The SARS virus, which also originated from China in the year 2003 has striking similarities to the new Coronavirus (COVID-19), with both being transmitted through respiratory droplets.
Despite the mortality rate of coronavirus being lower than other recent outbreaks, the virus is likely to affect the global economy in a major way mainly due to a longer incubation period and high infectious rate. Coronavirus has spread to all habitable continents of the globe affecting many economies than the SARS virus but according to the World Health Organisation, COVID-19 could affect the global economy more than the SARS virus.
When the SARS outbreak hit the globe, China was the sixth-largest economy accounting for only 4.2 percent of the world’s Gross Domestic Product (GDP) as compared to now, when the country is the second-largest economy and accounting for 16.3 percent of the world’s GDP. This is according to Cytonn report.
Kenya reported its first case of coronavirus on March 13, and despite the outbreak, the country had already begun experiencing the adverse economic effects of the pandemic.
The first major hit Kenya felt was the net selling position by investors in the stock markets. Most foreigners who had invested in the Kenyan stock market began selling their stocks as the virus began spreading to different parts of the globe.
Many foreign investors, who often purchase blue-chip stocks, have been selling their equity holdings to purchase gold and fixed income securities due to the much uncertainty in the market.
Disrupted Supply Chains
The spread of the virus has also disrupted the global supply chain and Kenya has not been spared either. Imports from China account for approximately 21.0% of Kenya’s total imports and with the current lockdown, activities within the manufacturing sector are likely to be disrupted.
According to Cytonn’s report, the low supply of imports from China as well as South Korea especially in terms of electronics could see prices rise to exorbitant levels. Local supermarkets have already indicated that the prices of electronics, clothes, and furniture many of which are imported from China are likely to rise.
The outbreak of the virus has already exerted pressure on the shilling due to the lockdown in the global supply chains. The shortage of imports from China is likely to force local importers to look for alternative import markets, which may be more expensive and as such higher demand for the dollar from merchandise importers.
The high demand for the dollar from foreigners exiting the market is also likely to cause the depreciation of the shilling.
Diaspora remittances to Kenya is expected to fall to its lowest as the consequences of lockdown in Europe due to coronavirus. Diaspora remittances stood at Kshh280 billion last year.
Recently the remittances have become the largest contributor to forex reserves, which the Central Bank of Kenya (CBK) uses to stabilise the currency.
Uncertainty in global markets
With the rising uncertainty on global markets, CBK indicated that it was seeking to purchase Ksh40.5 billion from banks in the next four months to bolster its dollar reserves which stood at Ksh8.4 billion as at March 13.
According to an investment firm Cytonn Investments, with Europe feeling the effects of coronavirus pandemic, the decline in economic activities globally will result in a massive reduction in disposable incomes
“This coupled with increased prices of household items abroad might see a reduction in money expatriated into Kenya,” said Cytonn report.