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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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Finance

Digitalization crucial to SIDs’ COVID-19 recovery, long-term development

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The upscaling of digital technologies presents a host of opportunities for small island developing states (SIDS) to diversify their economies, boost manufacturing, gain greater access to global value chains, and improve disaster preparedness. However, significant obstacles remain, including inadequate digital infrastructure, insufficient training opportunities for women and young people, a growing digital divide, and a lack of data and policy knowledge. That’s according to an expert panel convened for the Global Manufacturing and Industrialisation Summit’s Digital Series on the topic: “How Information and Communication Technologies can foster inclusive and sustainable industrial development in Small Island Developing States”.

Ralf Bredel, Chief of the Asia-Pacific Regional Programme at the United Nations Industrial Development Organization (UNIDO), said that SIDS share common challenges such as limited resource bases, long distances to primary markets, and vulnerability to climate change.

“ICT has the potential to help SIDS in overcoming some of the challenges derived from the isolation and remoteness. It can support trade in economic diversification. This is even more true under the current circumstances, with COVID-19 and the restrictions on people’s movements and the heavy blow to SIDS’ economies in relation to their continued reliance on tourism,” said Bredel.

Vanessa Gray, Head of the Division for Least Developed Countries (LDCs), Small Island Developing States (SIDS) and Emergency Telecommunications at the International Telecommunication Union (ITU), added, “We know that small islands are naturally prone to disasters caused by earthquakes and severe weather events and are being affected by climate change, resulting in increased tropical cyclones, hurricanes, flood and landslides, to name a few. Connectivity can help address these events by providing remote communities with access to early warning systems, real-time weather information, remote sensing and geographic information systems.”

Gary Jackson, Executive Director of the Caribbean Centre for Renewable Energy and Energy Efficiency (CCREEE), said that countries in the region are “pushing the envelope” towards energy efficiency.

“We have to recognize that islands don’t have what we call a supergrid, don’t have a lot of interconnections that would give us reliability and availability and that’s what people really want,” said Jackson. “So one of the things we have to consider is how we move towards decentralization, decarbonization and some of the things that we need to do to ensure that reliability, availability and affordability are consistent with what people require.”

Michelle Marius, Publisher of the ICT Pulse blog highlighted a continuing gender gap concerning digital employment. “We do have so many girls and women in the workforce. Many of them, sometimes even in management positions in reputable organisations, but somehow we still have not been able to crack that barrier between women in tech and digital entrepreneurship by women” she noted.

Amjad Umar, Director and Professor of ISEM (Information Systems Engineering and Management) programme at Harrisburg University of Science and Technology, said, “We know that, in many cases, SIDS do not have 3G technologies – they are still at 2G range. So, we specifically designed this plan (for the ICT4SIDS Partnership) that produces solutions that would work with very, very low technologies…”

“Digitalization consists of people, processes and technologies,” underlined Umar.

Concluding, moderator Martin Lugmayr, Sustainable Energy Expert at UNIDO, stressed that there is a long way to go towards realizing inclusive and sustainable industrial development in SIDS, particularly in light of current circumstances. “COVID-19 recovery must have a long-term perspective. Iit has to be green, it has to be blue in the case of Small Island Developing States, and it has to be digital,” he said.

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Human Rights

UN officials fear US terrorist designation will hasten famine in Yemen

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© UNICEF

Senior UN officials have expressed concern over the potential impact of the decision by the United States to designate Yemen’s Ansar Allah, more commonly known as the Houthi movement, a terrorist group, the Security Council heard on Thursday. 

Briefing the online meeting, UN Special Envoy Martin Griffiths said Yemen was going through dark times following a deadly attack last month on its newly-formed Cabinet, and with millions facing potential famine, but emphasized that peace is still possible. 

Mr. Griffiths condemned the 30 December attack at the airport in Aden, which targeted the Government officials who had just arrived from Saudi Arabia.  Dozens of civilians, aid workers and a journalist were also killed. 

“The attack cast a dark shadow over what should have been a moment of hope in the efforts to achieve peace in Yemen. The formation of the Cabinet and its return to Aden was a major milestone for the Riyadh Agreement and for the stability of state institutions, the economy, and the peace process”, he said

“The Government has launched an investigation into the Aden attack and has made its conclusions public earlier today that Ansar Allah was behind the attack.” 

‘Chilling effect’ on peace efforts 

For more than five years, Yemen has been mired in conflict between the internationally-recognized Government, which is backed by a Saudi-led coalition, and Houthi rebels. 

