March 5, 2021, 16:00 PM--
Sentiment surrounding current conditions stabilize on lower COVID-19 cases, a potential job recovery
Consumer expectation about the future remained low on decreased purchasing power, uncertainty around the vaccine distribution in Africa.
The retail industry is expected to recover as COVID-19 vaccines are rolled out but the new normal means retail won’t be the same.
Kenya’s index of consumer confidence dropped four points, kicking off the new year with a downward trend in consumer sentiment. The 4-point drop deterred the index’s recovery trend that has been displaying positive growth since July 2020. Falling from an index value of 0 to -4, this decrease was led by the 5-point decrease in the index of consumer expectation which fell from an index value of 12 to 7. On the other hand, the index of current conditions remained stable at -31 in January.
Sentiment surrounding current conditions stabilize on lower COVID-19 cases, a potential job recovery.
Sentiment regarding current conditions remained stable, although people are getting more pessimistic about making large purchases, there was an increase in optimism surrounding job prospects. Sentiment surrounding job prospects increased 11 points in January, taking the index value from -63 to -52. While the index is recovering, it remains in the low negatives; thus, not allowing the index of current conditions to reach the positive level it was at prior to the pandemic.
Joshua Oigara, chief executive officer of Kenya Commercial Bank Group, believes that the Kenyan economy will recover despite the high cost of living and the current unemployment rate. He speaks about the strong fundamentals of the economy and how there are very good chances of a strong recovery in many different sectors. In particular, the reopening of a lot of businesses in the last quarter has been very promising. From an overall macroeconomic point of view, he isn’t worried and expects that Kenya will see a 5-6% growth rate in 2022. His positivity stems from the fact that the commercial banking sector has remained operational throughout the entire pandemic and that goes for many other businesses as well which shows that there is already a strong basis for growth.
Looking at current COVID-19 cases, it is fair to say that Kenya is on a strong path to recovery with daily average cases remaining under 200 in the past month. This is significantly lower than the average of 1,000 Kenya saw in November when COVID-19 reached its peak. This can be attributed to the continuous strict monitoring of activities and the implementation of lockdown policies over the last few months. In addition to the regulations that have been around, Kenya has also mandated all travelers coming into Kenya to present digitally verified proof of a negative COVID-19 test.
Consumer expectation about the future remained low on decreased purchasing power, uncertainty around the vaccine distribution in Africa.
Future expectations fell 5 points this month, causing the index to fall to a value of 7. This was led by all our sub-indexes which saw drops in sentiment. The expectation is for general economic conditions to increase in the country but on average to worsen in the individual cities in which Kenyans were surveyed. Additionally, the expectation is that household income will fall and thus, so will the ability to meet regular expenses. This index in particular dropped a significant 12 points. As a result, the expectation to spend on large purchases over the next 6 months fell a significant 9 points. This is puzzling because job prospects increased significantly in January which means that the index value is in its low negatives, which is in fact reflected in consumer behavior.
In terms of expectations for future conditions, the current attention is on vaccines and what that will mean for the public. When vaccinations are going to be available, who is getting inoculated first and when the world will “go back to normal” are the main questions that are up in the air. Kenya has ordered 24 million doses of the COVID-19 virus developed by AstraZeneca which were to arrive in the second week of February, said Mutahi Kagwe, Kenyan Health Minister. In general, priority will be given to health sector workers and other essential workers like teachers who will receive the vaccination first.
According to KASI’s survey gathering sentiment surrounding the vaccine, in general, Kenyans were quite unsure of where they stood on the vaccines until December 2020 were over 50% of our respondents indicated that they were not sure if they would take the vaccine. However in January when asked the same 52% of respondents said yes to taking the vaccine with only 27.4% unsure and 30.14% saying no.
The retail industry is expected to recover as COVID-19 vaccines are rolled out but the new normal means retail won’t be the same.
In January, 67.9% of those surveyed responded that their current lifestyle and routine has been impacted by the coronavirus. This shows that even today Kenyans haven’t begun living their "normal" lifestyles. Though the retail sector and consumption, in general, are expected to increase, a full recovery to prior spending levels might not be on the horizon. FMCG growth is expected to reach 10% in major markets of the world, Kenya included, by the end of Q1 2021. The e-commerce share of FMCG is set to reach 12% by the end of Q1 as the pandemic significantly impacted shopping routines and put a larger emphasis on the convenience of online shopping.
The health and beauty industry, which was once the fastest-growing sector, has now become the slowest. Since it was so dependent on people going out, it is one of the sectors where a strong recovery can be expected once lockdowns end and people have been vaccinated. The opposite was for the food sector which benefited quite largely from the pandemic as people followed the “buy more, shop less frequent” pattern which resulted in larger purchases. This behavior is likely to change once again as people go back to more flexible and less planned shopping, taking purchase levels lower.
Though recovery is expected in multiple sectors where spending fell in general - airfare, travel, hospitality, etc. - saving has become a more practiced habit with lower general consumer confidence due to economic fluctuations. What this means is that while growth is expected, it is highly unlikely that spending will dramatically increase when the world “opens up”, capping the growth potential of the retail industry.
By Tanya Gandhi, Economic Intelligence Group at KASI.
About the methodology
KASI Consumer Confidence Score (KASI CCI) is a composite index compiled from a seven-question survey that runs monthly via our consumer polls in the countries covered. The data output is based on a fresh, randomly selected representative sample of city dwellers aged 18-64. Released the first week of every month, KASI CCI provides a focused view on consumer perceptions in seven African urban centers (Ghana, Nigeria, Kenya, South Africa, Cameroon, Ivory Coast, Tanzania) where most spending in the continent is concentrated.
For each question, the final metric will be a ‘balance measure’ of the percentage of positive responses minus the percentage of negative responses. The overall metric will be an average across all the questions.
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