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Crony Capitalism and State Capture 2: Documents Reveal the Kenyatta Family’s Plans to Take over Lending to SMEs

9 min read.

A proposed mobile phone lending platform called Wezesha and described as a “collaborative initiative to bridge the access to credit by micro and small enterprises”, will be managed by five banks under the leadership of the Kenyatta Family-owned Commercial Bank of Africa. The Huduma Number initiative is central to the new scheme, and could explain the government’s insistence on rolling out biometric Identity Cards.

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Crony Capitalism and State Capture 2: Documents Reveal the Kenyatta Family’s Plans to Take over Lending to SMEs
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“Uhuru Kenyatta’s assumption of the presidency has injected fresh energy into his family’s commercial empire, putting a number of its units on an expansion mode that is expected to consolidate its position as one of the largest business dynasties in Kenya”
Business Daily, Monday, November 11, 2013.

A few days ago, the Dairy Board of Kenya published, then recalled, draft regulations that sought, among other things, to outlaw and criminalize farmer-to-consumer raw milk sales. Essentially farmers would be compelled to sell milk to processors or other intermediaries (cooperatives or businesses) licensed and regulated by the Board. The withdrawal was in response to a huge public blowback, including a trending hashtag #Kenyattamilkbill, mobilising for the reactivation of the boycott against Brookside Dairy products. It was notable that the Dairy Board’s reversal of its draft regulations followed a press release by Brookside Dairies objecting to the regulations citing specifically the levies that the Board proposed on dairy businesses. Tellingly, Brookside’s statement was silent on the question of outlawing farmer to consumer raw milk sales.

This story is about an even more audacious scheme in the Kenyatta empire’s “expansion drive”, the most egregious case of policy and regulatory capture I have encountered…

As a previous column, Crony Capitalism and State Capture: The Kenyatta Family Story observed, Uhuru Kenyatta’s presidency has delivered remarkable returns-on-investment for the family enterprise:

“During Uhuru Kenyatta’s first term the consumer price of milk increased 67 percent (from KSh 36 to KSh 60 per half-litre packet), while producer prices remained unchanged at Sh 35 per litre), effectively increasing processors’ gross margin by 130 percent (from Sh37 to Sh 85 per litre). Given the industry’s 400m litre annual throughput and Kenyatta family’s market share, which stands at 45 percent, the consumer squeeze translates to an increase of the Kenyatta Family’s turnover from KSh 13 billion to KSh 22 billion, and gross margin from KSh 6.7 billion to KSh 15 billion a year.”

Not enough, not by a long shot.

The platform will offer micro and small enterprises an overdraft facility of up to KSh 50,000, and a loan of up to 12 months with a limit of KSh 200,000. The initiative targets five million sign-ups, and two million users in the first year. How it plans to do this is a frightening demonstration of the workings of state capture in the Uhuru Kenyatta era.

Kenya’s annual milk production is estimated at 3.5 billion litres, of which 80 percent is consumed or traded informally. Put another way, only 20 percent, about 600,000 litres, is handled by processors. If these regulations were only to double the processors intake to 50 percent, we are talking of growing Brookside’s turnover and gross margin to KSh100 billion and KSh 67 billion respectively.

But this column is not about the milk, at least not literally – even if the milking metaphor is quite apt. This story is about an even more audacious scheme in the Kenyatta empire’s “expansion drive”, the most egregious case of policy and regulatory capture I have encountered, and I have been round this block a few times. What follows is based on an internal document entitled ‘Restoring Credit Access to Micro and Small Sized Businesses’ shared by whistleblowers in institutions that have been corralled into the scheme by force.

The Huduma Number connection starts with an innocuous statement in a slide presentation titled “How Customers will Qualify” that ends with a bullet point stating that “customers that don’t immediately qualify can opt into a credit access plan”.

The name of the scheme is Wezesha (‘enable’). It is a proposed mobile phone lending platform described as a “collaborative initiative to bridge the access to credit by micro and small enterprises”. It will be managed by five banks, namely NIC Bank, Diamond Trust Bank (DTB), the Kenya Commercial Bank and Cooperative Bank under the leadership of the Kenyatta Family-owned Commercial Bank of Africa. CBA is in the process of acquiring NIC, alongside the smaller microfinance oriented Jamii Bora bank. KCB, Kenya’s largest bank by asset base, and Cooperative Bank, are quasi-public banks, while Diamond Trust Bank is associated with the Aga Khan. The platform will offer micro and small enterprises an overdraft facility of up to KSh 50,000, and a loan of up to 12 months with a limit of KSh 200,000. The initiative targets five million sign-ups, and two million users in the first year. How it plans to do this is a frightening demonstration of the workings of state capture in the Uhuru Kenyatta era.

When it was launched we were threatened that Kenyans who did not register would be denied public services. We are compelled to ask whether this threat, and its prominence in this scheme are related. Are the president’s commercial interests the force behind the Huduma Number?

First observation: the contentious Huduma Number initiative features prominently in the scheme. The Huduma Number connection starts with an innocuous statement in a slide (the documentation is a powerpoint presentation) titled “How Customers will Qualify” that ends with a bullet point stating that “customers that don’t immediately qualify can opt into a credit access plan (consumer education).” How so, is elaborated in another slide titled “Customer Education At Huduma Universal Service Kiosk” complete with the Huduma Kenya logo. Further along, in another slide titled “Functional Schema” a bullet point: “Distribution: An integrated network of GoK Huduma Centres, Bank Branches and agent locations to ‘onboard’ customers and offer information and advice to capital and business opportunities.”

