Report: State of the Economy- 2021 Year in Review
This report was published by FSD Kenya on April 27, 2022. Anzetse Were co-authored the report.
The performance of the global economy continues to be defined by the COVID-19 pandemic with the war in Ukraine worsening the outlook for the world economy and Africa.
For Africa ,the war in Ukraine will exacerbate food insecurity, increase fuel and food production costs, and push up the cost of living. Key global risks include the emergence of new COVID-19 variants which could prolong the pandemic and induce renewed economic and supply chain disruptions, energy price volatility, and high uncertainty around inflation and policy paths.
In Kenya, the economy rebounded in 2021 from the economic contraction of 2020 with the GDP for H1 2021coming at an average of 5.4% and Q3’ 2021 growth at 9.9%. However, GDP growth partly reflects a large base effect given particularly poor performance in 2020 in the services sector (Kenya’s growth engine), which rebounded except for accommodation and food services.
Agriculture performance fell, having been a bastion of stability to which many Kenyan’s turned to for survival in 2020. The sector absorbed 1.6 million additional workers, increasing its share of employment from 47% to 54% in one year.
Poverty declined through 2021, but remained above pre-pandemic levels, with rural areas experiencing a slower decline. The COVID-19 pandemic has reversed the gains made in poverty reduction in the last two decades by pushing approximately 6.2 million Kenyans into poverty. In terms of financial health, in 2021, only 15% of adults had an ability to secure basic daily needs, cope with the costs of unexpected shocks, and invest in their livelihoods and future. Personal goals made a slight shift from future oriented ones such as education, towards more pressing needs such as getting a job and putting food on the table. Drivers of this deterioration include COVID-19 but also more structural features such as inflation, high dependency ratios, lack of broad income growth, and limited economic opportunity.
Divergent MSE recovery continues: 34% of MSEs reported to have closed, 25% were struggling and only18% recovered or were generating revenues of at least 75% of their pre-Covid revenues. More of the larger MSEs closed and while revenue ‘recovered’ for some businesses, profits have been affected due to external factors such as stock price increases. This means that the ‘recovered’ business owner may not be in a better financial position or at the same level of profit as pre-COVID.
A key lever that has proven resilient through the pandemic is diaspora remittances which totalled a record USD3,718 million in 2021 or approximately 3% of Kenya’s GDP. Efforts to retain and grow remittances can address the high cost of remitting cash, inadequate information on investment opportunities in Kenya for the remitters and leveraging the diaspora’s preference for digital service providers.
The Digital Economy also remains a bright point: The value of mobile money transfers has more than doubled since the start of the pandemic; mobile data usage almost doubled, and more people are connected to faster mobile internet. The adoption of digital payments increased through the pandemic and ‘digitally advanced’ MSEs have been better able to survive and recover.
Sustaining and increasing social protection coverage and supporting the creation of good quality jobs and appropriate demand-oriented policies is important in ensuring a recovery process that is inclusive. Protecting the economy and Kenyans from climate-related shocks and building climate resilience will be crucial given the share of economic activity, labour and livelihoods reliant on climate-sensitive sectors such as agriculture, fisheries & aquaculture, livestock, water, energy and even tourism.
Engendering justice, peace and stability during the election period will be crucial for the country to stand a chance at generating the momentum required for an equitable and robust recovery from COVID.