Africa Matters is a blog that follows the news and offers analysis of African affairs. Our aim is to delve deeper into the issues of African politics and development. We don’t presume to be experts, and we don’t presume to have all the answers—we are just trying to ask the right questions.

Wednesday, January 16

The cost of violence

Michela Wrong wrote yesterday in the Financial Times about the economic cost of Kenya’s post-election violence. Though there have been some signs of a return to normalcy—e.g., children returning to school, shops reopening, the election of a speaker in parliament—most of the country is bracing itself for further unrest, as mediator after mediator is turned away by the government, and as the opposition threatens more mass protests.

Now hopes are fading that Kenya’s economy will be able to survive untarnished.

The finance minister notes a loss of nearly $1 billion USD, and, though he insists the country is still on target to meet its projection of 7-8% annual growth, other analysts are predicting the growth rate will drop to 4%, or possibly even 2%.

The slowing economy is tied to performance in key economic sectors, which face growing obstacles. The national tourist board is halving its prediction for visitors this quarter; the sector stands to lose 120,000 jobs by the Spring. Meanwhile, throughout the country, routes rendered impassable by impromptu roadblocks and insecurity have hampered access, denying farmers vital inputs and means of export, as crops rot in fields and warehouses. Moreover, the mass displacement of more than 200,000 people, many from the Rift Valley breadbasket, means that many farmers aren’t there to tend their crops in the first place. Agriculture’s woes will have ripple effects throughout the economy, especially in the financial sector.

Oxford Analytica took a look at the impact of the turmoil since the December 27 elections, isolating four main economic effects of the violence: First, businesses are suffering from the prolonged closures due to public holidays (Christmas, New Year’s, and elections), protests, riots, and rallies. Second, looting has also meant that property has been destroyed, while displacement and inaccessibility have led to staffing shortages. Third, because of the extended disruption to business, the government estimates it lost $31 million in tax revenue, which may increase as there continue to be difficulties collecting taxes. Finally, cargo cannot go in or out of the main port in Mombasa, and inland travel remains obstructed; as noted, this poses an especially serious threat to farmers (e.g., 27 million bags of maize may go to waste).

In general, prices have been rising and investment declining. In the last week, the price of maize has risen 50%, and fuel and food shortages will likely push inflation above 10%. Outsiders are losing confidence in the Kenyan economy—shares on the stock exchange lost $629 million on the day it reopened, and the shilling has fallen to an eight-month low against the dollar.

One bellwether for the economy will be the Safaricom IPO. The telecom company—the largest in East Africa—had to delay its public offering, out of the opposition’s fears the government would manipulate the sale to benefit allies, and because stockbrokers and the stock exchange felt they needed more time to organize the sale and involve smaller investors. Though the government might try to push ahead, Kenyan investors may now be more concerned with rebuilding their own businesses, and foreign investors may now be wary of investing in Kenya—the IPO, which analysts once predicted would be heavily oversubscribed, now risks being undersubscribed.

Here in Uganda, we saw a spike in fuel prices following the outbreak of violence; Ugandans, like many in the region, are highly dependent on Kenya. Though places like Tanzania may see a rise in tourist revenue as safari- and beach-goers look for alternatives, in general, as Kenya wavers, so go its neighbors.