When Huduma Number was launched we were threatened that Kenyans who did not register would be denied public services. We are compelled to ask whether this threat, and its prominence in this scheme are related. Are the president’s commercial interests the force behind the Huduma Number?

But perhaps the question is already answered in another slide titled “Phase 2 Support for Scalability”: New Huduma ID to be integrated once it is ready. This scheme could be used as a registration incentive.”

The funding partners propose that the GoK establishes a credit risk guarantee fund, that is administered by the Central Bank of Kenya, to provide mezzanine credit risk cover for any credit losses above three percent, up to the prevailing NPL rate.

Also to be leveraged for scaling: “Moratorium from KRA Pin and Tax payment”. This statement requires some thought. What would give a private business scheme the audacity to propose a tax compliance waiver as a tactic to attract customers?

But the crux, is this:

“The funding partners propose that the GoK establishes a credit risk guarantee fund, that is administered by the Central Bank of Kenya, to provide mezzanine credit risk cover for any credit losses above three percent, up to the prevailing NPL rate.”

Some background is necessary. The cost of bank credit is arrived at as follows:

Cost of funds + Target income + Loan loss provision (NPLs)

Cost of funds is the interest the bank pays on deposits. Target income is the bank’s calculated profit margin that will translate into an acceptable return on investment. Loan loss provision is

the income that the bank sets aside to compensate for loans that are not repaid. Banks are required by the regulator to “provide” from their income equivalent to non-performing loans (NPLs).

Based on this costing, the Scheme’s promoters seem to have arrived at the conclusion that the initiative is not commercially viable. They appear to have determined this in the following way: The lending rate is set at nine percent arrived at by setting cost of funds, target income and a target loan loss provision at three percent each. Next, the Scheme factors in the Kenyan banking sector’s actual NPL rate, which was 11.6 percent at the close of 2018. They then calculate that at 9 percent the initiative would have run at loss of 5.6 percent (9 – 3-11.6 = -5.6).

This is how the case for a public credit guarantee scheme is made. In the computation provided, the public credit risk guarantee would cover the difference between banks’ target and the industry NPL. In the documents that we have seen, an example is provided in which the target NPL is set at three percent as above; the industry NPL at 10 percent and the actual NPL of the lending scheme is set at 12 percent. In this case, the public would pay seven percent (10% – 3%) and the banks would absorb five percent, the target income is projected at three percent, and the additional two percent that is over and above the industry NPL of 10 percent.

Let me illustrate. If for argument’s sake, the scheme lent out KSh 100 billion at nine percent, a 12 percent NPL reduces the performing portfolio to KSh 88 billion, which translates to an interest income of KSh 7.92 billion. A 12 percent loan loss provision (KSh 12 billion) changes that to an interest income loss of KSh 4 billion. But above three percent NPL the public credit insurance kicks in and injects KSh 7 billion, making a total revenue of KSh 14.92 billion (less KSh 12 billion loan loss provision) leaving a net revenue of Sh. 2.92 billion. This translates to a loss of KSh 0.8 million, given that the cost of funds is KSh 3 billion.

What are we missing?

This is a very strange way of pricing a product. The conventional way is to do one of two things: (a) cost the product and compare it with the market price; or (b) take the market price and work backwards to see whether you can beat the price. Sometimes, the product may cost more than the completion, then it becomes a question of whether it can be sold at a premium, like for example, an iPhone, or a Ferrari.

Either way, one arrives at a break-even interest rate of 17.6 percent by adding up the cost of funds (three percent), the targeted income (three percent) and industry NPL rate (11.6 percent).

The next question is whether they would get sufficient uptake of the product at say 18-20 percent. The answer is an unequivocal yes.

For mobile money loans, the money is not in the interest rate but in the transaction fees.

So, why would these banks price the loans to SMEs, the riskiest segment of the market, at 9 percent (about the same as Treasury Bill rate), which for all intents and purpose is the risk-free rate?

For mobile money loans, the money is not in the interest income charged on loans but in the transaction fees. In fact, most products do not charge interest at all. The pricing structure varies widely. To get the actual cost of the loans, we need to calculate a standardized rate known as the Annual Percentage Rate (APR). The APR is obtained by adding up all the cost of the loan and converting them to the equivalent annual interest rate, for example a three month, KSh 10,000 loan with a 5% fee and interest of 2.5% per month costs 1250 (Sh. 500 fee plus Sh. 750 interest) which annualizes to KSh 5000 (Sh. 1250 x 4), which is an APR of 50%. KCB charges a 2.5 percent transaction fee and interest rate of 1.16 percent a month for loans ranging from one to six months which works out to APR of 19% to 44% for the six and one month loans respectively. In general, the shorter the term, the more expensive. CBA charges a 7.5 percent fee for a one-month Mshwari loan. This is an APR of 90 percent. The recently launched Fuliza overdraft tariff range from 5/- a day for amounts below KSh 500 to KSh 30 per day for amounts above KSh. 2500. A Sh.10,000 Fuliza overdraft at KSh 30 per day translates to an APR of 110 percent.

When fees are factored in, the case for public credit insurance collapses like a house of cards.

Let’s go back to the monetary illustration. Assume the scheme achieves its borrowing target of two million customers. Our portfolio of KSh100 billion works out to an average individual loan of KSh. 20,000. Further, assume they churn the funds six times a year, that is, each of the customer borrows and repays a loan every two months on average. A five percent transaction fee translates to an income of KSh12 billion a year, and a total income of KSh19.92 billion — well above the 18 percent required for the scheme to meet its profit target.

