Potential Impact of Riots And Demonstrations On Kenya's Economy: Sector By Sector Analysis

Potential Impact of Riots And Demonstrations On Kenya’s Economy: Sector By Sector Analysis

By Steve Biko Wafula / Published March 30, 2023 | 7:02 pm

KEY POINTS

KEY TAKEAWAYS

Tourism is one of the largest sectors of the Kenyan economy, accounting for approximately 10% of the GDP and employing over 1.5 million people. The recent unrest could lead to a decline in tourism, as potential visitors may perceive Kenya as unsafe. This could lead to a reduction in revenue for hotels, restaurants, and other tourism-related businesses.

Political demonstrations can be detrimental to an emerging economy like Kenya in various ways. Firstly, political instability and violence can lead to a decline in foreign investment, as investors perceive the country as high-risk, which can hinder economic growth and development. For example, in 2019, political unrest in Sudan led to a decline in foreign investment, and the country’s economy contracted by 2.5% in 2019, according to the World Bank. Similarly, in 2020, political demonstrations in Chile led to a decline in investment and tourism, resulting in an estimated $3 billion loss for the country’s economy.

Secondly, political demonstrations can disrupt economic activity, leading to a reduction in productivity and output. In 2019, protests in Hong Kong led to a decline in retail sales and tourism, impacting the country’s economy. Similarly, in 2018, protests in Nicaragua disrupted supply chains, resulting in a decline in exports and a loss of jobs. These examples demonstrate how political unrest can have significant short-term and long-term impacts on the economy.

In Kenya, political demonstrations have the potential to negatively impact the economy, particularly in sectors such as tourism, agriculture, and manufacturing. Tourism, for instance, is a crucial sector that generates foreign exchange earnings and creates jobs. However, political unrest can lead to a decline in tourist arrivals, impacting the sector’s growth and development. Similarly, disruptions in the agricultural sector can lead to food shortages and price hikes, impacting the country’s food security and inflation rates. Moreover, the manufacturing sector can be impacted by disruptions in the supply chain, leading to a reduction in output and exports.

Based on historical data and economic theory, I will now discuss the potential impact of riots and demonstrations on the Kenyan economy, sector by sector;

The Kenyan economy is one of the largest in East Africa, with a GDP of approximately $106 billion in 2021. The country has experienced significant economic growth in recent years, with an average annual growth rate of 5.5% between 2015 and 2019. However, the COVID-19 pandemic had a significant impact on the economy, with growth contracting to 0.6% in 2020.

The ongoing riots and demonstrations in Kenya will have a significant impact on the economy, particularly in sectors such as tourism, agriculture, and manufacturing;

Sector by Sector Analysis;

Tourism is one of the largest sectors of the Kenyan economy, accounting for approximately 10% of the GDP and employing over 1.5 million people. The recent unrest could lead to a decline in tourism, as potential visitors may perceive Kenya as unsafe. This could lead to a reduction in revenue for hotels, restaurants, and other tourism-related businesses. The World Travel and Tourism Council estimates that the Kenyan tourism sector could lose up to $1.6 billion in revenue due to the pandemic.

The agricultural sector is also likely to be affected by the riots and demonstrations. Agriculture is a major source of income for many Kenyans, with approximately 75% of the population engaged in farming. The protests could disrupt supply chains and lead to a reduction in agricultural production. This could lead to a shortage of food and an increase in food prices, which would have a significant impact on the population, particularly the poor.

The manufacturing sector in Kenya is also likely to be affected by the riots and demonstrations. Many manufacturing firms are located in urban areas, which are more likely to be affected by protests. The disruption to supply chains and transport could lead to a reduction in manufacturing output, which would have a significant impact on the economy. Additionally, the unrest could lead to a decline in investor confidence, which could reduce foreign investment in the sector.

The financial sector in Kenya could also be impacted by the riots and demonstrations. Banks and other financial institutions may need to close their branches due to unrest, which could disrupt financial transactions. Additionally, the decline in investor confidence could lead to a reduction in the stock market, which could have a significant impact on the economy.

The energy sector in Kenya could also be impacted by the riots and demonstrations. Many of Kenya’s power generation plants are located in urban areas, which are more likely to be affected by protests. The disruption to power generation could lead to power outages, which would have a significant impact on businesses and the economy as a whole.

The transport sector in Kenya is also likely to be affected by the riots and demonstrations. The disruption to transport could lead to a reduction in the movement of goods and people, which would have a significant impact on businesses and the economy. Additionally, the disruption to transport could lead to an increase in transport costs, which would increase the cost of goods and services.

The telecommunications sector in Kenya could also be impacted by the riots and demonstrations. The disruption to telecommunications could lead to a reduction in communication and access to information, which could have a significant impact on businesses and the economy.

The construction sector in Kenya could also be impacted by the riots and demonstrations. Many construction projects may be delayed or canceled due to unrest, which could lead to a reduction in employment and economic growth.

The mining sector in Kenya could also be impacted by the riots and demonstrations. The disruption to mining operations could lead to a reduction in mining output, which would have a significant impact on the economy.

The education sector in Kenya could also be impacted by the riots and demonstrations. The unrest could disrupt educational activities, leading to a reduction in educational attainment and potential long-term impacts on the economy. Additionally, the decline in investor confidence could reduce foreign investment in the education sector, which could further impact the quality of education in the country.

The healthcare sector in Kenya could also be impacted by the riots and demonstrations. The disruption to healthcare services could lead to a reduction in healthcare access, which could have significant impacts on health outcomes and potentially lead to higher morbidity and mortality rates.

Furthermore, the unrest could have a significant impact on the informal sector in Kenya, which accounts for approximately 83% of total employment in the country. The disruption to business activities could lead to a decline in income for those working in the informal sector, which would have significant impacts on poverty rates and income inequality in the country.

Political demonstrations will have significant negative impacts on an emerging economy like Kenya, particularly on foreign investment, productivity, and output. These effects can have significant long-term implications for the economy, leading to a decline in economic growth and development. Therefore, it is crucial for the government to address the underlying issues that lead to political unrest, to promote stability and attract foreign investment.

In conclusion, the ongoing riots and demonstrations in Kenya will have significant impacts on the country’s economy, particularly in sectors such as tourism, agriculture, and manufacturing. The unrest could disrupt supply chains, reduce production, and lead to a decline in investor confidence, which could have long-term impacts on the country’s economic growth.

Additionally, the disruption to essential services such as healthcare and education could have significant social impacts, leading to a decline in health outcomes and educational attainment. However, it is important to note that the extent of the impact on the economy will depend on the duration and severity of the unrest, as well as the response of the government and the private sector in addressing the underlying issues.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters.He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com

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