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COVID-19: Ravages of the pandemic

The disease caused by the new Corona Virus has infected millions,claimed lives,restricted movements and disrupted economies worldwide.

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COVID-19, the disease caused by the new coronavirus, which was first reported in the Central Chinese city of Wuhan late December 2019, has since spread across the globe and caused devastating effects to economies.

New cases of the virus are being reported daily around the world. And countries had to adopt sweeping measures including announcing full lockdowns, shutting down airports, imposing travel restrictions or completely sealing borders to contain the spread of the virus.

By June 7th 2020, more than 400,000 people had died from the disease, while some 6.9 million infections were confirmed in at least 188 countries and territories, with the United States leading with infections- at 1.9 million cases and 109, 802 deaths, followed by Brazil (672,846 cases and 35,950 deaths), then Russia (467, 073 cases and 5,851 deaths), among scores of human costs worldwide.

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Nations across the globe enforced limited entry, with some, such as the United States issuing a Level 4 “do not travel” advisory- the highest travel advisory the federal agency can issue, recommending that United States citizens avoid any global travel, The New York Times reported.

With such restrictions, businesses have had to cope with lost revenue and disrupted supply chains as factory shutdowns and quarantine measures spread across the globe, restricting movement and commerce.

International travel

Flights at the JKIA airport,Nairobi:Aviation sector is one of the worst hit globally

On 5th March, before the US travel ban was announced, the International Air Transport Association (IATA) predicted COVID-19 outbreak could cost airlines $113 billion in lost revenue as fewer people take flights.

The International Civil Aviation Organization (ICAO) would on June 5th publish a statement estimating that the global aviation industry could incur approximately USD 302 to 402 billion potential loss of gross operating revenues of airlines in the year 2020- depending on duration and magnitude of the outbreak and containment measures, degree of consumer confidence for air travel and economic conditions- with an overall reduction of passengers of between 2,300 to 3,080 million and an overall reduction of seats offered by airlines from 39 percent to 53 percent.

Already, the wave of disruptions to air travel caused by the epidemic had led to an 80 percent drop in air traffic at China’s busiest airports during the time of review, as analysts projected the impact on the global aviation industry to be greater than that of SARS.

Besides the impact on airlines, ICAO forecast that Japan could lose $1.29 billion of tourism revenue in the first quarter due to the drop in Chinese travelers, while Thailand could lose $1.15 billion.

In Africa, where the virus had infected more than 260,000 people across the continent as of May, the African Airlines Association (AFRAA) released a report estimating revenue loss of USD 8.103 billion for the continent’s airlines for the year 2020, with a further 90.3 percent year on year passenger traffic reduction for the month of May.

“The availability of liquidity is the main issue to be addressed for airlines to survive and restart their operations. Without it, airlines can simply not survive this pandemic long enough to restart their operations. AFRAA urges African governments to consider a bailout and stimulus package that compensates for the significant losses, reduces the burden of the ongoing operating costs and subsidizes the industry’s survival and recovery,” noted AFRAA Secretary General, Mr. Abdérahmane Berthé.

Despite some African national carriers resuming international flights (like Kenya Airways (August 1), Egypt Air (1st July) and Ethiopian Airlines (13th July), albeit with reduced schedules, key industry leaders such as Qatar Airways CEO Akbar al-Baker say the pandemic will cause huge financial losses to the industry.

Already, airlines such as South African Airways were struggling with bankruptcy even before the pandemic. Some either face collapse or have filed for bankruptcy due to widespread stay-at home orders, while others have taken to the skies with renewed optimism.

 Hospitality and Tourism

The World Travel and Tourism Council (WTTC), on the other hand, estimates losses of 100 million jobs and up to USD2.7 trillion impact on GDP. Of the 100 million jobs at risk, according to WTTC, almost 25 million were estimated to be in the G20 countries.

In Africa, at least USD50billion in revenue losses is projected for the tourism and travel sector, with more than 2 million jobs at risk, according to a Deloitte report published in May.

Kenya’s tourism industry, for instance, which contributes about 1.6 million jobs (8.5 percent of total employment) registered improved performance in 2019 mainly attributed to growth in aviation, investor confidence and withdrawal of travel advisories, increasing tourism earnings by 3.9 percent from Ksh157.4 billion in 2018 to Ksh163.6billion in 2019. The number of international arrivals increased by 1.2 percent from 2million arrivals in 2018 to 2.1 million arrivals in 2019.

But with the COVID-19 pandemic, leisure and conference tourism, both external and domestic, face possible collapse owing to travel restrictions which stopped international tourist arrivals, while social distancing measures have affected domestic tourism and conferencing.

Kenya’s leading hotels, including Tribe Hotel, Ole Sereni and DusitD2, stopped operations days after travel restrictions and social distance rules were imposed, with the iconic Fairmont Norfolk shutting down indefinitely and firing its employees. The 51-year old Intercontinental Hotel (Nairobi) followed suit, closing down its Kenyan subsidiary and sending home all its staff early August. The Kenyan government has however set aside Ksh500million to recover the hospitality industry, while urging for domestic tourism to keep the industry afloat.

