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Kenya Economic Update, November 2020 | Edition No. 22 - Navigating the Pandemic

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Kenya Economic Update: COVID-19 Erodes Progress in Poverty Reduction in Kenya, Increases Number of Poor Citizens

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The new Kenya Economic Update finds that COVID-19 has damaged livelihoods, especially affecting women, youth, and refugees One in three Kenyan workers are employed by firms facing high risk of temporary or permanent closure and reduced revenues, highlighting the vulnerability of household incomes Protecting livelihoods to prevent households from falling into longer-term poverty is essential, the report notes, and could be achieved by expanding the beneficiary base of existing social protection programs NAIROBI, November 25, 2020 – The economic and social disruptions induced by the COVID-19 (coronavirus) pandemic have eroded progress in poverty reduction in Kenya, forcing an estimated two million more Kenyans into poverty.

Using data to track the impact of the crisis on firms and households, the 22nd edition of the Kenya Economic Update, Navigating the Pandemic, finds that the pandemic and measures to mitigate the spread of the virus are creating multiple challenges for Kenya’s private sector, with severe consequences for household jobs and incomes.

“COVID-19 poses an unprecedented shock to the economy, disrupting economic activity,” said Keith Hansen, World Bank Country Director for Kenya. “The government, with the help of partners, needs to ensure that the shock remains temporary, by targeting support to the most vulnerable affected households.”

How have households faired during COVID?

Data analysis from two parallel rapid response surveys conducted by the World Bank and partners confirms that private sector firms are facing lower demand due to reduced consumption and demand for inputs. This has been compounded by disrupted supply chains, limiting access to intermediate goods, labor and sales channels. Local businesses also face weaker access to cash and credit. Lastly, uncertainty is dampening prospects for investment and innovation.

The negative impact of COVID-19 on the private sector has trickled down to household welfare via reduced job opportunities and lower earnings. Unemployment has almost doubled compared to its pre-COVID level. Wage workers–and especially women–who are still employed face a reduction in working hours and earnings. Almost 1 in 3 household-run businesses are not operating currently, with revenues decreasing across all sectors. Remittances have fallen, and few households have benefitted from direct cash assistance. Youth are also negatively affected by the pandemic, with revenues and profits strongly reduced for micro-enterprises run by young entrepreneurs, with only few of them making use of government and non-governmental organizations (NGO) support programs.

“Kenya has made considerable progress with poverty reduction over the last years, but COVID-19 has destroyed the livelihoods of many Kenyans, pushing an estimated two million people into poverty,” said Utz Pape, World Bank Senior Economist in the Poverty & Equity Global Practice of the World Bank. “A swift and well-targeted response is needed to protect livelihoods and avoid trapping more people in long-term poverty.”

The report also notes human capital losses, as only few children have had access to their teachers during school closures and continued to be involved in meaningful educational activities, something that especially rural and vulnerable households struggle with. Access to healthcare has also been significantly impeded, with three in 10 households reporting less access to healthcare than before the pandemic.

Policy options to protect businesses and households

For firms, the report recommends four buckets of policy responses: supporting the liquidity of viable firms, enhancing firms’ digital capabilities, improving access to information, and improving targeting criteria for interventions to support businesses. For households, the Kenya Economic Update emphasizes the need to secure access to food, while supporting livelihoods through social protection programs to reduce usage of negative coping strategies compromising assets or food consumption.

Despite the urgency of making such support available on a larger scale, a well-targeted approach is essential to limit fiscal costs. For example, a targeted cash transfer of KSh 20,000 to poor households would require a budget of KSh 50 billion, equal to the cost of the value-added tax relief enacted by the government. Such a cash transfer program could reach 2.5 million poor, more than offsetting the increase of poverty by COVID-19. An expansion of the number of beneficiaries is essential as the ‘newly’ poor have different profiles from the current poor, but current programs must also remain funded. In addition, new programs should be implemented within the existing government framework for social protection programs.