Virus dims Kenya's push for diversified economy

Exposure of tourism industry to the risk of coronavirus outbreak is set to slow Kenya’s efforts to diversify its economy away from a dependence on raw agricultural exports as a key foreign exchange earner, experts have warned.

While tourism has remained robust over the past, with earnings growing by 3.9 per cent to Sh163.6 billion in 2019, ongoing suspension of flights between Nairobi and coronavirus hotspots is set to dampen its growth.

According to the Institute of Chartered Accountants in England and Wales’ Africa update for Q1 2020, coronavirus may dim the sector in the short-term.

“The positive spillover effects of the sector to other parts of the economy, and the fact that it generates foreign exchange inflows, have prompted more African countries to prioritise tourism promotion as part of their diversification strategies,” the report states.

“Unfortunately, the coronavirus now represents a significant downside risk over the short term.”

While China still does not rival certain European countries and the US as source markets for tourists, arrivals from the Asian country into Kenya have increased sharply in recent years.

The effects have started to be witnessed as the government through the virus-monitoring task force, National Emergency Response Committee on Coronavirus suspended flights from northern towns of Italy — Milan and Verona — to keep the public safe. Italy is a high tourist source market for the Kenyan coast.

Global aviation body, International Air Transport Association also said the threat by the virus is projected to cost the global industry Sh2.98 trillion ($29 billion) in 2020, as airlines suspend or reschedule their flights due to the outbreak.

The IATA as reported by Reuters said the blow to African airlines could reach to Sh4.12 billion ($40 million).

Similarly, slower growth in China and its effect on demand for Africa’s exports are also expected to hold serious economic implications for the continent.

This follows an easing of trade tensions between the US and China that was expected to boost both local and global gross domestic product.

“The severity of the impact on China’s growth prospects will hold major implications for Africa given the continent’s close ties to the Asian giant,” said the report.

Despite all this, most East African countries have a positive economic outlook as per the report, largely due to the positive performance brought about by economic diversification underpinned by resilient domestic demand and investments in infrastructure.