Monday, February 11, 2008

Kenya’s Unrest - The Implications for Its Neighbors

I read this interesting article today from a publication by the corporate council on Africa. I really believe that until we realize that we as a country have a joint destiny and we have to move together, we will be left behind while everyone else moves on.

Woe to us if they find a way to by pass us, because if we keep doing this, sooner or later they will build another network with us left out.

Kenya’s Unrest - The Implications for Its Neighbors
Fabrice Njankou, Department Intern
Edited by: Haben Berhe, Associate

The disputed election of December 27, 2007 in Kenya, which saw incumbent President Mwai Kibaki declare himself winner despite allegations of election rigging by the opposition Orange Democratic Movement and its leader Raila Odinga, has had a negative impact on the business environment in the region. Interestingly the unrest that followed the hotly contested elections is creating business opportunities for Kenya’s neighbors. In Rwanda, Uganda, Burundi and the Democratic Republic of the Congo business transactions with Kenya in the agribusiness and manufacturing sectors have drastically fallen in the past weeks as goods, raw materials and other commodities destined for other regional countries are stranded at the Port of Mombasa. In response, neighboring countries are forced to consider other creative means to source these goods.

Production chains in the manufacturing sector have been interrupted by the shortage of raw materials and other items necessary in the manufacturing process. In addition, the oil shortage has substantially increased transportation and storage costs. According to the Uganda Manufacturers Association (UMA), prices of consumer goods have steadily risen as manufacturers factor in the cost of fuel into their prices. For instance, a small business such as Elgon Co. (U) Ltd, specializing in leather tanning, is one casualty of the current situation in Kenya. The company has over a dozen uninsured containers destined for Pakistan that are stranded at shipping docks.

The agribusiness industry has also been affected by Kenya’s political unrest, with industries such as the coffee industry experiencing logistical difficulties in the transportation of coffee beans, due to a shortage of trucks and containers stuck at the Mombasa port. The Ugandan company
Kyagalanyi Coffee Ltd., which exported 4,000 bags of coffee last month, saw its exports reduce to zero in January. Uganda and Rwanda are also experiencing problems in transporting their agricultural goods via Kenya. Approximately 70 percent of Rwanda’s tea is sold weekly at Mombasa’s tea auction, which is also where 80 percent of the Uganda Tea Development Agency’s sales are also made. The agency has 666 tones of tea worth $1.7 million stuck at factory or in transit. In an effort to avoid similar woes, Rwanda has reached an agreement with Tanzania to use its Dar es Salaam port for its petroleum products shipments.1

Kenya’s flowers export, estimated to be Sh 26 billion (US $366,300,000), has been the cornerstone of the Horticulture industry. If the unrest persists, there is a risk that companies such as Oserian, the largest flower company in the country, will be unable to ship 6 millions of its Sweetheart flowers for Valentine’s Day. In neighboring Uganda, flower exporters are concerned about the increased cost of production of about 20 to 30 percent.

Kenya’s tourism industry, one of its top foreign currency earners, has been the most affected by the current crisis. The country is ranked as one of the top tourism destinations on the continent. With the industry valued at $750 million, it receives significant investment from investors interested in the sector. It is clear that the country’s political instability has slowed the dynamic growth Kenya has experienced over the past decade. It is estimated that Kenya is to lose 95 percent of its 320,000 tourists from January to March.2 Tanzania and other African countries that depend heavily on tourism may view the current developments as an opportunity to absorb those tourists.

What’s the Relevance
The rapid political downturn in Kenya has exposed the need of an alternative transportation infrastructure in the region. According to Strategic Forecasting Inc., a leading market strategy and intelligence firm, the current situation in Kenya has reinforced the need for regional infrastructure investment, such as the creation of alternative supply routes to be used if similar disruptions occur in the future.3 An example of a new regional initiative is the East African Community’s agreement with Uganda, Rwanda, Kenya, Tanzania and Burundi to modernize its rail networks. Alternatives such as the construction of inland port and fuel reserves are now being called for by the Uganda trader’s umbrella body KACITA, based on the belief that such infrastructure would have insulated them from Kenya’s troubles.4 Tanzania is perceived to gain the most from these events as landlocked countries begin to increase their use of the port of Dar es Salaam for their exports.

The unrest in Kenya has no doubt raised uncertainty regarding investment in Africa. The continent is considered to be experiencing its strongest growth in the past thirty years, however social institutions remain fragile, therefore, the risk of instability constantly looms. Notwithstanding, U.S. investors should not hastily divest from Kenya as the turmoil has been relegated to a few confined areas. Kenya is still East Africa’s largest economy with a modern manufacturing sector. Investors would be abandoning a well-educated workforce and infrastructure that is superior to that of its neighboring countries, the foundation that has made Kenya the regional hub for investors for a long time. Rather, investors could rally around the political dialogue taking place to help resolve the conflict. An undesirable situation would be divestment that may potentially exacerbate the crisis by increasing unemployment and economic insecurity.

Feed back on this article could be sent to Fabrice and Haben at
1 All Africa. “Tanzania: Country to Benefit from Kenya’s Tragedy”. February 4, 2008.
2 The Daily Telegraph. “Kenya Counts the Cost as Tourists Stay Away”. February 4, 2008.
3 Stratfor. “Global Market Brief: A Second Look at African Infrastructure”. January 3, 2008.
4 East African Business Week. “How Kenyan Crisis Could Bring EAC to its Knees”. January 21, 2008

1 comment:

Mombasa Resorts said...

These type of unrest situation spoil the tourism sector first. People avoid coming to these countries and skip to some other country for their holiday visits.