Kenya’s private sector will be the hardest hit if the referendum scheduled for January in southern Sudan ends up stoking conflict and instability in the wider eastern Africa region.
Research just released by think tanks estimates Kenya could lose Sh926 billion in the next 10 years in case of an armed conflict between southern Sudan and their northern counterparts. The losses could escalate six times if the war lasts for 25 years.
The losses would come in the form of disrupted reconstruction contracts, goods supply deals, service provision opportunities and about 70,000 jobs currently being done by Kenyans in South Sudan.
“The overall cost of a conflict in Sudan to the neighbouring countries is about 34 per cent of their gross domestic product,” noted the report.
The research was done by London-based consulting group Frontier Economics; Nairobi-based Institute of Security Studies and the Society for International Development, a global network of development practitioners.
It said reputation losses would also ensue as investors view the region as more risky to investments, reduced demand from Sudan for regional goods and influx of refugees that would put pressure on local resources.
There would also be more spending on military by governments and likelihood of conflict spill-over that could end up disrupting trade within the East African Community.
Estimates by the groups indicate that losses will be $11.5 billion for Kenya in case of a medium conflict scenario in the next 10 years compared to Ethiopia’s $11.2 billion and Uganda’s $6.3 billion.
In case of a high conflict scenario, Kenya will lose $18.3 billion in the next 10 years compared to $17.7 billion for Ethiopia and $10.1 billion for Uganda.
The costs are material and do not include humanitarian or deaths or those resulting from crimes as a result of availability of illicit small arms.
Duncan Okello, the regional director of the Society for International Development, said the forecast shows that regional private sector, especially in Kenya, should take a proactive role to ensure the referendum is held according to the law to forestall any conflict.
“What we have seen so far is the private sector taking an attitude of ‘business as usual’, which is not good. It should instead be proactive to ensure the referendum is held successfully and take more interest in the post-referendum period to ensure the governance structures in case of a split are good for business growth in South Sudan,” he said.
Kenya private sector players with operations in South Sudan, including Kenya Commercial Bank, UAP Insurance and Bidco Oil Refineries, were earlier this month optimistic that the referendum would not result into a war.
KCB has 11 branches in South Sudan while UAP Insurance has four branches.
There are hundreds of Kenyan businesses operating in South Sudan and it is estimated that 70,000 Kenyans are working in the mineral-rich semi-autonomous region.
Africa Trade Insurance (ATI) Agency said Sudan is not yet “ATI-eligible”. “We have in the recent past received requests to underwrite political risks in Sudan; which we have had to decline as Sudan is not yet ATI-eligible,” said Mr Humphrey Mwangi, the senior underwriter at ATI.
This means any risks arising from the referendum will be borne by respective companies.
Trade between Kenya and South Sudan has not been quantified, but exports to the larger Sudan rose from Sh6.7 billion in 2005 to more than Sh12.7 billion in 2009, according to the Economic Survey 2010.
It is estimated that flows of goods and services to South Sudan accounts for up to 80 per cent of the total value of exports. Imports from Sudan have, however, declined from a high of Sh216 million in 2005 to Sh11 million last year.
Kwame Owino of the Institute of Economic Affairs, a local think tank, said at risk for Kenya is stoppage of the construction of railway and roads linked to the proposed Lamu Port, whose planning is based on a peaceful South Sudan.
“As a result, the ability to open up Northern Kenya where some of these infrastructure projects will pass through has also been compromised,” he said.
“The companies that lose contracts and workers will find it difficult to find an alternative in the region where reconstruction activities present high demand for labour, goods and services.”
Kenya is also investing in the 1,130km road that links Nairobi to Juba aiming to cut the more than 26 hours it currently takes to cover the distance. The combined cost of the projects is estimated at $10 billion (Sh800 billion) or 36 per cent of Kenya’s Sh2.2 trillion GDP.
South Sudanese will go to the polls on January 9, 2011 to vote whether they want a separate nation or remain in a united Sudan. under the Sudan as it is known today. The vote is as a result of the 2005 Comprehensive Peace Agreement signed in Nairobi that ended decades of war between the South and North.