Kenyan businesses count losses from coronavirus disruptions

Kenyan businesses count losses from coronavirus disruptions

The majority of Kenyan businesses in the country have tabulated losses from the ongoing coronavirus outbreak at less than Ksh.1 million.

This indicates that the private sector could potentially walk away from the fallout in relatively good health.

A new survey on business perspectives on the impact of the coronavirus on the economy found that local trading entities rate the impact of the outbreak as very low to moderate.

The study from the Kenya Private Sector Alliance (KEPSA) comes even as the majority 61 per cent read negative business effects from the pandemic.

Nevertheless, the impact of the outbreak differs per sector basis with manufacturing and travel and hospitality set to see the worst from the outbreak.

82 per cent of the surveyed manufacturers source inputs or export finished goods to China to leave themselves with significant exposure risk.

They include delays on raw material orders from resulting supply chain disruptions.

As such, local manufacturers have begun changing tact to favor the alternative outsourcing of input goods from other markets even as the downsizing of operations features prominently.

However, the sourcing of raw materials from other markets is seen putting a strain to local manufacturing efforts as the switch up accompany higher costs due to the relative greater cost of goods from new source markets such as Brazil.

KEPSA however sees the opportunity to re-energize local manufacturing initiatives as cover to the widespread import disruptions.

“This is a golden opportunity to push Buy Kenya Build Kenya especially on textiles to support businesses of the many retailers who import largely from China,” noted the survey.

“There is need to provide targeted support to key industries to support key industries in their expansion of capacity or establish new industries to manufacture import substitutes locally”

As such, KEPSA calls for the institutions of stimulus to the sector including the introduction of tax breaks, the release of VAT refunds to support business cash flows and the reduction of corporate taxes for the travel industry by half in 2020.

On its part, the tourism sector has the highest rating of risks to the outbreak and pricing in its potential losses from the black-swan events beyond the private sector average levels.

This is as the outbreak shrinks travel activity with cancellations and trimming of flight frequencies across the world.

The disruptions throws in large doubts into the profitability of the sector in 2020 ahead of the high peak July-September season.

Mitigation strategies around the hospitality sector however exist in the promotion of regional & domestic tourism to include the development of domestic packages and the discounting of future bookings.

The hit on the hospitality sector closes matches to that of transport and logistics with flag carrier airline Kenya Airways recently reporting a loss of revenue upwards of Ksh.800 million from the freeze on Nairobi-Guangzhou flights.

Other sectors in the mix for a notable hit include finance and agriculture with the latter seeing a drop in export volumes on the back of higher input costs and suspended orders for frozen fruits and vegetables into China.

Banks are meanwhile seen taking on potential higher credit risks as businesses servicing loans see a shakeup in cash-flows from the resulting delay to ordered goods and input material.

KEPSA challenges firms to re-strategize processes around human resource management, finance & procurement and commerce to include the development of virtual work stations.

The government is meanwhile urged to put up prevention product prices (PPEs) with the view of deterring unnecessary price hikes while banks have been requested to issue out concessional funding to facilitate business.

Kenya’s balance of trade (BOT) position with China sits in favour of Kenya under prevailing conditions with imports out of the Chinese economy standing at Ksh.371 billion against exports of only Ksh.11 billion as per data from the Kenya National Bureau of Statistics (KNBS)

21 per cent of all domestic imports come from China with orders on electrical machinery, mechanical appliances, iron & steel and textiles topping the list of buys.

Meanwhile, exports to China largely compose of mineral ores including zirconium and titanium, raw hides and skins and vegetable textile fibres.

The Central Bank of Kenya (CBK) has previously anchored near term stability on the prioritization of regional trade where exports into the East African Community (EAC) and the Rest of Africa stand at 23.4 and 37.5 percent respectively.

“This is important going forward. You can see the stabilizing effect. If there are problems across the world, there is some stability around us,” CBK Governor Patrick Njoroge told a news conference on January 28.

The relative optimism by local businesses is against uncertainty on the containment of the Novel Coronavirus with the outbreak spreading out to 90 countries across the world with 99,624 confirmed cases and 3,400 deaths as of Friday.