So what is going on here? First, Wezesha is simply a scheme to fleece the public. In today’s financial lingo, the Scheme is fully “de-risked”…par for the course in “public-private partnership” (PPP) business, where the profits are privatized, but the losses are socialized (i.e. borne by the public). The second, is to see Wezesha as a strategy to finance undercutting the competition by pricing below cost at entry, with the intention of charging monopoly prices once the competition is driven out of business.

The nine percent interest is a bait. Its purpose is to make the case for the proposed government credit insurance scheme by purporting to offer SMEs affordable credit.

So what is going on here? There are two ways to look at it. First, Wezesha is simply a scheme to fleece the public. In today’s financial lingo, the Scheme is fully “de-risked.” This is par for the course in “public-private partnership” (PPP) ventures, where the profits are privatized, but the losses are socialized (i.e. borne by the public).

The second, is to see Wezesha as a strategy to finance undercutting the competition by pricing below cost at entry, with the intention of charging monopoly prices once the competition is driven out of business. In competition economics, we call this predatory pricing. It is illegal under competition law. In this case, the public insurance serves both as a financial cushion as well as insurance from regulatory scrutiny.

The CBA already controls consumer credit data on account of its Safaricom partnership. This Scheme is designed to make the CBA the gatekeeper for the entire banking and financial services to micro-and small-enterprises.

As students of economics and finance know from the concept of information asymmetry, the most important asset in credit markets is information about customers’ creditworthiness. On the strategy for “scaling up” the documents refer to “integration to other financial institutions and service providers.” The intention is clear. First, use the government machinery and public money to drive customer acquisition. The CBA already controls consumer credit data on account of its Safaricom partnership. This Scheme is designed to make the CBA the gatekeeper for the entire banking and financial services to micro-and small enterprises, and I quote: “CBA Digital shall play a lead arranger role to develop and operate the credit risk management model for the full credit lifecycle.”

Even if there was an economic rationale for a credit insurance scheme of this kind, no government in its right mind would confer such a market advantage to some players. It is instructive that, in what looks like a case of the tail wagging the dog, KCB the crown jewel of public banks has been brought into the scheme. We should not be surprised if down the road, it turns out to be an acquisition target.

Uhuru Kenyatta’s sole accomplishment after extricating himself from the ICC may turn out to be framing the corruption issue exclusively as plunder of the budget, perhaps even deliberately giving his associates leeway in that theatre—recall “mnataka nifanye nini” (what do you want me to do)— as he provides cover for the Family to do the more serious boardroom stuff. Plunder of the budget ends once the thieves leave office. Wholesale enclosure of large chunks of the economy will keep the dynasty in the black long after he has left office.

Welcome to the Kenyatta Republic Inc.

David Ndii
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David Ndii is a leading Kenyan economist and public intellectual.

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Slaying the Giant: An Epidemiologist’s Perspective on How Kenya Can Tackle COVID-19

There hasn’t been a pandemic control that has succeeded without social capital. How Kenya and Africa will deal with this pandemic will squarely depend on the strength, resilience and adaptability of our social capital to weather the storm.

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Slaying the Virus: An Epidemiologist’s Perspective on How Kenya Can Tackle COVID-19
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Epidemiologists measure how a disease spreads through populations using the basic reproduction number, otherwise known as R0 (pronounced “R naught”). Typical seasonal flu has a reproductive number of 1.2, while that of COVID-19 is reported to be approximately 2.5.

R = Reproductive number: How many people a given patient is likely to infect. If the reproductive number is greater than one (R>1), each case on average is transmitting it to at least one other person. The epidemic will therefore increase. Reproductive number is affected by factors including but not limited to population density, environment, age and immunity.

Typical seasonal flu has a reproductive number of 1.2; Spanish flu has a reproductive number of 2-3, while COVID-19 is reported to be approximately 2.5.

From a policy planning perspective, it offers a very clear objective: Reduce the reproductive number to less than one (R<1)

D= Duration: How long someone is infectious. If someone is infectious twice as long, then that’s twice as long as they can spread the infection. For COVID-19, people are infectious for up to 21 days. This can usually be reduced by treatment but there is currently no approved treatment for COVID-19.

O= Opportunity: The number of contacts of the infected person during the duration of the infection. If people are isolated (no contacts), then community spread does not occur or is minimised. This is achieved through social distancing.

T= Transmission Probability: The chance an infection is spread to a contact, hence the need to eliminate physical contact and hand washing.

S= Susceptibility: The chance a contact will develop the infection and become infectious themselves. We are all susceptible to COVID-19. Susceptibility is usually taken care of by vaccines, which we do not have for COVID-19.

Another important number for understanding diseases is the Case Fatality Rate (CFR): What percentage of people who have a disease die from it? On one extreme, we have rabies, which has a 99 percent fatality rate if untreated. On the other hand, is the common cold, which has a relatively high reproductive number but is almost never fatal. At the time of writing this, the crude case fatality rate for COVID-19 was 5.3 percent. I am calling it crude because thus far, testing has been selective. If testing protocols were to be expanded, this value will probably drop to 1 percent or less. But we will, however, work with the worst-case scenario for now.

In the case of the COVID-19, exponential growth will occur in the disease rate in humans as long as there is at least one infected person in the population pool, regular contact between infected and uninfected members of the population occurs, and there are large numbers of uninfected potential hosts among the population.

