Kenya: Impact of 3RD COVID-19 economic stimulus on SMEs

The Kenyan government recently announced its third economic stimulus package, injecting 25 billion shillings into the economy. The aim is to provide relief and support to various sectors that have been adversely affected by the COVID-19 pandemic. The measures introduced are geared towards easing access to credit and boosting economic activity in key areas of the economy. The stimulus package covers seven key areas that are crucial for the country's economic recovery. These include subsidies for sectors such as agriculture, education, health, youth employment, and energy. The government has allocated funds for initiatives like the construction of classrooms, supporting farmers, and the development of new hospitals across counties. One of the standout initiatives is the subsidy for farmers, particularly in the sugar and coffee sectors. The funds allocated for maintenance and payment to farmers aim to address the challenges faced by agricultural producers who have struggled with delayed payments and lack of support. By investing in sectors like agriculture and education, the government hopes to stimulate economic growth and create opportunities for small and medium-sized enterprises (SMEs) to thrive. Tim Gitonga, Chief Meaning Officer at 1030 Advisors, highlighted the potential impact of the stimulus package on various sectors of the economy. He emphasized the importance of these initiatives in boosting production, creating employment opportunities, and enhancing economic activities across different industries. Gitonga underscored the significance of the subsidy for tea farmers and the construction of new classrooms, noting that these investments could have a ripple effect on local SMEs and businesses. However, concerns have been raised about the distribution of previous stimulus packages, with some critics arguing that they primarily benefited the formal sector while neglecting the informal sector where SMEs operate. In response to these concerns, President Uhuru Kenyatta has directed that local contractors and craftsmen be given priority in implementing the stimulus projects. This directive is aimed at ensuring that SMEs and informal businesses also benefit from the government's support measures. Another key aspect of the stimulus package is the resumption of moratorium on listings on the credit reference bureau for businesses facing financial difficulties. While this move may provide temporary relief for SMEs, there are concerns about its long-term implications. The resumption of listings could impact credit decision-making processes and constrain access to credit for businesses. Tim Gitonga addressed these concerns, highlighting the importance of credit information in assessing borrowers' integrity and credibility. He noted that while suspending the listing may alleviate immediate challenges, it could lead to increased risk aversion among lenders and affect credit availability for businesses. Gitonga pointed out that banks have other means of assessing creditworthiness, such as analyzing bank statements and conducting borrower interviews. In conclusion, the third economic stimulus package in Kenya presents both opportunities and challenges for SMEs. While the measures announced by the government aim to stimulate economic growth and provide support to key sectors, careful monitoring and evaluation will be essential to ensure that the benefits reach across the formal and informal sectors. The role of SMEs in driving economic recovery cannot be overstated, and effective implementation of the stimulus measures will be crucial in enabling these businesses to thrive in the post-pandemic era.