Economy grows nerves as second wave COVID-19 restrictions loom

    Economy grows nerves as second wave COVID-19 restrictions loom

    Businesses are growing uneasy as Kenya registers a second surge in the number of COVID-19 cases signalling a potential return to restrictions.

    Barely three weeks ago, the wider economy was in a jubilant mood as President Uhuru Kenyatta expanded the ease to COVID-19 restrictions to include the re-opening of bars and the variation of the commencement of the curfew to 11pm.

    On September 28, the ease of restrictions signalled a restart to economic activity with many expecting an improvement in the operating environment into the final quarter of the year.

    For instance, bar owners moved to restock their business as revellers begun to stream back into pubs and night clubs.

    A section of Kenya has also since enjoyed live concerts under the ‘new normal’ in the last couple of weekends.

    Moreover, even the Kenya Revenue Authority (KRA) has been warming up to the improvement of conditions and have been expectant of the return of key revenue streams such as excise duty.

    High frequency economic data including the Kenya National Bureau of Statistics (KNBS) leading economic indicators (LEI) and the Stanbic Bank Purchasing Managers Index (PMI) have backed up the observed optimism as exports and new customer orders recover.

    Deja vu

    Nevertheless, the recently found optimism may be standing on quick sand should restrictions to contain the pandemic return.

    In his last address to the nation, President Uhuru Kenyatta cautioned against high expectations as the COVID-19 situation remains fluid in what he termed as a ‘season of paradoxes’.

    “Since March this year when we recorded the first COVID-19 case, it became necessary to shutdown the economy in order to save it. We face an even greater paradox. As we flatten the corona curve, it appears like victory is in sight,” he said.

    “Yet in these achievements are a paradox in themselves. I say so because the greatest danger is always at that moment of victory. In fact, experience has taught us that we are most vulnerable and fragile at the moment we think we have won.”

    Two weeks on, the Kenya is seeing a steep rise in the number of COVID-19 cases signalling a likely review to containment measures.

    For instance, the seven day moving average number of new infections has risen to 376 to October 14 compared to 164 in the week to September 30.

    On Tuesday, Health Chief Administrative Secretary Rashid Aman warned of a potential return to restriction sighting the rise in cases while the country recorded 604 new COVID-19 infections a day later on Wednesday.

    “We will have to take action to restrict movement or close schools if the numbers will rise,” he said.

    His sentiments echoed those made by President Kenyatta who has not been shy to remind Kenyans of the return to tough containment measures.

    “I will not hesitate to escalate containment measures in the event that any of these indicators that we know start to rise again,” President Kenyatta said on September 28.

    To invest or not?

    With the looming return to part or all of the restrictions, businesses now face a dilemma on whether to scale up operations or not.

    According to David King’oo, a Business and Economics Analyst at 14F Consulting Group, the decision by the majority of enterprises will be to slam the brakes on new investments.

    “It would be difficult for a business to restock as one does not know what happens the very next day. If a company was eyeing expansion before, the firm is likely to wait this decision out,” he stated.

    King’oo warns the return of restrictions will likely result in far reaching consequence including a further banking sector asset deterioration as businesses default on loans in a contraction to operations.

    On his part, Genghis Capital Head of Equities Research Gerald Muriuki says new restrictions would dampen the investments environment even as he expects a lower severity of any new measures.

    “I would expect some form of restrictions but not as severe as those seen in March and April. Cautiousness among investors is likely to persist especially among large investors and manufacturers,” he said.

    Second wave

    Globally, the world is seeing a second hit of infections especially in Europe, forcing a restoration of containment measures.

    In France for instance, President Emanuel Macron has announced a night curfew stretching from 9pm to 6am across nine cities- to begin on Saturday.

    Further afield, Spain’s Catalonia said bars will close for fifteen days effective Thursday while the Czech Republic has shut schools and bars.

    As the number of COVID-19 cases in Kenya begin to rise again, health experts have puzzled the capacity of the sector to handle a surge in hospitalizations.

    “The worry is whether our health system can handle an increase in the number of COVID-19 positive cases,” AMREF Africa Group CEO Githinji Gitahi said Citizen TV’s Jeff Koinange Live show on Wednesday.