Which brings us to the term ‘doubling time’, which just means in this situation that cases/deaths will double in a given amount of time. Doubling rate in the United States of America has been reported to be three days, while China has managed to spread it out. And if the numbers from China are to be believed, they are now at six days. The longer the doubling time, the better.

One last terminology I will touch on is Herd Immunity, which simply means when a significant part of a population has become immune to a disease agent, its spread stops naturally because they are not enough susceptible people for efficient transmission. For COVID-19, immunity would come through getting the disease, assuming that it confers life-long immunity.

So what strategies do we have?

Do nothing

Based on the data we have from other countries, the reproductive number of COVID-19 is 2.5. That means, the population of people that will be infected to achieve herd Immunity is: 1-1/R0, equal to 60 percent. This translates to more than 28 million Kenyans getting it. Moreover, 80 percent (approximately 22 million people) of the population will have a mild disease or be asymptomatic. Another 14 percent (approximately 4 million people) will be in severe condition and may need hospitalisation, while 6 percent (approximately 1.7 million people) of Kenya’s population will be critical and may need intensive care facilities.

Going by case fatality rate of 5 percent, it means approximately 1.4 million Kenyans will die if we do nothing. I chose to stick with the global case fatality rate of 5 percent because even though we have a youthful population, we grapple significantly with both communicable – AIDS, Tuberculosis, malaria, pneumonia etc., and non-communicable illnesses. Furthermore, a majority of the population lives in squalid conditions and is prone to other competing illnesses. And to add salt to injury, as a country, we are still battling malnutrition and anaemia.

Doubling of new infections in the United States of America is happening every three days. This means the numbers will double ten times in a month. Though we have yet to reach the exponential phase, a quick back-of-the-envelope analysis places Kenya, with its current infection rate at 122, indicates the number of people with COVID-19 will double ten-times one month from today. The numbers will be compounded the longer we do nothing and the effects will be fatal to say the least.

Do something

Since there are no antiviral medications for COVID 19 and no vaccine, we must rely on non-pharmaceutical interventions like social distancing and eliminating physical contact.

The impact of early and widespread social distancing is flattening the curve. The flattening minimises overwhelming the healthcare facilities and their resources, which is good in the short run, but lengthens the duration of the epidemic in the long run. If the health system becomes overwhelmed, the majority of the extra deaths may not be due to coronavirus but to other common diseases and conditions such as heart attacks, strokes, trauma, bleeding, and other such diseases that are not adequately treated.

Too, if large numbers of Kenyans were to get very sick and start flooding into hospitals and health care facilities, our system will undergo a severe stress test. Our health system could be overrun in a very short period of time. Thus, figuring out how to plan for a massive influx of patients is one of the hardest parts of preparing for health emergencies, and it has yet to be adequately dealt with in Kenya.

If large numbers of Kenyans were to get very sick and start flooding into hospitals and health care facilities, our system will undergo a severe stress test. Our health system could be overrun in a very short period of time.

“Surge capacity” management is one of our biggest weaknesses, particularly at a time when we have shortages of health workers, and a weak supply chain management system. The national and county governments have spent very little on health care, choosing to focus on capital expenditure where there is something for them to ‘’eat’. Even in the course of this pandemic, health care workers are being appreciated by word of mouth but are not being protected, risking spreading this to patients, other workers, families as well as the public. The risk of COVID-19 being another nosocomial infection is very high. Indeed, the 3,000 unemployed doctors have yet to be absorbed into the healthcare system to mitigate this crisis, but I digress.

Mitigation

Here the focus is to slow the growth of the epidemic. Instead of having it double every three days, you put interventions in place to slow it down to double every seven days. This will ease the demand for health care services and give you breathing room. Interventions here include hospital isolation of confirmed cases, home isolation of suspect cases, home quarantine of those living in the same household as suspect /confirmed cases, and social distancing of the elderly and others at most risk of severe disease.

This has the potential to reduce infections and deaths by as much as 60 percent, and prevent the economy from collapsing completely the numbers will drop from 28 million infections with no mitigation, to approximately 11.2 million, and 560,000 deaths if we infer to the case fatality rate of 5 percent.

Suppression

With suppression, you want to reduce the reproductive number to below 1, hence stopping transmission. This is what we are doing now. Travel restrictions, social distancing, school closures, curfews, stopping mass gatherings. The only strategy that we haven’t adopted so far is sheltering in place, what people like to refer to as lockdown. The problem with this strategy is that it has enormous economic and social impacts. And as long as we live in a global village, there is a great risk of recrudescence especially when you open the borders. This means you have to maintain the strategies until a vaccine is discovered and you have vaccinated at least 60 percent of the population, or at least until a cure is found. We are probably 6-12 months away from a solution considering how clinical trials are being fast-tracked. There is the option of relaxing the strategies occasionally when the reproductive number is low, but this means you must have a meticulous method of disease surveillance to pick up recrudesce early.

How do we balance public health vs. economic consequences?

The bubonic plague of medieval Europe, the Spanish flu of 1918, SARS, H1N1 Swine flu and other infectious diseases have shaped the political economy of the world and so far, all evidence indicates that COVID-19 will do the same.

We must, now, grapple with philosophical issues such as how much economic value we are willing to lose to save a human life.

As a public health practitioner, I decree that saving life is more important than social and economic effects. I think there must also be a delicate political balance to be considered and policymakers should reflect whether they are doing more harm than good.

When making decisions, policymakers often use what’s called the Value of a Statistical Life (VSL) to set an upper bound on how much you can impose on people in order to save lives. But if policymakers assigned an infinite economic value to each life, they would spare no expense and be fearless in imposing any inconvenience.

