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Economic programme is good, but it falls far short of the needs

Sunday May 24 2020

EMPLOYMENT

Together We Can youth group clean-up Jomo Kenyatta Avenue in Mombasa. PHOTO | FILE | NATION MEDIA GROUP 

TONY WATIMA
By TONY WATIMA
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On Saturday, President Uhuru Kenyatta unveiled a Sh53.7 billion Eight-Point Economic Stimulus Programme to cushion families and companies as we navigate our way out the Covid-19 pandemic.

In the economics of a lockdown, each shilling spent is likely to have a stimulating impact. It is from this understanding that governments are playing the central role in trying to stabilise their economies, just like in wartime, through economic stimulus packages.

Let us start by asking the question: is Sh53.7 billion sufficient to mitigate the Covid-19 impact?

African countries are estimated to lose more than half of their GDP growth to the Covid-19 impact — they were expected to have four per cent GDP growth in 2020.

So if they are losing this much, it means government stimulus packages should be around two per cent of GDP.

Namibia’s plan was at 4.25 per cent of GDP, Egypt at 1.8 per cent, Ethiopia’s at 1.6 per cent (but to be implemented in three months), while South Africa has the biggest at 10 per cent, but only half will actually be spent, which brings it to 4.5 per cent.

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For Kenya, a two per cent of GDP stimulus programme is around Sh200 billion. The Sh53.7 billion unveiled by the President is 0.5 per cent of GDP, so the plan is underwhelming. Let us now delve into the elements of the eight-point programme.

LOSS OF INCOME

The biggest shock to the economy has been income shock as people lose salaries and businesses shut down.

This systemic income shock means the demand side of the economy is depressed. Therefore, we expect to see the government address the demand side.

For example, South Africa plans to spend $5 billion to protect and create jobs. In Kenya’s plan, we see the government’s intent to spend Sh5 billion to hire local labour under the infrastructure element and another 10 billion to engage 200,000 youths in restoring public hygiene.

The government is also disbursing a total of Sh1 billion a month to vulnerable families.

This cannot be equated to a response to the demand side of the economy — it is not stemming the loss of livelihoods. In fact, most people who stand to benefit are those who were out of the labour market.

The government also plans to make set aside Sh3 billion for affordable credit to SMEs. This has worked well in India. But the amount is peanuts.

COMMERCE

We are talking about a sector that employs close to 15 million people and contributes more than 30 per cent to the national economy.

At a time like this when they are facing their biggest existential threat, we should be seeing an allocation of about Sh40 to 50 billion.

Lastly, in commerce, there is the concept of double coincidence of wants — the hunter wants arrows and the arrow-maker wants meat, leading to an exchange.

When the government says it plans to enforce “Buy Kenya, Build Kenya” in an economy whose demand-side is depressed, is the government really in touch with reality?

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