The economy risks shedding off ksh1 trillion in the event that the Coronavirus pandemic is not contained in the near future.
According to a report by McKinsey and Company released on Friday, April 3, the low projections in the economic growth have been as a result of the crippling of various foreign exchange earners due to the pandemic.
“The biggest impacts in terms of loss to GDP are reductions in household and business spending (about 50 per cent), disruption to supply chain for key inputs in machinery and chemicals (about 30 per cent), and tourism (about 20 per cent),” a breakdown of the report reads.
The report further indicates that in the event in which the pandemic is contained, the country would still post a loss in the Gross Domestic Product (GDP) to the tune of Ksh300 billion.
“Under the contained-outbreak scenario, GDP growth could decline from 5.2 per cent (after accounting for the 2020 locust invasion) to 1.9 per cent—representing a reduction in GDP of Ksh300 billion,” McKinsey announced.
The data firm informed that the COVID-19 pandemic is primarily a health crisis and a human tragedy, but it also has far-reaching economic ramifications not only in Kenya but Africa in general.
“In Africa, it is already disrupting millions of people’s livelihoods, with a disproportionate impact on poor households and small and informal businesses – and the pace of this disruption is likely to accelerate in the weeks ahead,” McKinsey warned.
The data firm advised that African countries address major economic challenges in the coming weeks, including; the impact of the global pandemic on African economies, the economic impact of the spread of the virus within Africa, and the collapse of the oil price, driven by geopolitics and reduced demand in light of the pandemic.
“For Africa’s economies, the implications of these challenges are far-reaching. A slowdown in overall economic growth is already being felt, and this is acute in hard-hit sectors such as tourism.
“Many businesses, particularly SMEs, are under significant cost pressure and face potential closure and bankruptcy. That is likely to lead to widespread job losses. At the same time, the pandemic will impact productivity across many sectors.
“Closures of schools and universities could create long term human capital issues for African economies – and could disproportionately affect girls, many of whom may not return to school. Not least, the crisis is likely to reduce household expenditure and consumption significantly,” McKinsey foretold.
The firm further announced that in four scenarios it had looked into, the most optimistic was that Africa’s GDP could be cut down to 0.4 per cent, a scenario which in their opinion, seemed more and more impossible as the days go by.
This scenario focused on the case where there is a contained global and Africa outbreak of the COVID-19 pandemic.
“In this least-worst case, Africa’s average GDP growth in 2020 would be cut from 3.9 per cent (the forecast prior to the crisis) to 0.4 per cent. This scenario assumes that Asia experiences a continued recovery from the pandemic and a gradual economic restart.
“In Africa, we assume that most countries experience isolated cases or small cluster outbreaks—but with carefully managed restrictions and a strong response, there is no widespread outbreak,” McKinsney posited.
This scenario focused on the event where there is a resurgent global outbreak of the pandemic but the spread is contained in Africa.
“Under this scenario, Africa’s average GDP growth in 2020 would be cut by about five percentage points, resulting in a negative growth rate of −1.4 per cent.
“Here we assume that Europe and the United States continue to face significant outbreaks, while Asian countries face a surge of re-infection as they attempt to restart economic activity. In Africa, we assume that most countries experience small cluster outbreaks that are carefully managed,” the firm reported.
This scenario envisions a situation where a global outbreak is contained but cases in Africa are widespread.
“In this scenario, Africa’s average GDP growth in 2020 would be cut by about six percentage points, resulting in a negative growth rate of −2.1 per cent. This assumes that significant outbreaks occur in most major African economies, leading to a substantial economic downturn.
“Globally, we assume that Asia experiences a continued recovery and a gradual economic restart, while large-scale quarantines and disruptions continue in Europe and the United States,” the firm stated.
This scenario envisions a situation where there is a resurgent global outbreak and widespread cases in Africa.
“In this case, Africa’s average GDP growth in 2020 would be cut by about eight percentage points, resulting in a negative growth rate of −3.9 per cent.
Globally, we assume that Europe and the United States continue to face significant outbreaks as China and East Asian countries face a surge of re-infection. In addition, significant outbreaks occur in most major African economies, leading to a serious economic downturn,” McKinsey informed.