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COVID-19 Dampens Kenya’s Economic Outlook as Government Scales up Safety Net Measures

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Kenya’s gross domestic product (GDP) is projected to decelerate substantially in 2020 due to the negative impact of the COVID-19 (coronavirus) pandemic. Economic growth projection remains highly uncertain and the outcome will hinge on how the pandemic plays out internationally and within Kenya, along with policy actions taken to mitigate the situation. The latest World Bank Kenya Economic Update (KEU) predicts growth of 1.5 percent in 2020 in the baseline scenario, with a potential downside scenario of a contraction to 1.0 percent, if COVID-19 related disruptions in economic activity last longer.

The government’s immediate action has focused on strengthening the health system which faces an extraordinary challenge to contain the spread of COVID-19 and care for the infected. Further health policy measures such as working from home, travel restrictions, the closure of schools, the suspension of public gatherings, and a nightly curfew, are necessary to delay the spread while the country ramps-up investment in its healthcare systems. Nonetheless, they are also quite costly to the economy by reducing social interaction, production and demand across all sectors.

“We recognize that Kenya must balance between reducing the spread of the virus and cushioning Kenyans particularly informal workers and youth who make up 70 percent of the population from the adverse economic effects posed by COVID-19,” said Felipe Jaramillo, World Bank Country Director for Kenya. “In partnership with other development partners, we are supporting the Government of Kenya through financing and technical advice to strengthen its health systems capacity to contain the spread COVID-19.”

The hardship from the crisis would disproportionately befall the poorest and the most vulnerable households in Kenya. Many of these depend on farming (for the rural), self-employment and informal wage (for the urban). Protecting their earnings and reaching households through cash transfers is considerably more challenging due to a nascent system of social safety nets, lack of proper physical address system, and updated welfare registers. It is critical, therefore, for the country to scale up available social assistance programs to provide poor households with food, water, and other basic supplies to cope with the crisis. It is also important, to customize COVID-19 spread containment measures to reflect local context and peculiar constraints faced by government such as limited fiscal space, and much less operational capacity to respond to help households and firms weather the crisis.

Supporting small businesses and protecting jobs to cope with the negative effects of COVID-19 crisis is particularly critical at this time,” said Peter W Chacha, World BankSenior Economist and Lead Author of the report. “This could be done by ensuring that vulnerable households have cash-on-hand, workers continue to receive salaries – even when temporarily laid-off-and that firms have enough cashflow (to pay workers and suppliers) and avoid bankruptcies.” 

Kenya’s medium-term growth is projected to rebound fast (to about 5.6 percent over the medium term), on assumption that investor confidence will be restored soon after the COVID-19 pandemic is contained. The greatest uncertainty to this outlook, however, is the extent of the impact of COVID-19 global pandemic on Kenya. Unanticipated large-scale community transmission of COVID-19 could disrupt domestic economic activity more severely and reduce growth below the baseline. Residual risks include potential for drought and a second-round of locust invasion in mid-2020, which could reduce agricultural output and hurt rural incomes.

The report’s policy section focuses on options to strengthen healthcare system and testing capacity, to support firms, and to protect the most vulnerable households to cope with the COVID-19 global pandemic.

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Burkina Faso ‘one step short of famine’

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In Burkina Faso, the number of people facing a critical lack of food has increased. UNOCHA/Giles Clarke

Unless access is urgently granted to humanitarian organizations, thousands in the Central Sahel will be “pushed into further destitution”, the UN emergency food relief agency warned on Monday.  

Ahead of Tuesday’s High-Level Ministerial Conference on the Central Sahel in the Danish capital Copenhagen, the World Food Programme (WFP) sounded the alarm that catastrophic levels of hunger could hit parts of Burkina Faso, Mali and Niger.  

‘Tragic’ food insecurity spike 

Violence and insecurity have pushed 7.4 million people in the Central Sahel region of West Africa into acute hunger, according to WFP. 

