Economist David Ndii has analysed in detail the economic shock awaiting the nation, giving his opinion on the harsh times ahead and who between the middle class and the jua kali artisans would survive a collapse of the economy.
On Thursday, April 16, the intellectual in an opinion article, argued that in a prolonged crisis, formal establishment workers (middle class) are more exposed to job losses and financial insecurity as compared to those in the micro and small enterprise informal sector (jua kali).
"The jua kali economy is better cushioned and, as counter-intuitive as it may sound, the 'job insecure' jua kali workers are more economically secure," Ndii states.
According to the financial expert, questions were raised when he wrote a letter to President Uhuru Kenyatta on Wednesday, March 25, asking him to protect Kenyan workers, many wondering how his plan would shield mama mbogas, saloon workers, barbers and other artisans. Ndii insinuated that the middle-class and the rich were blinded by projecting that the crisis would ravage the less privileged rather than them.
"It was lost to these people that mama mboga would continue to be in business, and might, in fact, benefit from the switch from eating out to eating at home. Not a single person who engaged me on this issue came across as worried for themselves.
Using an aggregate demand, Ndii also set out to explain how private consumption, private investment, government consumption, government investment and exports would be affected.
Private consumption is comprised of food, which will survive but the restaurant business will not, as many had chosen to eat from home. This may lead to a 60 per cent economic contraction. In private investment, some firms will complete projects that are underway and others would shelve theirs. This may lead to a 75 per cent contraction.
On exports, as most countries were affected, trade had scaled-down and a best-case scenario would be a 50 per cent contraction. Government consumption would not be affected as it can move money from low to high-priority spending, i.e from travel to health. On investment, it may continue developing projects, which may be affected by a slow down, and this may account to a 25 per cent disruption. On average, the country may be affected by a 35 per cent contraction, which translates to Ksh390 billion per month.
Ndii estimated that the pandemic may go up to 6 months or a year, based on matters such as finding a vaccine, and the country may lose up to Ksh2.3 trillion.
"A contraction of this scale will shed a lot of jobs. Cities and towns, Nairobi in particular, will be the most badly hit. In another month, a quarter of the Nairobi metropolitan area population—about 1.5 million people—may not have a penny to their name. Even a daily survival budget of Ksh50 works out to Ksh75 million a day. It is doubtful that private charity can sustain this for a week, and we are talking months.
"In a prolonged crisis, formal establishment workers are more exposed to job losses and financial insecurity than those in the micro and small enterprise informal sector, and the higher up the managerial ladder, the more the exposure. Why so? In the micro and small enterprise economy (MSMEs), jua kali as we call it, many enterprises engage own-account workers. For instance, hairdressers, mechanics and carpenters who work for themselves and pay a portion to the business owners.
"When business is down, people work fewer hours and earn less, but no-one is laid off since they are not on the payroll in the first place. We would characterise jua kali as a flexible wage economy, while the corporate sector as a rigid wage economy," Ndii clarified.
He explained more on wage rigidity/flexibility, stating that if wages were as flexible as the prices of goods, earnings would rise in boom time and decline during downturns.
"The problem with a contract wage economy is that workers get pay rises when the economy is doing well, but wont to take pay cuts during downturns (we say that wages are “sticky downwards”) so the only way businesses can reduce costs when business is low is to lay off some workers.
"The jua kali economy is better cushioned because they share the work available and get a lower income instead of some earning a lot and others nothing. Moreover, given these flexible arrangements and volatile incomes, many of these workers are diversified. That is, they seldom depend on one income stream. As counter-intuitive as it may sound, the 'job insecure' jua kali workers are more economically secure," Ndii detailed.
