Mass action pushes economy to the brink

Protesters run away from water released by a police’s water cannon vehicle during a mass rally in Kibera

Protesters run away from water released by a police’s water cannon vehicle during a mass rally called by the opposition leader Raila Odinga in Kibera, Nairobi on March 20, 2023.

Photo credit: Yasuyoshi Chiba | AFP

Kenyan businesses are staring at multibillion-shilling losses from disruptions and damage blamed on the hardline political stance that has seen the opposition ramp up anti-government protests to two days a week.

Business leaders and traders say they fear the impasse between President William Ruto and opposition chief Raila Odinga is dealing unrepairable damage to some sectors of the economy.

Although the Kenyan economy has for more than three decades followed a cycle of slowing down during and after presidential polls since the return of multi-party democracy in the 1990s, corporate leaders say the current situation is compounded by sustained shocks on operations than in past.

The economy is already battered, they say, with companies struggling to turn around flagging sales largely as a result of eroded consumer purchasing power attributed to runaway inflation and a short supply of dollars.

Businesses in Kenya largely rely on imports for about three-quarters of their raw materials.

“We are in a very precarious situation and the least we need is disruption of production. If this goes on, we may tip over as an economy,” said the CEO of Kenya Association of Manufacturers, Antony Mwangi. 

“We may not recover if the shutdowns during protest days are sustained. We are in the worst position in recent history. If you knock off two days off a week, that affects factories.”

Mr Odinga, who lost to President William Ruto in a closely-contested poll last August, took to the streets on March 20 calling on the government to re-introduce consumption subsidies to ease cost of living crisis.

The opposition leader is also protesting “mismanagement” of presidential election, calling for the opening of the August 9 poll servers to verify the winner.

Business leaders argue that failure to strike a truce between the Ruto administration and the opposition could tip over an economy that is “teetering on the brink of collapse”.

The country witnessed a flare-up of violent protests on Monday in key economic cities of Nairobi and Kisumu after the Kenya Police Service outlawed the demonstrations called by Mr Odinga. 

They resulted in a shutdown of many shops for the better part of the day.

Mr Gilbert Langat, the Shippers Council of Eastern Africa CEO – which represents importers and exporters – estimated Kenyan firms could lose 10 to 15 per cent of cargo volumes from Mombasa port into landlocked countries if this week’s demonstrations result in similar shutdowns.

Mr Langat, who also chairs the Mombasa Port and Northern Corridor Community Charter (MPNCCC), said the perception of violent protests will likely see Kenya lose more business to Tanzania.

Mombasa port losses

Mombasa port has in recent years been losing out Uganda, Rwanda, Burundi and the Democratic Republic of Congo cargo business to the port of Dar es Salaam.

“If the protests are taking place in Nairobi and Kisumu, and probably spill to Malaba, then you have closed the arteries that serve the hinterland because all the cargo passes there. That’s what we are concerned about,” Mr Langat said. 

“The negative story that goes out there is used by our competitors to say that Kenya is not stable. That perception will have an impact.”

The violent protests caused a shutdown of shops, eateries and supermarkets in Nairobi and Kisumu.

“People are likely to postpone investments, thereby reducing the cash in circulation. We are in the planting season ahead of the long rains. If that process is disrupted by the protests, the impact on food security and prices will be significant,” said Ken Gichinga, an economist.

Analysis of trends since 1992 shows the momentum in economic growth softens by 2.83 per cent on average in election years and recovers by an average of 2.08 per cent annually thereafter.

Economic growth slowed to 4.7 per cent in the third quarter of last year from 5.2 per cent in the second and 6.8 per cent in the first quarter largely due to poll jitters, prolonged drought and disruptions in supply chains due to the war in Ukraine.

The economy is estimated to have softened further in the fourth quarter, with the Kenya National Bureau of Statistics expected to disclose the numbers in the coming weeks.

March 9, 2018 handshake 

The reduction in the growth of the country’s real GDP hurts the creation of jobs, hitting labourers and contract staff hardest.

Former President Uhuru Kenyatta in November 2021 told lawmakers that Kenya lost Sh248 billion in foregone economic growth in 1992 with foreign direct investments sliding two-thirds to Sh600 million in the first year of the return of multi-party democracy.

The economic loss, he added, bumped to Sh250 billion in the days the country was engulfed in the deadly post-election violence of 2007, and “Sh1 billion every working hour for the 123 days” following the historical nullification of the 2017 presidential poll outcome by the Supreme Court.

Economists, however, say it is difficult to compute credible loss estimates.

“While undoubtedly multi-party politics has been a better democratic platform than the single-party state, we must not ignore the very real negative aspects of our politics and electioneering,” Mr Kenyatta told the MPs, stressing the reason he shook hands with Mr Odinga on March 9, 2018. 

“The evidence of this is plainly observable in the elections of 1992, 1997, 2007, 2013 and 2017, 2002 being an outlier.”

“The need for political stabilisation is the most urgent task facing Kenya. It is the foundation upon which our greater justice, fairness, health, wealth and security will be built on.”

During the 2017 elections, economic growth slowed to 3.82 per cent from 4.21 per cent the year before, while in 2013 it decelerated to 3.80 per cent from 4.57 per cent, according to GDP figures that were revised following rebasing of the economy in 2021.

The aftermath of the deadly December 2007 presidential sunk growth to 0.23 per cent in 2008 from 6.85 per cent in 2007, while in 2002, which marked the last year of former President Moi’s 24-year rule, economic activity slowed to 0.5 per cent from 3.78 per cent in the year before.

The same trend was witnessed in 1997 when growth dropped to 0.48 from 4.15 per cent, and in 1992 when it contracted to negative 0.8 per cent from 1.44 per cent on the onset of multiparty elections.

The current stand-off between Dr Ruto’s administration and the opposition is likely to hit key economic sectors like education, trade, manufacturing and tourism if the happenings on the first day of demonstrations are repeated every Monday and Thursday.

“In terms of market perceptions, political instability ranks higher than things like pandemic. It can even lose you everything. For tourism, you can lose a whole year in just a few weeks of unrest,” said Mike Macharia, the chief executive of the Kenya Association of Hotelkeepers and Caterers. “Tourism is not like other sectors because once people get apprehensive, they just cancel and go to other destinations. And that means your year is gone.”

Organisers of the protests against the Kenya Kwanza administration, which took power last September, insist they want to address the runaway cost of living while terming the government ‘illegitimate’.

Deputy President Rigathi Gachagua last Monday claimed that Nairobi alone lost about Sh2 billion in business following the Azimio protests, but did not break down how he arrived at the loss.

Some 161 organisations under the Kenya Private Sector Alliance on Thursday asked both political sides “to avoid any actions that may undermine the peace and stability of our country”.

“The estimates of financial loss may be right or wrong, but definitely there will be a loss. It means there is an opportunity cost that is lost and that has an impact on the economy. It is difficult to recover that time,” Mr Langat said. 

The stand-off has come at a time findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) — a gauge for month-on-month private sectors activity such as output, new orders and employment — showed business deals in February contracted for the first time in six months.

“After a stellar performance between September 2022 and January 2023, the Kenya PMI fell into contraction territory in February as cash flow issues and cost of living weighed on demand,” Mulalo Madula, an economist at South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report for February. “With currency depreciation inducing higher import costs and reports of tax burdens, the increase in input costs and consequently output charges (although less than the increase in costs) amongst the highest since the series began in 2014.”