Rising insecurity takes shine off EA’s biggest economy

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IHS International warns that the attacks and rampant crime in Nairobi and Mombasa could erode the attractiveness of Kenya as an investment destination despite its promising economic prospects.
This comes at a time when the government is preparing to sell a $2 billion Eurobond, whose pricing will be determined by Kenya’s creditworthiness, which is determined by country risk score.
Kenya has in recent months suffered a series of terrorist attacks including last September’s assault on the Westgate Shopping Mall where at least 67 people were killed.

Persistent terrorist attacks are expected to keep Kenya’s risk profile high in the next couple of years, dampening its attractiveness to investors despite the strong economic fundamentals.

This is according to the latest country risk assessment by American consulting firm IHS International.

The New York Stock Exchange-listed company warns in a research note that the attacks and rampant crime in Nairobi and Mombasa, if not checked, could erode the attractiveness of East Africa’s biggest economy as an investment destination despite its promising economic prospects.

Gus Selassie, the deputy head of Africa Analysis at IHS, says Kenya should expect terrorist attacks to continue in Nairobi and Mombasa as well as along the border with Somalia in the medium term with serious ramifications on the economy.

The assessment comes at a time when the government is preparing to sell a $2 billion Eurobond, whose pricing will be determined by Kenya’s creditworthiness, which is determined by country risk score.

“The insistence by the government that it will not be pulling its forces out of Somalia means the country remains a target of Al-Shabaab attacks beyond the next 12 months unless the group is defeated or severely weakened,” Mr Selassie says, adding that measures President Kenyatta announced in the State of the Union address are unlikely to result in an immediate improvement of the security situation in the next 12 months.

READ: Security tops agenda in Uhuru address to nation

IHS conducts research for global clients in sectors like defence and security, energy and power as well as country and industry forecasting.

Kenya has in recent months suffered a series of terrorist attacks including last September’s assault on the Westgate Shopping Mall where at least 67 people were killed.

The government has more recently responded to deadly attacks in Mombasa’s Likoni and Nairobi’s Eastleigh districts with a controversial paramilitary operation, leading to the arrest of thousands of aliens and citizens it claims are responsible for the growing insecurity.

More than 80 Somalis were deported to Mogadishu and more continue to be held in different police stations, including the Safaricom Stadium in Kasarani.

Interior secretary Joseph ole Lenku, and Attorney- General, Githu Muigai have defended the operation, saying it would help restore sanity in the country.

Mr Selassie however says the duo and their colleagues in government have their job cut out for them in next 12 months for Kenya to get some semblance of security.

Besides highlighting the terror hot spots, IHS has identified upmarket neighbourhoods like Runda, Muthaiga, Parklands and Westlands as areas that will continue being the focus of crime such as carjackings and armed robberies.

Nairobi’s Kileleshwa, Lavington, and Karen estates, where “wealthy Kenyans and expatriates live,” are also on the list of crime hotspots.

“If the government does not succeed in improving the security situation, the economy is likely to be affected due to a likely fall in tourist arrivals and the ensuing impact on supporting sectors,” Mr Selassie says.

“This may not be reflected right away due to a time lag, but if the current situation persists it is likely to become evident.”

The continued series of attacks are turning out to be a pain for the Kenyatta government not only because the heavy toll it is taking on ordinary citizens who get killed but also because of their impact on the wider economy.

Mr Kenyatta has recently stated that the tourism sector – which contributes 10 per cent of the country’s GDP – is “on its knees” following the series of terror attacks in the coastal city of Mombasa.

Analysts said that the President and his team must move swiftly to address the situation if they are to meet this year’s growth target of 5-6 per cent.

Samuel Nyandemo, a senior economics lecturer at the University of Nairobi, noted that sustained insecurity has both immediate and deferred effects on the economy.

Dr Nyandemo said that in the short term, security concerns may lead tourists to choose other East African countries over Kenya even as it gradually erodes the country’s image as an investment destination.

“We move swiftly to assure the world that we are committed to securing people and their investments,” said Dr Nyandemo during.

“If we do not, insecurity will drive away potential investors and damage the performance of our economy for some time.”

The latest statistics show that Kenya is trailing its neighbours in attracting FDI and its current account deficit (or the import-export gap) stands at nearly 10 per cent of GDP.

East Africa’s biggest economy has a budget deficit of eight per cent – two percentage points more than East African Community monetary union’s recommendation of six per cent.