Faced with political and economic crises, Kenya teeters on edge of meltdown

Anti-riot police look on as a demonstrator erects a barricade at a road in Nyalenda, Kisumu, during Azimio protests on July 21, 2023. [Michael Mute, Standard]

Kenya’s economy is in uncharted waters as it reels from simultaneous crises of food, energy and finance due to supply disruptions and mounting political uncertainty, analysts have warned.

They say the country is staring at financial ruin unless the government moves fast to arrest the economy from further nosedive amid a perfect storm of political and economic crises.

With the shocks such as the Covid-19 pandemic and the three-year drought behind, many may have thought that the Kenya economy may finally turn the corner this year.

The economy is, however, facing a new curve ball that now threatens to render more jobless while complicating the taxman’s job to increase tax revenues.

Kenyans are still grappling with high food prices, high cost of electricity and fuel as well as high cost of loans from commercial banks.

They are facing higher taxes as the government pushes to start implementing the controversial Finance Act, 2023, which has however been suspended by the High Court pending the hearing and determination of a case challenging its constitutionality.

The poly-crises of both social and economic factors are threatening to expose Kenya’s vulnerable populations to a severe cost of living crisis and poverty.

Those affected include Damaris Wamuyu, a single mother of six, who has earned a living doing laundry in the sprawling Githogoro slums in Kiambu County for over eight years.

Despite her meagre earnings, she was always able to provide her children with two or three meals a day.

But not anymore. Other poverty-stricken slum dwellers in Githogoro - which neighbours the posh Runda Estate - where thousands of workers do menial jobs for the super-rich, are feeling the pinch of the high cost of food and other commodities, which have skyrocketed globally. Ms Wamuyu, who is the sole breadwinner in her family, says she can no longer cope. 

“I am unable to buy basic essentials like maize flour and cooking oil because their prices have gone up beyond my reach,” she said, capturing the feeling across many Kenyan households that have been pushed into a tight corner by the ever-rising cost of goods. No longer able to bear the cost pressure, Ms Wamuyu recently resorted to giving her family one meal a day.

Ms Wamuyu is among millions of Kenyan families finding it increasingly difficult to put food on the table in the face of unprecedented high prices.

Cost of living

These families are looking to the new Kenya Kwanza administration to soften the blow of the high cost of living.

“The new government has to do more to help us cope with the rising cost of living,” said Ms Wamuyu.

One of the biggest hurdles that the economy faces at the moment is political uncertainty. The anti-government protests that have rocked the country and led to business closures are costing the economy billions of shillings every day, say manufacturers and traders.

“My work starts to peak towards the end of the week, with my busiest day being Friday. We remained closed on Wednesday and Thursday, which means zero revenue,” said a Nairobi-based trader who requested anonymity.

“Although we opened today [Friday], you can see that there are not as many customers. Despite all this lost revenue, my landlord will not give me a discount on the rent, the bank expects me to keep up with repayments and my employees too will also expect to be paid.”

The Kenya Association of Manufacturers (KAM) said businesses have been incurring daily losses of about Sh2.8 billion for each day of the anti-government protests.

KAM Chairman Rajan Shah said the losses are spread across the 14 sectors that the lobby represents.

“Therefore, the country stands to lose up to Sh2.86 billion daily if the protests continue to disrupt businesses as we have witnessed in the last two weeks,” said Mr Shah in a statement.

The ongoing opposition-led anti-tax protests, stemming from the raging cost of living crisis, have also hurt Kenya’s business environment and contributed to a decline in investor and consumer confidence.

There are fears foreign investors are injecting less money into the country in favour of other regional economies.

Tanzania President Samia Suluhu alluded to her country reaping from Kenya’s woes.

“We are receiving more investments from global investors who don’t want to go where there is trouble,” she was quoted as saying recently while not mentioning Kenya directly.

Through the protests, the opposition is rejecting the implementation of the Finance Act, 2023, insisting some of the clauses, including the hike in taxes on fuel, would make the already high cost of living worse.

Busia Senator Okiya Omtatah and others have contested the implementation of the Act, arguing that some clauses of the new tax law are unconstitutional.

Other than the higher prices of fuel, which are expected to see the cost of most essential goods and services rise, the government is also implementing the affordable housing levy that many say will see a reduction in the disposable income of many Kenyans.

Electoral reforms

The opposition, in staging the anti-government demonstrations, is also pushing for electoral reforms following last year’s disputed General Election.

“The protests are hurting the economy and destroying the social fabric of our nation,” said the Federation of Kenya Employers (FKE) Chief Executive Jacqueline Mugo.

The employers’ lobby noted that companies are losing billions of shillings not only in lost manpower and productivity but also through disruption to business activities.

“The private sector recently indicated that we lose Sh3 billion each day of the protest,” said Ms Mugo.

“The frequent disruption to business  operations, free movement of people, goods and services is bad for Kenya and we are slowly sinking into an abyss.”

The employers’ lobby warned job cuts loom if the disruptions are not arrested.

“The damage to Kenya’s image cannot be easily measured, but we are increasingly seen as unpredictable and in crisis,” she said.

“For an economy that is dealing with huge challenges of high unemployment, high cost of living, food shortages, climate change, among others, the protests are worsening an already bad economic situation.

“We appeal to our leaders to embrace reason and humility and talk together for the sake of the nation to find a lasting solution to the problems bedevilling the country and stop the loss of lives, destruction of property and other undesirable occurrences.”

Ms Mugo warned that “Kenya’s attractiveness to investors, tourists and businesses is diminishing by the day due to these actions.”

Tourism industry players fear warned that the sector faces imminent collapse due to mounting concerns about safety.

Kenya Tourism Federation (KTF), a sector lobby, consequently asked the government and opposition leaders to seek dialogue in a bid to rescue the fragile tourism sector, which is slowly recovering from the impacts of Covid-19. The lobby revealed that as a result of the weekly demonstrations, the country has lost billions of shillings from tourism earnings due to cancellations of bookings by international visitors.

It said the current crisis has created “a bad and devastating environment for the tourism sector, which could bring it to its knees,” the lobby group said.

“Already, and as a result of the recent demonstrations and civil disobedience, the country risks losing billions of shillings due to massive cancellations by potential international tourists who were scheduled to visit the country during the ongoing high season, to the benefit of Kenya’s competing neighbours,” said KTF in a statement.

“Sadly, in the face of the looming three-day demonstrations...the country is staring at more likely colossal cancellations resultantly.”

They spoke as businesses across the country last week incurred huge losses as a result of anti-government protests.

Even without factoring in the protests, the hurdles that the economy faces are already evident in the sluggish growth so far.