Investment analysts warn that Kenya’s economic growth may be threatened if recent anti-government protests are prolonged.
Kenya has endured largely sporadic weekly demonstrations over now dropped new and higher taxation, poor governance, and corruption in government since late June.
Findings of the Stanbic Kenya Purchasing Managers Index (PMI) suggested the resultant uncertainty amongst investors pushed private sector activities in July to slowest month-on-month growth since April 2021 when the country was battling the second wave of Covid infections. This was after firms delayed investment decisions due to social unrest.
Analysts see the disruptions in businesses having little direct hit on the country’s economic prospects but cautioned that prolonged protests may have a negative impact through knocks on key sectors such as tourism.
“Growth is likely to see a limited impact if disruption from protests is short-lived. But the legacy for … [Kenya’s] public finance could be more negative and worsen medium-term sovereign default concerns,” David Omojomolo, Africa economist for UK-based Capital Economics, wrote in a note last week.
“Security concerns could hurt Kenya’s tourism sector, which has only just reached its pre-pandemic peak. It remains to be seen whether the protests will worsen enough for these to come to pass.”
The deadly protests, largely organised by youth on social media platforms, prompted President William Ruto to drop new and higher taxes in the Finance Bill 2024 and sack about half of his ministers.
The collapse of the Finance Bill has spooked international investors who raised the risk of Kenya defaulting on its debts.
Investors – reacting to the decision to scrap some of the key IMF-backed tax rises and widespread protests – last week demanded more than 11 percent to buy Kenya’s Eurobonds trading on the London Stock Exchange.
At the time, fears were rife that Kenya could fail to repay $2 billion Eurobond which matured in June.
Kenya repaid the debt after successfully raising a fresh $1.5 billion in mid-February and cleared the remainder using inflows from the World Bank Group in June.
Investors – reacting to the decision to scrap some of the key IMF-backed tax rises and widespread protests – last week demanded more than 11 percent to buy Kenya’s Eurobonds trading on the London Stock Exchange.
The success of protests in Nairobi has so far inspired similar actions in Uganda and Nigeria, albeit at a lower scale.
“The tough fiscal trade-offs countries like Kenya and Nigeria face will be made worse with the extra borrowing needed to fund scrapped tax plans and/or fund increased spending to placate protesters,” Mr Omojomolo wrote in the report. “Investors souring on both countries’ stability is also not likely to help – Kenyan and Nigerian sovereign dollar spreads have widened and are now at their highest level since late 2023.”
