Business
Kenya: Little negative impact expected to economy due to Mall attack
(Reuters) – Security worries are nothing new in Kenya and so the country is unlikely to see long term investors pull money out after the deadly attack on a Nairobi shopping mall, analysts say.
However, the tourism industry, a big earner of foreign exchange, may suffer some damage, especially if governments warn their citizens from travelling to the east African country.
This weekend’s hostage crisis, in which more than 60 people have been killed, is a sharp reminder of the threat from war-ravaged Somalia on the doorstep, however, Kenya’s previous encounters with Islamic militancy – in 1998 and 2002 – suggest the economic impact will be limited.
“It will hit investor confidence but having said that the areas which are most likely to be impacted are tourism and in the shorter-term consumer goods,” said Joseph Rohm, a portfolio manager of African equity portfolios at Investec Asset Management in Cape Town.
“People are likely to stay away from the malls for a week or two, but the long-term structural story – the growth, regional integration, political achievements – investors recognize those and an event like this is unlikely to change those views.”
Even though the ferocity of the assault was unexpected, Kenya had been bracing for some sort of attack since it sent its troops into Somalia, joining the African Union, in 2011 to help the fledgling government’s war against the al-Shabaab Islamic militant group.
Nairobi took the decision only after the al-Shabaab gunmen started kidnapping tourists at an Indian Ocean resort town near the border.
Some near-term business interruptions and losses are a given, but a sustained economic shock is unlikely. The attack may end up being most costly for the tourism sector.
Tourism accounts for just over 10 percent of gross domestic product (GDP). The country earned US$1.2 billion last year and the sector employs 150,000 people.
The numbers of visitors to Kenya’s beaches and wildlife safaris plunged in 1998 after al-Qaeda agents blew up the U.S. embassy, and after Islamist militants tried to shoot down an Israel-bound airliner in 2002.
Mindful of the impact, President Uhuru Kenyatta asked foreign governments not to issue travel warnings – advisories that usually mean higher insurance premiums for travelers.
Mohammed Hersi, chief executive of the luxury Heritage Hotels Kenya chain, predicted some fallout but said the industry was learning to get up and dust itself off faster with every attack.
“It is still too early to say whether it will affect us but it is not good when it comes to tourism,” Hersi said.
“Terrorism is an international problem and Kenya shouldn’t be treated in isolation. For countries which are claiming to be sympathetic with our situation and supporting us to issue travel advisories amounts to betrayal and double-speak.”
In the last two years, investors chasing plump returns have been undeterred by frequent grenade attacks in towns close to the border with Somalia.
The government is auctioning a 12-year bond on Tuesday worth Ksh 20 billion Kenyan (US$229 million) with a fixed coupon of 11 percent. It is also expected to issue as much as US$2 billion in a Euro bond later in the year.
Analysts expected little impact on either issue, a view supported by the Kenyan shilling, which was barely changed at 87.25 against the dollar. The stock market lost just 0.3 percent.
Kenya held a very successful election earlier this year, and is also the main driver of regional integration in the five-member East African Community.
“If this is an isolated incident then the impact should be very marginal. If it’s the start of a series of related attacks, it would be another story, but that does not look very likely at the moment,” said Mark Bohlund, senior economist for sub-Saharan Africa at IHS Global Insight.