Information

At a time when everyone needs better information, from disease modelers and governments, we lack reliable evidence on how many people have been infected with COVID-19. Better information is needed to guide decisions and actions of monumental significance to monitor their impact.

The data collected so far is unreliable. Given the limited testing to date, some deaths and probably the vast majority of infections due to COVID-19 are being missed. We can’t access if we are failing to capture infections by a factor of three or 300.

As a public health practitioner, I decree that saving life is more important than social and economic effects. I think there must also be a delicate political balance to be considered and policymakers should reflect whether they are doing more harm than good.

Too, we don’t know what factors are being modeled. Kenya, for instance, is a diverse country with densely populated counties like Nairobi, and less densely populated like Turkana. A one-size-fits-all model won’t work. The modeling models developed need to be county-specific, and interventions need to be more nuanced and contextual. Of course, the chain of command should remain at the ministry of health but with an aggressive inter-governmental coordination prescribing strategies for each county.

This is the time to fully implement the spirit of the 2010 constitution and bring in the devolved units, as health is a function of counties. It is here that strategies such as how will “sheltering in place” work for pastoralism communities be enforced? What strategies need to be considered for the rural areas where the majority of their populations are the elderly?

The overarching idea is to tailor-make a range of policy mixes suitable for the Kenyan context.

Is Kenya getting right?

Based on the numbers I have shared above; I would say it’s a mixed bag. Social distancing is yielding fruit, however, we need a scientifically determined threshold on when these can be relaxed or re-introduced. Indeed, there must be a robust health surveillance system in place, which has to be county-specific. The success of the ongoing strategies to mitigate community transmission will depend on how Kenyans collectively respond to the plea of physical distancing and hygiene.

Still, we have to do more. First, we are not testing enough. I posit that we should partner with certified private laboratories to scale-up testing. We must acquire testing kits that can be used on Genexpert platforms that were provided by PEPFAR and are available in all counties.

I can’t emphasise enough about testing.

You test, isolate and trace to minimise community spread. Without this, we are swimming blind. Secondly, we are not protecting our health care workers. They are the first-line workers and are at the greatest risk of acquiring COVID-19, transmitting it to other patients, as well as to the community.

Finally, there hasn’t been a pandemic control that has succeeded without social capital. How Kenya and Africa will deal with this pandemic will squarely depend on the strength, resilience and adaptability of our social capital to weather the storm.

Disclaimer: The opinions expressed here belong to the author, and do not purport to reflect the opinions or views of the MOH or other bodies involved in COVID-19 response.

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Controlling COVID-19: Lessons from East Asia

As authorities the world over restrict the movements of their populations, and governments benchmark their responses on the worst affected regions, there are lessons to be learnt from South Korea which has eschewed lockdowns in favour of early detection through mass testing, contact tracing and treatment.

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Controlling COVID-19: Lessons from East Asia
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By the third week of March 2020, the number of COVID-19 deaths in Italy had overtaken the number of deaths in China. Authorities all over the world are restricting the movements of their populations as part of efforts to control the spread of COVID-19.

For the time being, more and more governments are benchmarking their responses on the very worst outbreaks in Wuhan and northern Italy. But lockdowns inevitably have adverse economic impacts, especially for businesses, particularly small ones heavily reliant on continuous turnover. Are there other ways to bring the virus under control without lockdowns?

South Korean lessons?

The Republic of Korea, or South Korea, is one of a handful of mainly East Asian economies that have dramatically reduced the number of COVID-19 cases as well as related deaths. On 29 February 2020, the country saw 909 newly confirmed cases.

By 25 March, the number of newly confirmed cases fell to 100. It has gone from having the second-highest rate of infection globally to eighth place, behind China, Italy, United States, Spain, Germany, Iran and France, all with varying rates of testing.

For now, South Korea has checked the spread of infections. It has managed to slow the spread of COVID-19 without imposing lockdowns, even in its most infected city, Daegu. How have they responded differently to the crisis?

Korean-style pandemic management

The key to South Korea’s response has been mass testing. South Korea has done the most COVID-19 tests by country, with over 300,000 tests as of 20 March 2020, or over 6,000 per million inhabitants. Germany, in second place, had done 167,000 by 15 March 2020, or 2,000 per million.

The infected who show no symptoms (i.e., the asymptomatic) or only have mild symptoms are more likely to transmit the virus to others. As such, undetected cases are more likely to spread infection, mass testing has checked the spread of the virus by identifying and breaking its chains of transmission.

The median incubation period, between infection and symptoms first appearing, is about five days, during which time asymptomatic individuals may unknowingly infect others. Mass testing detects infections early, so that individuals can self-isolate and get treatment instead of infecting others.

South Korea had built up its testing capabilities following the Middle East Respiratory Syndrome (MERS) outbreak in 2015. It was thus prepared with test kits and facilities for rapid development, approval and deployment in case of future outbreaks.

After South Korea confirmed its first case of Covid-19 on 20 January 2020, hundreds of testing facilities, ranging from drive-through kiosks to hospitals and local clinics, quickly became available across the country.

Trace, test, treat

The tests are mainly free for those whom medical professionals suspect need to be tested, e.g., if they recently returned from China. The tests are also free of charge for “secondary contacts” of a person known to be infected or to belong to an at-risk group.

Others who do not belong to these categories, but wish to be tested, are charged 160,000 Korean won (about US$130), but the amount is reimbursed if the result is positive, with any treatment needed paid for by the government.

