The abrupt halt of Kenya's economy

The slow puncture deflating wheels of robust economy

By Abwao Oluoch

Within just a few days, after violence erupted, the economy is almost grinding to a halt.

The slide to economic doom after days of post-electoral violence was quick.

From the common man to top international traders, business is not moving and fears are creeping in.

In just hours, the country’s top international rating had been downgraded, the shilling climbed down against the dollar and the stock market forced to shut down for lack of activity.

Manufacturers are losing opportunities to export. They are concerned that the business loses and lost political goodwill across East Africa might continue to haunt locally manufactured products for years to come.

"We cannot divorce political stability from economic growth," said Betty Maina, the Chief Executive of the Kenya Association of Manufacturers.

"The region is our biggest market. Can you imagine the goodwill we will lose when we shut out our regional market?" she posed.

The political crisis facing Kenya has seen things grind to a standstill as fighting, along the main Highway to Uganda, has stopped trucks from travelling to and from Mombasa, East Africa’s main seaport. This has caused a massive fuel supply crisis in the region.

The violence in and around the slums in Nairobi has also scared shop owners from opening up for business. Supermarket shelves are empty and when the most common commodities such as bread go missing, then there is reason to worry.

UN humanitarian agencies have appealed to the Government to restore calm, saying the protests have stalled its relief and peacekeeping operations across eastern Africa.

Dr Anna Tibaijuka, the Director-General of UN agencies in Nairobi, has asked the authorities to ensure the main transport corridor leading to and from the port of Mombasa is open and secure.

She has also called for the immediate restoration of calm, saying the crisis was hurting mostly people in the slums, who cannot go to look for jobs. "These people are dying because they have no opportunity to earn their daily upkeep as a result of the prolonged delay in resuming work," the UN official said.

In Kibera, local residents blame the increased level of looting to hunger and desperation.

"People are hungry. They cannot go out to work, that is why they loot and sell their loot in exchange for food or use the money to buy other basic needs," said Mr John Omolo, a Kibera resident.

"The shops in the slums also do not have enough supplies," he adds.

Maina says continuing violence could lead to some irreparable damages to the country’s agricultural sector, especially the horticultural, dairy and livestock sectors, where the producers’ earnings depend on daily access to the market.

"The investors are watching this situation with anxiety," she said.

International lenders

The Government’s intentions to borrow from the international markets could be doomed.

Listed companies at the Nairobi Stock Exchange (NSE) have lost about Sh40 billion in market capitalisation, triggering a rush by investors to sell off stocks cheaply.

The Kenya Revenue Authority (KRA) continues to lose about Sh2 million daily in corporate tax and listed companies at the NSE are losing the equivalent value of their stocks, as investors perceive Kenya as a risky investment venture.

"We are fine in terms of international ratings," Finance minister Amos Kimunya told The Sunday Standard a week before the December 27 General Election.

The Government had been allowed to seek funds internationally because of its above-average international debt management credentials, given by the internationally recognised Standards and Poor rating agency, which gave Kenya a B+ rating.

The economic misfortunes might take more severe nosedives over the next weeks unless the post-election standoff, between Mwai Kibaki and Mr Raila Odinga, is resolved. Either way, analysts say the country cannot emerge economically unscathed.

The tourism industry, which until the last two weeks was thriving, has received a major jolt from the British Government, which announced on Thursday its suspension of all leisure travel to the country. The industry was in the middle of its high season.

"This was meant to be a great season for tourism but tourists are cancelling bookings."

"When you have those cancellations, you have the people who deliver goods also suffering from lost opportunities," Maina said, in her appeal for peace.

"We cannot grow the economy without the political will," she said.

Economic free-fall, at the behest of political turbulence, has continued to worsen over the last 10 days.

Investor confidence the country inspired a week before the elections has fizzled as investors, banks and traders ignored the Government’s receipt of Sh26 billion from the sale of majority stakes in Telkom-Kenya.

However, the pre-election predictions have fallen following days of chaos over discredited presidential election results.

The Shilling made its entry into the New Year weakened, about four months weaker than its equivalent before the currency market closed down for Christmas.

Rival leaders have not anticipated the extent the political standoff is having regionally, given the country’s strategic position as the regional hub, for manufacturing, transport, tourism and the re-export trade.

Kenya is the transit point for one quarter of the Gross Domestic Product (GDP) of Uganda and Rwanda, and one third of the GDP of Burundi.

Hence, the regional impact of the situation could be significant, donors say.

Kenya might find it much more difficult to borrow foreign currency internationally, which would translate into heavy domestic borrowing. The situation would immediately trigger a rush by banks to lend money to the Government.

Affect domestic debts

"The longer the situation takes to resolve, the more likely it is to affect domestic debt markets and the balance of payment," a Standards and Poor Analyst, Remy Salters was quoted as saying on Thursday.

To the donors, who have invested huge sums in pushing the country’s economic fortunes over the last five years, the violence witnessed since last Saturday and its anticipated long and short-term effects are too big to contemplate.

Kenya’s international backers have warned that the political standoff could continue to wipe out major gains made over the last few years.

"Strong anecdotal evidence indicates that the poorest and most vulnerable Kenyans, including women and children, are the worst affected by the ongoing violence, displacement, loss of property and livelihood, and hunger," the donors noted.

"This concerns us deeply," the donors said in a joint statement issued after a rally planned by the Orange Democratic Movement failed to materialise after hours of street battles with the Police.

"Kenyans place a high value on education. Prompt action is necessary to avoid any disruptions to the start of the school year," the donors remarked.

World Bank, France, Denmark, Canada, Norway, Sweden, the US government, the United Kingdom’s Department of International Development (DfID), Canada, and Norway issued the statement.

The donors said although the country was still lagging behind in job-creation, inadequate healthcare, unequal access to services and infrastructure shortfalls, it had made strides with aid equivalent of 1 per cent of its GDP.

The continuing violence might wipe out an opportunity to begin addressing the serious challenges, including the campaign against corruption.

"The current situation may have had some negative impact already. Business leaders estimate that about Sh2 billion a day is being lost," they said.

The NSE has lost about 5 per cent of market capitalisation, which was wiped off the value of shares when the market resumed business after the elections, hurting investors.

Tea auctions were suspended, since a large portion of Kenya’s production originates from the Rift Valley, where much of the recent insecurity has been centred.

Over the medium term, tourism could be impacted negatively. There may still be time to salvage the situation, but urgent action is needed, the donors noted.

The Government is working on restoring the supply of essential commodities across the country through armed escort.

Maina disclosed that there are discussions on how to move fuel to different parts of the country as a first step to getting the grounded economy back on its feet.

"We need to get people to move, coordinate the transport. We need to get things moving. We do not imagine we would spend all our money on armed police escorts," she lamented.

She said it would take more effort to get the Kenyan economy back on its feet again.

"The employers cannot become operational without workers, without fuel. It takes more to get people working again," she said.

source: http://www.eastandard.net/news/?id=1143980014&cid=4