Additionally, the number of internally displaced people has risen from 70,000 two years ago to nearly 1.6 million today – including over 288,000 in Mali, more than 265,000 in Niger and over one million in Burkina Faso, which is now home to the world’s fastest growing displacement crisis. 

“When we can’t get to vulnerable communities, we’re seeing tragic spikes in food insecurity”, said Chris Nikoi, WFP Regional Director for West Africa.  

He explained that “dreadful violence and conflict” in parts of northern Burkina Faso have left over ten thousand people there “one step short of famine”.  

“The world cannot wait to take action until children, women and men have died”, stressed the WFP official. 

Food deliveries on the way 

As the delivery efforts of humanitarian organizations have been jeopardized by worsening conflict and insecurity, life-saving assistance to the neediest communities has become inaccessible. 

Moreover, aid workers are increasingly targeted by non-State armed groups in Burkina Faso, Mali and Niger.  

WFP, which was recently awarded the 2020 Nobel Peace Prize, is urging conference participants to find ways for organisations to engage with communities and all actors on the ground to open safe passageways for humanitarian assistance to reach those in need.  

A worrying outlook 

Meanwhile, in response to the deepening crisis and growing needs, WFP has continued to ramp up lifesaving assistance, reaching more than 3.4 million people in August alone.  

In scaling up to meet the growing needs in Burkina Faso, WFP worried about its financial outlook.  

The UN agency has already been forced to reduce rations from July and risks, by next month, a break for emergency assistance to displaced people who – having fled their homes, farms and jobs – have no other options. 

Building resilience   

At the same time, WFP is working to strengthen resilience-building support for at-risk communities.  

Its interventions include rehabilitating community assets, improving degraded land, feeding students, and community-based nutrition activities, to prevent and treat malnutrition.  

Since 2018, more than one million people have benefitted from WFP’s integrated resilience activities in Niger, Mali and Burkina Faso. 

Humanitarian event 

The UN is co-hosting the conference in Denmark along with Germany and the European Union. 

It will feature on Tuesday, a ministerial round table that follows up on a virtual 8 September meeting, focused on forward-looking plans relating to humanitarian action, development and peace efforts, among other things.

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Africa Today

EU steps up support for Africa’s Central Sahel countries

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European Union, Denmark and Germany and the United Nations co-host a virtual Ministerial Roundtable on Africa’s Central Sahel region, with the participation of donors and international organisations, as well as the countries concerned: Burkina Faso, Mali and Niger. The event will discuss longer-term perspectives for countries in the region to overcome the spiral of violence and humanitarian crises they are currently facing. It also aims at mobilising support for the region, especially as coronavirus pandemic increases humanitarian needs.

Representing the EU at the event, Janez Lenarčič, Commissioner for Crisis Management, will pledge a total of €43.6 million on behalf of the EU to the three countries in the Central Sahel region for the rest of 2020.

Janez Lenarčič, said: “Throughout recent years, the EU has been particularly committed to the Sahel and international support provided has been significant. Yet, the security, social and humanitarian situation in Central Sahel is only deteriorating. In face of this dramatically worsening situation, together – the international community and the governments concerned – we must do better, more and act fast. Only by addressing the deep-rooted causes can we succeed in providing a better life to the people caught in the crises afflicting the region.”

Jutta Urpilainen, Commissioner for International Partnerships said: “Today’s conference is a very clear sign of our solidarity towards the Sahel region and its people. Our €20 million support to the World Food Programme will help the most vulnerable in Burkina Faso, Mali and Niger, and especially pregnant and breastfeeding women and young children. We hope to assist 65,000 people next year with this project. If we all join forces along the peace-development-humanitarian nexus and our partner countries take responsibility for improving governance and reforms, I am convinced that we can make a difference for the people in the Sahel. Team Europe will keep on supporting the people of Sahel.”