Mass testing detects infections early, so that individuals can self-isolate and get treatment instead of infecting others

Another legacy of the MERS outbreak is that the government has the legal authority to collect mobile phone, credit card and other data from those who test positive for contact tracing efforts. China, too, has made use of artificial intelligence and big data to improve contact tracing and manage priority populations.

Although this has sparked debates over privacy concerns, South Korea’s proactive testing and contact tracing methods have also been praised by the World Health Organization (WHO), which is encouraging other countries to apply lessons learned in South Korea, China and elsewhere in East Asia.

Path not taken

Although South Koreans are banned from entry into more than 80 countries around the world, its authorities have only restricted incoming travellers from China’s Hubei province, whose capital city is Wuhan, and Japan, due to bilateral political tensions.

Special procedures require visitors from China and Iran to use smartphone applications to monitor for symptoms such as fever. As Europe has become the new epicentre of the pandemic, all visitors from Europe are now being tested for Covid-19, with those staying long-term quarantined first.

The Korean Centers for Disease Control and Prevention (KCDC) continue to urge people to practice social distancing and personal hygiene. Mass gatherings are discouraged, and employers encouraged to allow employees to work remotely. But no lockdown has been imposed, and South Korea has not imposed nationwide restrictions on movements of people within its borders.

Learning the right lessons

Besides South Korea, the WHO has also praised China for its Covid-19 response, which has rapidly reduced new cases, besides helping other countries with their efforts. More and more countries are restricting freedom of movement through lockdowns, citing China’s response in Wuhan.

However, Bruce Aylward, who led the WHO fact-finding mission to China, notes,

“The majority of the response in China, in 30 provinces, was about case finding, contact tracing, and suspension of public gatherings—all common measures used anywhere in the world to manage [infectious] diseases. The lockdowns people are referring to… [were] concentrated in Wuhan and two or three other cities . . . that got out of control in the beginning . . . [T]he key learning from China is . . . all about the speed. The faster you can find the cases, isolate the cases, and track their close contacts, the more successful you’re going to be”.

China and South Korea are now primed to detect and respond rapidly, which may make all the difference in preventing a new wave of infections. This is not to say that lockdowns are ineffective; we will soon know whether such measures in countries like Italy will succeed.

The faster you can find the cases, isolate the cases, and track their close contacts, the more successful you’re going to be

The South Korean and Chinese experiences suggest that resources should be concentrated on rapid and early detection, isolation and contact tracing, protecting the most vulnerable, and treating the infected, regardless of means, instead of mainly relying on strict lockdown measures.

This article was first published by inter press service news agency. The authors are both associated with Khazanah Research Institute but do not implicate KRI with the views expressed here.

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Lockdown: Flying Blind in the Season of Coronavirus

The government’s contingency plan for tackling the coronavirus is not clear and so far appears to focus on surveillance and containing the spread of the coronavirus pandemic. It needs to invest in the clinical set-up beyond capacity but the supply of oxygen ventilators and other materials is likely to be complicated by the greatly increased demand in the global market.

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Lockdown: Flying Blind in the Season of Coronavirus
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A dozen military trucks roll out of the memorial cemetery in Bergamo, northern Italy, on the evening of March 19, 2020. Three more follow them. Each is carrying bodies that have been piling up for days inside the cemetery church because the city crematorium cannot cope with the deaths from the coronavirus pandemic.

One of the coffins being loaded onto the trucks by forklift holds the body of 74-year-old Italian software engineer Duilio Scaricamazza, recently returned from an East African business trip that took him to Uganda, Kenya and Djibouti in early February.

The closest the world has come to this scale of tragedy from a contagion in recent times are the Ebola outbreaks in West Africa, which the World Health Organisation classified as a public health emergency of international concern in July last year.

Videos of the military trucks are the only ritual of Duilio’s final journey through which his family and friends will reach closure. He had passed all the screening tests at the departure and arrival lounges in Kampala and Nairobi. Airport thermometers and thermal scanners, notorious for failing to detect Ebola, serious acute respiratory syndrome (SARS) and H1N1 influenza, are no match for the fever, cough and shortness of breath that are the symptoms of the coronavirus disease.

Those who contract the coronavirus can sometimes fail to show any of these symptoms and it is not clear if Duilio was infected before his return home to Italy but, in less than a month, he was dead from COVID-19, the disease caused by the coronavirus.

On December 31, 2019, Chinese authorities reported to the WHO country office that they had detected a pneumonia of unknown cause in Wuhan. WHO subsequently classified the outbreak as a Public Health Emergency of International Concern on January 30, 2020, giving it its name, COVID-19, on February 11, 2020, and declaring it a pandemic a month later.

“Once you have a system that warns you of an oncoming pandemic like this one, you will have the time to map out your immediate areas of focus. For example, had Kenya had an early warning system that could show us where the first case would potentially come from, we would have cancelled flights to and from those places as a national security priority”, says anthropologist and media columnist Gabriel Oguda.

After news of the epidemic first broke in Wuhan, where 91 Kenyan students live and nine artistes were visiting, Ambassador Sarah Serem decreed that these 100 people would not be repatriated for fear of infecting one another, and bringing the disease home.

Less than a month after Serem’s statement, on February 27, 2020, Kenya Airways suspended airport security guard Ali Gure from his job for posting on his social media page a photograph of a Chinese airline landing at the Jomo Kenyatta International Airport with 239 passengers on board.