On Sunday, the United States announced it will designate the group a Foreign Terrorist Organization (FTO) under domestic law.  Mr. Griffiths expressed serious concern over this prospect. 

“We fear in my mission that there will be inevitably a chilling effect on my efforts to bring the parties together. We all hope to have absolute clarity on far-reaching exemptions to be able to carry out our duties”, he said. 

Yemen remains the world’s worst humanitarian crisis. Some 16 million people will go hungry this year, and 50,000 are already essentially starving to death, amid a shortfall in aid.  Preventing a massive famine is the most urgent priority, the UN Humanitarian Affairs chief and Emergency Coordinator told ambassadors. 

Yemenis stockpiling food 

Mark Lowcock called for the FTO designation to be reversed, which Mr. Griffiths also supported, outlining its potential impact on aid relief in a country that overwhelmingly relies on food imports.

He explained that humanitarian agencies provide food vouchers or cash to needy Yemenis so they can shop at markets. 

 “Aid agencies cannot, they simply cannot, replace the commercial import system,” he stressed.  “What this means is that what the commercial importers do is the single biggest determinant of life and death in Yemen.” 

Mr. Lowcock reported that Yemenis are already rushing to markets to stockpile food, while commercial traders fear the designation will affect their operations.   

“Some suppliers, banks, insurers and shippers are ringing up their Yemeni partners and saying they now plan to walk away from Yemen altogether”, he said.  “They say the risks are too high. They fear being accidentally or otherwise caught up in US regulatory action which would put them out of business or into jail.” 

Although the US plans to introduce licences so that some aid and imports can continue, the relief chief said further details will not be available until 19 January, the day the designation takes force. 

Reverse designation, or face catastrophe 

The head of the World Food Programme (WFP), David Beasley, gave a blunt assessment of the prospects, putting aside his prepared remarks to speak “heart-to-heart”. 

“We are struggling now without the designation. With the designation, it’s going to be catastrophic. It literally is going to be a death sentence to hundreds of thousands, if not millions, of innocent people in Yemen,” he said. 

Mr. Beasley, an American, also removed his “UN hat” for a moment, to speak about his engagement with Washington, which allocated $3.75 billion to WFP last year.  

“I’m very grateful for that”, he said. “But this designation, it needs to be re-assessed, it needs to be re-evaluated, and, quite frankly, it needs to be reversed.” 

Mr. Beasley added that Yemen is among several countries facing famine, and the COVID-19 pandemic has only exacerbated these crises. 

The WFP chief called for Gulf States “to pick up the humanitarian financial tab for this problem in Yemen”, and urged the Council and world leaders to apply pressure on the warring parties to end their fighting. 

 “I can assure you that Mark Lowcock and I will be before you pretty soon talking about other countries,” he said.  “And if we can’t solve this one – this is man-made completely – shame on us.”

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Development

World Bank Plans to Invest over $5 Billion in Drylands in Africa

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The World Bank plans to invest over $5 billion over the next five years to help restore degraded landscapes, improve agriculture productivity, and promote livelihoods across 11 African countries on a swathe of land stretching from Senegal to Djibouti.

World Bank Group President David Malpass announced the investment at the One Planet Summit, a high-level meeting co-hosted with France and the United Nations that is focused on addressing climate change and biodiversity loss.

“This investment, which comes at a crucial time, will help improve livelihoods as countries recover from COVID-19 while also dealing with the impact of both biodiversity loss and climate change on their people and economies,” said Malpass.

The more than $5 billion in financing will support agriculture, biodiversity, community development, food security, landscape restoration, job creation, resilient infrastructure, rural mobility, and access to renewable energy across 11 countries of the Sahel, Lake Chad and Horn of Africa. Many of these efforts are in line with the Great Green Wall initiative. This builds on World Bank landscape investments in these countries over the past eight years that reached more than 19 million people and placed 1.6 million hectares under sustainable land management.

“Restoring natural ecosystems in the drylands of Africa benefits both people and the planet,” said Moussa Faki Mahamat, Chairperson of the African Union Commission.  

Working with many partners, PROGREEN, a World Bank global fund dedicated to boosting countries’ efforts to address landscape degradation, will also invest $14.5 million in five Sahelian countries – Burkina Faso, Chad, Niger, Mali, Mauritania.

The World Bank Group is the biggest multilateral funder of climate investments in developing countries. In December 2020, the World Bank Group announced an ambitious new target for 35% of its financing to have climate co-benefits, on average, over the next five years.

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