Moody’s says city mall attack will hurt the economy

What you need to know:

Rating agency says main impact will be a decline in number of leisure tourists.
The agency said the attack is not expected to affect Kenya’s first Eurobond.
It noted the unfortunate timing of the attack, with the winter season approaching when tourists from Western markets travel.

Rating agency Moody’s says Kenya’s economy will temporarily feel the effect of the terrorist attack on Westgate Mall but has ruled out the possibility of it affecting foreign direct investment. It said the attack is not expected to affect Kenya’s first Eurobond.

Moody’s said the main impact would be a decline in the number of tourists coming for holidays, but expected the number of business travellers to remain relatively unchanged.

“We expect the effect on arrivals to be concentrated in the leisure tourism sector, particularly from Europe, which accounts for about 45 per cent of arrivals,” said Edward Al-Hussainy, assistant vice president and analyst at the firm.

“We see no effect on foreign direct investment, which at around 1.7 per cent of GDP, is significantly below the median of 4.2 per cent for B-rated peers,” said the report indicating Kenya was less exposed to foreign factors than other East African countries.

Data from the Economic Survey 2013 shows that both tourism earnings and the number of arrivals decreased in 2012 due to security fears and slow growth in the euro zone, Kenya’s single-largest market.

Tourism earnings stood at Sh96 billion in 2012, a two per cent decline from Sh97.9 billion earned in 2011. Arrivals dropped to 1.171 million from 1.82 million over the same period, representing a six per cent decrease.

Despite the decrease in the overall number of arrivals — most of which are from leisure travellers — the share of business and transit travellers defied the trend and grew. Business and transit travellers increased by eight per cent to 327,900 from 305,000.

Moody’s said the terrorist attacks that killed at least 61 and injured dozens will not derail the trend from business and transit travellers.

“Kenya’s dominant position as East Africa’s services hub and host to a number of regional and multinationals firms will remain unchanged and we do not expect a significant decline in business travel,” said Mr Al-Hussainy.

The agency noted the unfortunate timing of the attack, with the winter season approaching when tourists from Western markets travel.

But ministry officials at the Ecotourism and Sustainable Tourism Conference said the industry would bounce after the initial shock of Saturday’s attack.

“Terrorism is a global phenomenon and this recent incident is not unique to Kenya. Militants cannot and should not dictate our way of life and tourism is a resilient industry, always resistant to external threats in the medium and long term,” said East African Affairs, Commerce and Tourism secretary Phyllis Kandie.

The ministry has been reducing overreliance on the traditional Western Europe and US markets and been tapping new ones such as China. It has also been encouraging small and mid-sized enterprises and community-owned business to run game parks to catalyse the opening up of more regions.

The Treasury is expected to issue a $1.5 billion (Sh130 billion) Eurobond which can be extended to $2 billion (Sh174 billion).

The funds will finance infrastructure development and pay a $600 million (Sh52 billion) syndicated loan borrowed from a consortium of international banks in 2012.

Moody’s has assigned Kenya a B or stable rating. The risk factor could impact on the cost of external borrowing.

Fitch Ratings, which has also assigned Kenya a stable rating, has said that weak government finances is the main risk that could lower the country’s rating.