The Law Society of Kenya, two doctors and a lawyer obtained a High Court order the following day temporarily stopping flights from China and other coronavirus hotspots. Jolted by Justice James Makau’s order, which also required the government to take robust measures to prepare for the virus, President Uhuru Kenyatta established a coronavirus task force and ordered the completion of an isolation facility in seven days.

By then the horse had bolted and the country had begun a hopeless search for Patient Zero. No one seemed to know where to find him or her.

A fortnight after the court decision, Kenya announced it had found its first COVID-19 case—a 27-year-old arriving from the United States through London. Just two days later, on March 16, 2020, Kenyatta ordered a shutdown of schools, workplaces and a ban on large gatherings—and called a national day of prayer.

Erroneously described as a flu-like disease, COVID-19 is actually the collapse of the breathing system when the lungs swell and fill with fluid.

By then the horse had bolted and the country had begun a hopeless search for Patient Zero

Dr Warurua Mugo, a Nairobi-based chest specialist, explains that the virus enters the body through the nose or mouth and makes a home in the air sacs where it infects the protective epithelial cells, hooks itself onto membranes, and begins to multiply thus closing off the supply of oxygen and causing swelling in the lungs as they fill with fluid. The patient is overwhelmed by a sensation of drowning, and only a respirator and supplemental oxygen can hold death at bay because there is often the risk of multiple organ failure or septic shock.

“[When] WHO declared the first case of [COVID-19], that’s the day the president should have summoned the Health minister and asked him to constitute that corona team. We needed not to wait for the virus to start causing havoc before starting to run all over the place”, says Oguda.

What started as a droplet has turned into a steady trickle, with cases popping up in rural spots where people arriving from Europe and the United States have visited.

By March 15, 2020, Kenyatta felt compelled to order suspension of travel into the country except for national and permanent residents, self-quarantine for those who had arrived 14 days earlier, a shutdown of schools, and heightened hand hygiene and physical distancing.

With the count of COVID-19 cases reaching 25 in the country, some 96 people traced, tested and released, and the search on to trace 700 others believed to have come into contact with the infected, tighter restrictions are coming into force. Kenyatta’s new salesman, the former spin-master and one-time information communication technology minister Mutahi Kagwe, has been gently turning the screws since taking charge as Health Cabinet Secretary, with the country headed into a likely lockdown. Bars and restaurants have been closed, worship congregations banned, funeral attendance has been limited to only 15 family members and the number of passengers allowed in a public transport vehicle cut by half as exhortations to increase physical distance and wash hands regularly have doubled.

The patient is overwhelmed by a sensation of drowning, and only a respirator and supplemental oxygen can hold death at bay

Although Kenya was the first country on the continent to go into a 30-day slowdown, it has been swiftly followed by South Africa, which announced a 21-day lockdown and suspended all flights. Nigeria and Egypt, which identified COVID-19 patients ahead of Kenya, have similarly ordered lockdowns, as have Uganda and Rwanda, Angola, Burkina Faso and Namibia which were initially measured in their response. Tanzania and Sierra Leone, both of which were hesitant to take strong action, are following suit.

“It is overwhelming”, says Dr Ouma Oluga, the secretary-general of the Kenya Medical Practitioners and Dentists Union. “Doctors and health workers are a worried lot. Political directives that might be [well-intentioned] are being issued without adequate preparation on the ground, and therefore not congruent with reality”.

Countries have been cautioned against fighting the pandemic blindfolded, and as the WHO Director-General, Tedros Ghebreyesus, said on March 16, 2020, the way to fight back is through “testing, testing and testing”.

“Our numbers are likely to be underestimated because of low testing capacity”, Oluga adds. “Stringent criteria on who to test, because not everybody needed to be tested, meant waiting for people to be ill before testing”.

Danni Askini, an American healthcare professional, was billed $34,927 (Sh3.7 million) for the treatment she received after contracting Covid-19. Testing alone cost her $907 (Sh96,142). India’s government announced a 4,500 Rupees (Sh6,255) cap on what private laboratories can charge for two polymerase chain reaction tests for coronavirus.

The coronavirus epidemic is also showing up Kenya’s low investment in research. The National Influenza Laboratory in Nairobi, the Kenya Medical Research Institute (Kemri) in Nairobi, Kisumu and Kilifi as well as the University of Nairobi have the capacity to test for the coronavirus, and could be supported by private laboratories at Aga Khan University Teaching Hospital and Lancet Kenya. The shortage of testing kits has meant that results, which would typically come in after six to eight hours, are instead available in 24 hours. Chinese billionaire Jack Ma and his Alibaba Foundation donated 1.1 million test kits to Africa this week, with Kenya slated to receive 20,000 test kits, 100,000 masks and 1,000 medical suits and face shields.

What started as a droplet has turned into a steady trickle, with cases popping up in rural spots where people arriving from Europe and the United States had visited

There are two ways to become immune: one is to experience the infection to create antibodies, or receive a vaccine to stimulate antibodies without experiencing the disease. Britain had initially opted to tough it out and wait for those who would die of COVID-19 to do so before the pandemic stabilised, thereby creating what scientists refer to as herd immunity. It changed tack after WHO admonished the strategy: “Not testing alone. Not contact tracing alone. Not quarantine alone. Not social distancing alone. Do it all”, said Ghebreyesus.

“Herd immunity eventually develops but over a long period time of continuous exposure. I disagree with epidemiologists who expose everyone who expect immediate herd immunity because it can develop after 50 to 60 years . . . you lose it with time . . . the casualties would be too high, and vulnerable people will die”, Oluga says.

