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Kenyan firms stare at massive losses in South Sudan conflict

NEWS
By By EMMANUEL WERE | December 23rd 2013
By By EMMANUEL WERE | December 23rd 2013
NEWS

By EMMANUEL WERE

KENYA: Will the conflict that has broken out in South Sudan force Kenyan companies to rethink their regional expansion plans that have enjoyed the fruits of peace dividends?

 As the conflict in South Sudan enters a week’s stretch, Kenyans, like all the other nationals, have left in droves. For Kenyan companies, South Sudan provides a lucrative investment market and other opportunities. This is because of its 22-year conflict that ended in 2005, which stalled development. Kenya has invested billions of shillings in the country through several companies such as Kenya Commercial Bank (KCB), Equity Bank, Co-operative Bank and the financial services group, UAP Holding among others.

Hospitality industry

The investments had started bringing in promising returns. Kenyans also drive South Sudan economy as they provide human resources. They also dominate the construction and hospitality industry.  Moreover, Kenya midwifed the country by being the mediator — the host for the peace process that ended the two-decade long war for a peace deal to be reached in 2005.

 Kenya has also played a significant role in some semblance of normalcy returning to Somalia and a peace deal reached between the government and the rebels in DRC.

 Soon, the markets in these two countries will open up for Kenyan companies to expand their moneymaking ventures.  This is despite the fact that peace and stability in these two countries, like what is happening in South Sudan, might not come by quickly.

 But will the experience in South Sudan affect the expansion plans of most Kenyan corporates?  “The reason why everyone likes South Sudan is because they are so aligned to the East African Community in terms of the structure and the governance,” said Ken Kaniu, a senior investment manager at Stanbic Investment Management Services.  “The Somali are already entrepreneurial and DRC is just seen as a trading partner that is why the Kenyan companies prefer South Sudan,” he added. Kaniu expressed confidence that the current skirmishes in the world’s youngest country is not enough to force many Kenyan companies to pull out unless there is total anarchy.

 The conflict broke out in South Sudan a week ago when rebels linked to former vice-president Riek Machar attempted a coup in the capital city of Juba. However, Machar has denied this, saying a misunderstanding among the presidential guards led to the conflict.  Differences between Dr Machar and his one time ally President Salva Kiir is said to have boiled over at a meeting of the ruling party SPLM leading to the outbreak of the armed conflict.

 It is estimated that 700 people have been killed and more than 60,000 forced to flee as of yesterday.

 The aggressive expansion of Kenyan banks has seen them venture into South Sudan.

 If the conflict escalates, especially in Juba, banks  such as KCB, Equity Bank and Co-op Bank might feel the heat from the conflict,  particularly because South Sudan contributes a significant portion of income from markets outside Kenya. Kenyan banks and financial services providers might again lead the way in expanding into markets such as Somalia and the DRC.   This is because like in the case of many of the regional companies coming out of civil strife, the local Kenyan banks are the ones, that act as banks for the missionaries and Non-Governmental Organisations (NGOs) operating in these countries.  Once stability comes into these countries, the banks are willing to follow their NGO or governmental clients into these countries.

Run consultancies

 KCB and National Bank are the two banks that have so far hinted at a possible entry into Somalia.  Insurance firm UAP has set up in South Sudan and also has operations in DRC.  But with some uncertainty still in the country, many Kenyan companies opt to run consultancies or advisory for their clients in Somalia from Nairobi.  One of the biggest worries about peace in Somalia is whether the clans can hold a truce.

 In South Sudan, the worry at the moment is whether the conflict will generate into a full-scale tribal conflict between the majority Dinkas and Nuer, the second largest.

Another big headache with doing business with Somalia, South Sudan and possibly DRC will be the currency headache.  Companies like Kenya Airways, EABL and Fly540 often give their biggest challenge in South Sudan is the currency.  Kenya exported goods worth Sh18 billion to South Sudan last year, against imports valued at Sh14 million.  Most of the Kenyans taking their goods into South Sudan will have to either sell in the South Sudan pound or the US dollars. The US dollar is most preferred by  Kenyans because of its convertibility However, in times of conflict the US dollar becomes scarce.

 The rebels have also taken over Bor, the capital of Jonglei state, an expansive state, just 200 kilometres north of Juba.  

They are also said to have taken over the oil rich Unity State, which portends a big dilemma for South Sudan. The country relies on oil revenue to fund its budget and development programmes.  And the first act by the rebels might be to cut off the oil pipeline.

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