The EU’s pledge consists of:

  • €23.6 million in funding for humanitarian actions in Burkina Faso, Mali and Niger.
  • €20 million in development funding to address the food crisis afflicting the Central Sahel region, in cooperation with the World Food Programme.

Overall, EU and the EU Member States have mobilised around €8 billion since 2014 to help stabilise the Sahel region.

Background

Burkina Faso, Mali and Niger are at the core of one of the world’s fastest growing humanitarian crises created by a combination of conflict, climatic changes and poverty. It is estimated that a staggering 13.4 million people across the Central Sahel are in need of humanitarian assistance.

In 2020, the EU has mobilised a total €84.6 million in humanitarian assistance for Central Sahel countries, including the amount that will be pledged today. In June 2020, the EU also organised two EU Humanitarian Air Bridge flights to Burkina Faso, carrying 26 tonnes of humanitarian supplies and equipment needed for the coronavirus response in the country.

Since 2014, the EU has invested more than €3.4 billion in development cooperation for the three Central Sahel countries Burkina Faso, Mali and Niger, with the objective to strengthen the capacities of the state in the long term, while providing a short and medium-term response to the needs of the most vulnerable population. The investments covered a broad range of areas: from security; good governance; transparency; public finance; the respect of human rights to basic social services (education, food security and health).

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Lao PDR: Poverty Continues to Decline but Progress under Threat

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Lao PDR has made remarkable progress in reducing poverty over the past 25 years, with the proportion of the population living in poverty falling by more than half, from 46 percent in 1993 to 18 percent in 2019. The finding comes from two reports just released by the Lao Statistics Bureau and the World Bank. But the good news comes with a caveat: some of the gains made against poverty could be erased by the impact of the COVID-19 pandemic on the Lao economy.

The Poverty Profile in Lao PDR is based on the latest Lao Expenditure and Consumption Survey (LECS), carried out nationwide in 2018-19. The report was launched along with the Poverty Assessment 2020: Catching Up and Falling Behind, which analyses thesurvey data in more depth and explores the factors behind emerging trends. Data from the LECS shows that the national poverty headcount rate declined by 6.3 percent over six years, from 24.6 percent in 2013 to 18.3 percent in 2019. This means, however, that almost a fifth of Lao people are still living on incomes below the 2019 national poverty rate of 9,364 kip (US$1) per day.

Rising farm incomes and remittances have helped people in different parts of the country escape poverty”, says Mme Phonesaly Souksavath, Head of the Lao Statistics Bureau. “Rural areas have narrowed the poverty gap with urban areas, where poverty has fallen less quickly. Poverty declined notably in the south, thanks to cash crop production, and in the north, where employment opportunities have become more common”.

At the same time, several factors have slowed down poverty reduction in different regions, with a scarcity of jobs outside the agricultural sector leading to an overall increase in inequality. Wages have increased by almost 60 percent for those with jobs, but many people have not been able to access the opportunities provided by employment. This is especially true in the central provinces, where poverty reduction has stalled.  

“The data shows that most of the families under the poverty line share one or more characteristics: their head of household is from an ethnic minority group, has a low level of education, or has no access to employment,” says Nicola Pontara, World Bank Country Manager for Lao PDR. “Government policies have helped narrow geographical income gaps. However, not enough jobs are being created to distribute the benefits of economic growth equitably”.

According to both the Statistics Bureau and the World Bank, the economic effects of COVID-19 pose a severe challenge to efforts to end poverty in Laos. The pandemic has brought an unprecedented employment shock, putting pressure on an already-weak job market. At the same time the return of migrant workers, particularly from Thailand, has led to a substantial fall in remittances. The Poverty Assessment report estimates that poverty will increase by 1.4 to 3.1 percent in 2020, compared to the 0.6 percent decline that would have been expected with no COVID-19. Given these challenges, a broad set of interventions, targeting different groups of the poor, will be required to restore poverty reduction momentum in Lao PDR.

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