Shutdowns are an attempt to break transmission in order to enable health services to regroup and deal with the cases that show up. But the messaging has not been without its light moments. Justifying the ban on bars, Uganda’s Yoweri Museveni said, “Drunkards sit close to one another. They speak with saliva coming out of their mouth. They are a danger to themselves. All these [merrymaking activities] are suspended for a month”.

The irony of asking Kenya to go into lockdown when much of its population is already cooped up in congested and unsanitary residential areas, has been completely lost on the government. According to the Economic Survey 2019, there were 14,865,900 people working jobs in the informal sector. “The informal sector is characterized by small scale activities, easy entry and exit, skills majorly gained from vocational schools, less capital investment, no or limited job security and self-employment”.

“This sector excludes illegal activities,” the Survey adds. These statistics belie the precarious nature of the jobs in the informal sector: they are day-wage occupations that finance hand-to-mouth survival. Only 2,765,100 people are in formal wage employment and just 152,200 are in self-employment.

The Kenyan Section of the International Commission of Jurists (ICJ-Kenya) has appealed to the government to issue directives on food prices and other basic commodities as well as medicines and items that will be important in preventing and treating COVID-19.

The coronavirus epidemic is also showing up Kenya’s low investment in research

Additionally, ICJ-Kenya has urged the government to develop and implement socio-economic responses for Kenyans in informal employment who are not able to “work from home” and who would need assistance in meeting their basic needs.

Big economic players like tourism and travel, as well as horticulture, are in shutdown in an economy that had been projected to grow at 6.2 per cent. Central Bank of Kenya governor Patrick Njoroge announced that Kenya would be seeking $350 million emergency assistance from the World Bank.

Relief offered so far by the government in the form of free hand sanitisers, Loon balloons from which 4G internet will increase mobile phone coverage, and waiver of mobile money transaction fees charged by banks, does little to address the lived realities of people. Digital contact tracking is emerging as one of the tools—albeit controversial—for tackling the pandemic. Correspondence to Safaricom seeking confirmation that the firm would be assisting in tracking passengers who arrived in the country early this year—especially given that two Chinese telecommunication companies were able to track the movement of people out of Wuhan in the early days of the epidemic—did not receive a response.

Salome Bukachi, professor of medical anthropology at the University of Nairobi, says dialogue with the community can contribute to creating protocols for quarantine, lockdown and isolation in a manner that balances respect for social backgrounds and public health needs.

Alessandro Scarci, an Italian lawyer based in Kenya for the past 20 years who has been following developments in his home country, says no health system can withstand the pressure from the pandemic. Milan, which is one of the wealthiest parts of Europe, has seen one of the best health systems collapse. “Even if you think you can improve the health system, without 1,000 per cent containment, you cannot manage this pandemic if you do not contain people”, says Scarci. “Unless there are plans to distribute food and water for free in poor residential areas, and the armed services patrol the streets, there is going to be a riot,” he adds ominously.

Oluga agrees that a lockdown is probably the best option, but for developing countries with insufficient cash reserves and chronic underfunding of social protection, this path is fraught with difficulty. Some 2.5 million people live in slums in Kenya, where houses can be as small as 12 feet by 12 feet, without reliable water or sanitation services.

Acts of austerity belie the crisis waiting to explode in Kenya and on the continent. Treatment requires isolation beds, respirators and oxygen. And it requires people. So far, Kenya has announced that it has trained 1,100 health workers. Those numbers will prove woefully inadequate if more infections show up.

Milan, which is one of the wealthiest parts of Europe, has seen one of the best health systems collapse

Shortages of testing materials and capacity, as well as the low numbers of healthcare workers has meant that where one patient is diagnosed with the disease, seven doctors are in isolation, he adds. The effect on an already strained health workforce is likely to be devastating.

In Nairobi, nurses at Mbagathi Hospital—the institution designated as the isolation centre for COVID-19—went on strike to protest against uneven training and unavailability protective gear. Moreover, there is a limit to the number of patients healthcare workers can handle.

Already, the number of people currently being traced is quickly outstripping the 120-bed capacity at Mbagathi, the additional 60 beds at the Kenyatta National Hospital and the 300 reserve places at the Kenyatta University Teaching and Referral Hospital. Around the country, Moi Teaching and Referral Hospital (25), Kakamega Hospital (25), Meru County’s Level 5 Hospital (20), Coast General Hospital (19) and King Fahd Hospital in Lamu (8) bring the national total to just under 600 beds.

Still, questions linger about what will happen on April 16 when the 30-day measures announced by the government are supposed to be reviewed. What is the end-game in managing the COVID-19 epidemic in Kenya? After the lapse of the first 30-day measures, what would be the next steps? What are the best and worst-case scenarios for managing COVID-19 in Kenya after April 16? These questions were sent to CS Kagwe and to the Principal Secretary at the Ministry of Health, Susan Mochache, with no responses forthcoming.

On Tuesday, March 24, 2020, Law Society of Kenya lawyer Ochiel Dudley said the government had not filed its contingency plan for tackling the coronavirus as required by the High Court—but the judge was hesitant to ‘recall a general from the battlefront’.

So far, official scenario mapping has appeared to focus on surveillance and containing the spread of the pandemic. “We need to invest in the clinical set-up beyond capacity and think about what are we doing when people come to hospital”, says Oluga. “If treating, what we are doing needs to be endorsed and published in the form of second, practical guidelines”. Besides the headaches of infrastructure in terms of availability of beds in intensive care, the supply of oxygen ventilators and other materials will likely be complicated by the greatly increased demand in the global market.

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