How Kenya polls could slow cargo, trade flows

Deputy President William Ruto addressing residents of Chavakali in Vihiga county on 6th January 2022. PHOTO | ISAAC WALE | NMG

In 2020, the Covid-19 pandemic and subsequent geographical lockdowns significantly slowed logistics activities. Investments in international trade dropped substantially. Barely two years later, Kenya's logistics industry is again on the brink of negative fallout from the upcoming General Election.

Time has, on more than one occasion, proven that the heat from political campaigns affects the flow of goods. The worry amongst the business community stems from the negative impact Kenya's 2007/2008 post-election violence had on the economy.

Currently, the Port of Mombasa is experiencing a slowdown in transit volumes ahead of the August 9 elections. It has also been noted that there is an increase in shipments destined for the Great Lakes region that would usually go through Mombasa Port, being diverted to the Dar es Salaam Port in Tanzania.

A March report by the heads of US intelligence agencies dubbed Worldwide Threat Assessment states that: "East Africa probably will see new bouts of conflict in the coming year as the region becomes increasingly strained by the civil war in Ethiopia, power struggles within the transitional government in Sudan, continued instability in Somalia, and a potentially contentious election in Kenya."

The declassified report followed concerns from the Ugandan Cabinet and legislators about the rising political tension in Kenya, which has increased the cost of living along the Northern Corridor due to hesitancy by importers and transporters to use the route.

The leaders called on their government to have a contingency plan for factors that could worsen the situation, key among them being the Kenyan elections.

Incidentally, as a strategy to ensure what happened in 2007 doesn't repeat itself, in early March, Tanzania's port and rail service provider signed a freight forwarding agreement with Roofings Group of Uganda to increase the volume of cargo through the Dar es Salaam port. The deal means a significant reduction in transit at the port of Mombasa.

If anything, these stats are a testament to the worry importers have regarding the negative impact of the elections on trade. Usually, even when the prevailing environment indicates that market conditions will be suitable for trade, certain issues — including import restrictions and a slowdown in business —could make the market less attractive.

When conducting trade with other countries, organisations are directly influenced by that country's political, legal, and business conditions — and therefore, the economic activity slows down for months leading up to the General Election.

Many industries take a cautious stand on operations as they wait for "things to play out" before making serious investments. On the other hand, investors hold on to their cash before making a serious commitment, and neighbouring countries redirect their cargo to other ports for fear of cargo delays or disruptions.

Slow economic activity and election campaign activities also lead to a reduction in lending activity by banks. Since they are usually the hardest hit in terms of risk, lending institutions limit the amount of credit they give to investors and companies such as cargo traders, affecting the operational efficiency of many depending on such sources for capital flow.

Demands for shipment also significantly drop as businesses and manufacturing companies scale down on production as they wait for the markets to improve.

Currently, the freight and shipping industry has been impacted by the dollar shortage, which has increased the cost of imports such as fuel and production for manufacturers. The situation is bound to worsen as more investors at the Nairobi Stock Exchange, anxious about the outcome of the August 9 elections, offload their shares, a move that will further weaken the Kenyan shilling.

To the logistics industry, this paints a grim picture as it leads to further potential increases in freight charges and reduced cargo flows. During the previous election violence, a negative supply shock that reduced exports was experienced in Kenya. This was driven by mobility challenges for both labour and goods. Firms with direct contractual relationships in export markets were significantly impacted.

On the demand side, global buyers could not shift sourcing to Kenyan exporters in areas not directly affected by the violence. This saw the demand for cargo services in both sectors plummet substantially.

Although the current environment is much friendlier than in 2008, the concern of a similar occurrence will likely lead to a similar choke on goods trade. The outcome of the elections will bring forth changes in shipping policies.

The presidential hopefuls have emphasised returning the port operations from Naivasha and Nairobi back to Mombasa. There is also talk of extending the standard gauge railway to Uganda to boost trade.

While both decisions are perhaps for the greater good, they cannot be done without institutional and policy changes that will affect cargo movement.

Cargo hauled by trucks will significantly reduce, and with it will follow the job losses of truck drivers alongside the support businesses such as fuel stations and restaurants, among others. Sectors faced with uncertainty in the logistics sector include the container freight station and clearing and forwarding firms at the ports.

It is also worth noting that the manifestos pushed by the presidential candidates will fundamentally shift the existing financial policies. Where a new affordable healthcare law is implemented, several impositions that will affect employers and employees will be effected.

These include policies such as explicit penalties on employers who do not offer coverage to their full-time employees.

Also, an implicit tax on full-time employment; and perhaps an implicit tax on earnings, stemming from the provisions of the law that give lower subsidies to those with higher incomes, might be introduced. This will threaten the stability and continuity of some businesses, the same way dissolving corporates and distributing wealth to the populace will cripple trade.

Kemboi is Group Commercial Manager, Siginon Group

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.