What Britain’s economic tumble means to Kenya
Lewis Njoka @LewisNjoka
The UK government yesterday announced the country’s economy had officially entered into recession for the first time in 11 years with experts saying its knock-on effect on local economy will manifest in various ways.
A recession occurs when gross domestic product (GDP) – the total value of all final goods and services produced during a particular year –falls in two consecutive quarters, indicating that economic activities such as working, spending, investing, and trading have been falling for a prolonged period.
For Britain, GDP shrank by 20.4 per cent in the second quarter of 2020 following another dip registered in the first quarter of 2020 where a 2.2 per cent contraction saw service, construction and production industries record significant drops.
Nikhil Hira, a director at Bowmans, said Covid-19 restrictions in the UK coupled with recession, had eroded people’s purchasing power which affects the amount of goods they could import from Kenya.
He, however, noted that the development was unlikely to affect a post-Brexit deal with Kenya, saying the planned deal was a long- term arrangement.
Trade volume
Raphael Matu, an economic advisor says Kenya’s volume of trade with the UK could reduce considering that with recession productivity in the country has also gone too.
“With reduced productivity trade goes down, without trade you will not have the resources so interaction also reduces.
So we expect probably slow trade and this will have implications in terms of exchange earnings.
He said the recession may also affect tourism resulting in reduced foreign exchange earning as well as reduced economic support to local development organisations.
Latest Kenya National Bureau of Statistics (KNBS) data shows that the UK has overtaken Netherlands and the US to become the third biggest buyer of Kenyan goods, in the wake of coronavirus-induced lockdowns.
Export earnings from UK soared by 12.22 per cent in the first quarter of the year to Sh13.29 billion compared to a similar period in 2019.
Economist Tony Watima, however, says the development in the UK will have very little impact, adding that trade between the two nations is not likely be affected by the recession.
“We don’t depend much on the pound, there is little link we can say a recession in the UK will affect us compared to a recession in the US,” he added.
According to Watima, if the recession lasts long, investors in the UK could turn to emerging markets such as Kenya to invest.
