Kenya: Country in chaos - Credit Guarantee feel SA exporters should not panic
Political unrest in Kenya threatens to reverse Kenya’s economic gains and further rattle regional economies that depend on the country’s status as a regional hub.
“The World Bank, which helped the country achieve a final quarter growth rate of 7% in 2007, has warned that the violence is threatening to undo the gains, with an estimated $29m being lost everyday,” says Luke Doig (pictured right), Senior Economist at Credit Guarantee Insurance Corporation.
Shortly after the Electoral Commission of Kenya declared Kibaki the winner with 4.6 million votes, compared with 4.4m for Odinga, plumes of black smoke billowed into the Nairobi sky above the sprawling Kibera slum as riot police attempted to contain mobs of angry protestors. Tens of thousands of people have been forced to flee their homes amid brutal post-election violence since the December 2007 elections. The violence is the worst Kenya has witnessed since a failed 1982 coup. With Kibaki belonging to Kenya’s largest tribe, the Kikuyu, and Odinga to the second-largest, the Luo, violence has taken on a distinctly ethnic hue, with tit-for-tat killings, targeted arson attacks, hundreds of houses on fire, farms ablaze and road blocks every 10km.
EU monitors stated that the elections had fallen short of international standards and urged an independent audit of the results, increasing diplomatic pressure on Kibaki. Odinga, a political prisoner who led almost all pre-election polls rejected Kibaki’s offer to establish a government of national unity and said he would only talk once the president had acknowledged electoral fraud.
Aid workers are warning that Kenya is teetering on the brink of a humanitarian disaster of shocking proportions. A devastating health emergency looms as a quarter of a million people have been displaced. If peace is not restored soon, disease outbreaks and severe dehydration are very real threats.
Uganda reports that 5000 Kikuyu tribes people have crossed the border from Kenya, while an unconfirmed number have sought shelter in Tanzania. The International Committee of the Red Cross has appealed for $13 million from donors. Although government and aid groups are struggling to deliver aid to displaced civilians mainly in the western region, the charity warned that humanitarian supplies were dangerously low. Road blocks set up by vigilante groups have barred food trucks from the port city of Mombasa from reaching their destination.
“The IMF has warned that Kenya is facing an economic catastrophe if the current post-election standoff is not addressed,” continues Doig.
“The IMF is also concerned that supply disruptions due to violence in the country is affecting other countries in the region. Some of the countries that are already feeling the pinch include Uganda and Rwanda, which are heavily dependent on the port of Mombasa for imports such as petroleum, machinery and other products. With hundreds of petroleum trucks stranded in Mombasa, the price of fuel in Uganda has skyrocketed to Sh10,000 for a litre of fuel – four times the rate that prevailed a few days before the unrest started. Commodity shortages are also escalating the price of cement and steel,” he says.
The crisis also affected conflict-ravaged areas such as southern Sudan and eastern DRC which both need steady supplies of food and construction materials. As a growing economic hub, Kenya is a transit point for one quarter of the GDP of Uganda and Rwanda and one-third of Burundi. Economic analyst Dr David Ndii, warned that the political violence experienced in Kenya will be felt for a long time. Transit trade was a leading foreign exchange earner (apart from tourism and agriculture) and landlocked countries could look for alternative sources than relying on Kenya for their essential commodities. Ndii warned that the cost of insuring buildings and infrastructure from political risks would skyrocket following the violence.
According to Doig, various industries continue to report losses following the violence; the tea industry faces losses amounting to millions of shillings in the South-Nandi District; more than ten factories owned by multinational companies in the district have been closed due to lack of green leaf deliveries. Delivery failure was due to barricading of feeder roads to factories and the fear that demonstrators may burn tractors used to transport the product. Milk has been going to waste in parts of the North Rift. Mumias Sugar Company has lost Sh 200 million of cane after irate protesters burnt the crop. Kenya’s two mobile phone operators, Safaricom and Celtel, both have e-money transfer services but volumes seem not to have been affected.
The turmoil caused further sharp fluctuations in the Kenyan shilling on 4th January 2008, while the stock exchange shed 2.3%. According to Reuters’ data, the shilling fell to an eight month low of 68.50 per dollar in offshore trade.
Panic buying of the US dollar at the onset of the unrest caused the shilling to weaken against major world currencies, representing an unprecedented reversal from projections made by forex market analysts toward the end of 2007 who had predicted further strengthening of the shilling on the back of increased dollar inflows in the first quarter of 2008. The shilling has declined 9% against the dollar since 24th December.
“We at Credit Guarantee feel that South African exporters should not panic. We will continue to do business in this market but are watching the situation closely,” concludes Doig.
