Western (82 percent) and Nairobi (81 percent).

“Fifty-four percent of employed Kenyans also stated that they are facing financial challenges because their salaries have been reduced while 47 percent of all Kenyans intimated that they are currently depending on some sort of food donation or the other from well-wishers,” Infotrak said.

Most of the financial aid to relatives flows from towns to rural areas as captured by various studies on the impact of mobile money platform M-Pesa on person-to-person cash transfers.

Daily average mobile money transactions for deals above Sh1,000 each dropped 18.4 percent in the period Kenya imposed Coronavirus movement restrictions, underlining the impact of the infectious disease on workers and the cash flow of businesses.

Central Bank of Kenya (CBK) data shows that the daily average mobile transactions for high-value deals dropped to Sh5.57 billion between April 20 and May 10 compared to Sh6.83 billion before March 16—just four days after Kenya announced its first Covid-19 case.

Respondents also reported other financial challenges including difficulty paying rent and settling loans.

The government has started easing restrictions to soften the blow on the economy even as coronavirus infections continues to rise, topping the 4,300 mark.

A total of 1,200 respondents were targeted in the Infotrak study that was conducted through computer-assisted telephone interviews between May 28 and June 2, 2020.

The poll covered 24 out of the 47 counties including Nairobi and those in Eastern, Coast, Central and Rift Valley regions.

Infotrak says Kenyans now see the pandemic as presenting more of an economic threat than a health risk.

“Today, the situation is different with more people feeling that the coronavirus pandemic presents a personal finance dilemma at 41 percent while 35 percent still feel the pandemic presents both a personal health and personal finance dilemma and those who deem the virus from a primarily health perspective has risen from eight percent to 16 percent,” the study says.