Blog

State of the economy report

December 1st, 2021

This state of the economy report is a data brief on the key macroeconomic and households developments in Q2 an Q3 of 2021 as follows:

  • The COVID-19 pandemic led to an economic contraction of -0.3% in Kenya in 2020, the first in almost 20 years (since 2002). The contraction was more pronounced in the services sector, particularly, education, transport and storage, hospitality and accommodation, and wholesale and retail trade.
  • The services sector has been the biggest contributor to GDP growth since 2003 and approximately 84% of businesses in the country are in the sector. Thus, the disproportionate impact of COVID-19 on the sector has had broad impacts in term of income and job losses. A full rebound of the activities of the services sector will determine the pace of economic recovery.
  • COVID-19 has sharply increased poverty, the pandemic pushed an estimated two million Kenyans into poverty in 2020, raising the poverty rate by four percentage points and created a ‘new poor’ who are young, better educated and urban, and are engaged in manufacturing and services. This signals that previously economically productive and financially independent young people may go back to relying on others for their upkeep and thus increase dependency ratios on already strained households.
  • Yet, household vulnerability is increasing, with signs of increasing food insecurity, increased reliance on coping mechanisms to meet daily needs, increased assets sales and depleted savings. Further, median income was higher during the June 2020 lockdown than in May 2021, despite indications of recovery in earning opportunities.
  • COVID-19 brought total employment down to 17.4 million, down from 18.1 million in 2019, with the informal sector, women and young people disproportionally affected by job loss. Informal sector employment contracted to 14.5 million jobs from15.05 million in 2019.
  • The pandemic dampened most drivers of demand: Private consumption, the usual driver of domestic demand in Kenya, accounting for roughly 3/4 of output growth in 2019, slowed markedly in 2020 as households reduced spending amid job and earning losses.
  • The deceleration in private consumption was only partially off set by a higher contribution from government consumption, driven by increased spending to mitigate the impact of COVID-19.
  • Key bright spots are diaspora remittances and mobile money: The total monthly value of remittances hit a new high in July 2021 of over USD336 million; in August 2021 the cumulative value of remittances was up 19% from the same month in 2020. Remittance growth is being driven mainly by increases from the USA and UK. Mobile money performance remains strong, particularly in business-to-business transfers suggesting increased use of digital financial services for transfers occasioned by the pandemic could be long-term.
  • Going forward, economic recovery will be slow, anchored in deeper inequality and more economically fragile populations. The largest challenges will be how fast the vaccination rollout will be done, the management of election related tensions and the speed of business recovery (particularly the services sector) in the context of collapsed consumption.

Attachment

TAGS

CATEGORIES

Our partners

Stay informed with monthly updates from FSD Kenya

Subscribe to our mailing list