Agriculture

Africa’s agricultural sector, which remains the backbone of various economies in the continent, has also faced a huge scare from the pandemic.

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Kenya’s flower sector has for instance been losing approximately Ksh20million daily, according to clement Tulezi, the Kenya Flower Council CEO. And is estimated to lose half of its value of Ksh120billion (2019 valuation) by end of 2020.

“Approximately 30,000 temporary workers have been laid off and another 40,000 permanent staff sent on unpaid leave,” the Council noted, raising fears the sector could collapse if the pandemic is not contained.

Ethiopia’s agricultural sector isn’t any better. Accounting for about 33.3 percent of the country’s GDP, the sector has lost output due to prolonged locust invasion, drought and the pandemic, and is expected to decline by 1.6 percent in 2020, possibly leading to food shortages for an estimated 30 million people.

A downward trend in global demand pressure has reportedly reduced prices for coffee and tea in Uganda’s major import markets. Continued decline of prices over the coming months is expected to affect approximately 500,000 small-scale coffee farmers in the country.

Already, locust invasion in the North Eastern parts of Uganda had reduced agricultural output. And with the global lockdowns and trade restrictions, reduction in agricultural production is expected.

Manufacturing

Honda North America Company:The plant was temporarily shut downearly 2020 due to Corona Virus pandemic Courtesy(CNBC)

The pandemic has further taken a toll on the global manufacturing industry, resulting to factory closures, increased unemployment and decline in production & supplies. Global vehicle sales is, for instance estimated to decline by 19 percent in 2020 from about 90 million sales in 2019 to an estimated 73 million sales in 2020.

The passenger car segment is projected to decline by 11 percent, a USD100 billion loss in revenue. Financial Times reported that UK new car sales fell by 97 percent in April, ‘putting Britain’s motor industry on track for its worst year in almost three decades.’

However, a glimmer of hope beckons as several global automotive manufacturers had by May announced plans to open up their plants, albeit with caution. In the US, for instance, Honda, Toyota and FCA restarted operations, even as the county’s vehicle sales is estimated to decline by about 24 percent in 2020 as China’s decline by around 14 percent during the year.

As one of the big four agenda for the Kenyan government, manufacturing is critical for Kenya’s economic growth and development, contributing about 7.7 percent to the country’s GDP in 2019. COVID-19 presents mixed impact to the sector with certain subsectors likely to boost production to meet essential goods demand, while others may suffer depressed demand and production activity.

According to Deloitte’s Economic impact of the COVID-19 pandemic on East African Economies report: “Food and health products manufacturing are likely to stay afloat. Food production will be boosted by persistence of domestic demand for food items, while health products manufacturing will benefit from expected expansion in manufacturing of essential medical and protective equipment to deal with the unfolding pandemic.”

The Kenyan government put in place several fiscal, monetary and institutional policies to combat the pandemic. In addition to the Ksh79.3billion Rapid Credit Facility by IMF, Ksh5.3 billion from the World Bank and Ksh7.4 billion funding from the Central Bank of Kenya, it remains to be seen how the Kenyan government will cushion critical sectors to remain afloat post-COVID-19.

In Tanzania, exports averaged USD5.4 billion in 2019 and is expected to decline to USD5.1billion in 2020, while goods imports which averaged USD8.6billion in 2019 are expected to decline to USD8.1billion in 2020.

The country’s tourism sector, which contributes about 6.5 percent to GDP whilst providing more than 1.5 million jobs, is projected to take a hit due to closure of hotels and global travel restrictions. Tanzania’s aviation sector had experienced a 1.5 million decline in passenger traffic in Q1 2020, resulting in a USD310 million revenue loss and risking of about 336,000 jobs.

Tanzania’s GDP was initially estimated to increase by 5.3 percent in 2020, down from 6.3 percent in 2019. However, following the COVID-19 pandemic, GDP growth is expected to decline to 2 percent in 2020. The Country reopened late June after three months on lockdown, with President John Magufuli announcing a coronavirus-free state and instructing sectors to reopen for normal business.

Shrinking economic growth 

Overall, the global economic growth has been projected to shrink from the effects of the pandemic.

Analyses from IMF and the World Bank estimated cumulative loss to global GDP over 2020 and 2021 from the pandemic to be around USD9trillion, greater than the economies of Japan and Germany combined.

More than 170 countries are set to experience lower GDP per capita compared to their 2019 average values, as global oil prices decline by 42 percent in comparison to the 2019 average price.

Previously high growth economies in East and West Africa such as Ghana, Cote D’Ivoire, Senegal, Ethiopia, Kenya and Tanzania are expected to see considerably slower GDP expansion in 2020, but still with positive growth rates.

Africa’s projected GDP growth of 3.2 percent for 2020 is now expected to recess to -0.82 percent, according to data from the May 2020 Deloitte report.

The article has been updated to capture some of latest developments in various industries, since the original done early May. The writer is the Editor at The East African Business Times magazine. You can reach him at oduor@eabusinesstimes.com for comments.

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