Kenya political impasse wrecks economy, pushes traders to Central Corridor

Saturday July 15 2023

Demonstrators light fires and block roads as they protest tax increases in Nairobi, Kenya on July 12, 2023. PHOTO | ANADOLU AGENCY via AFP


Regional business lobby East African Business Council is warning of huge disruptions to cross-border trade and investments ahead, which it says will slow the recovery of East African economies from the economic effects of the disruptions caused by Covid-19 and the Russia-Ukraine war.

“The ongoing demonstrations have negative effects on doing business in the region as they disrupt trade as well as investments. I think it is high time the Kenya government took proactive action to resolve this by seeking an amicable solution,” said John Bosco Kalisa, Chief Executive of EABC.

The warning comes hot on the heels of protests that have left traders in Nairobi, which contributes about 60 percent of the nation’s GDP, and others in other major towns rocked by violence in the past two weeks counting losses after the Azimio “civil disobedience” brought the country to a standstill.

Read: Kenya protests: Day of chaos, rebellion and shutdown

Tanzania, on the other hand, is bracing for brisk business as the Northern Corridor transporters seek new routes as result of continuous unrest on the corridor amid fears of cargo loss, damage and delays.

Shippers are complaining of increasing cost of transporting cargo through the port of Mombasa even as truckers grounded their vehicles this week over unresolved grievances.


Importers and hauliers

Kenya International Freight and Warehousing Association Chairman Roy Mwathi said the truck drivers’ strike caused huge losses as no cargo left the port, raising demurrage for importers.

“We are the bearers of the delay costs, as we are in charge of clearing and transporting cargo from the port to different countries. This will affect how they consider Mombasa as a port of choice,” said Mr Mwanthi. “With the opposition announcing protests three days a week starting next week, this will worsen the situation.”

The truckers have been protesting against new directives by the government including one by the National Transport and Safety Authority on mandatory re-testing for drivers, which they say is punitive.

Read: Traders shift from Northern Corridor to rail on high fuel costs

By Thursday, only cargo hauled via the standard gauge railway left the port.

Mombasa port handles about 4,000 containers per day with the SGR only taking about 1,300 of them.

The Kenya Private Sector Alliance (Kepsa) has estimated that the Kenyan economy is losing a staggering Ksh3 billion ($21 million) every day as a result of the anti-government protests.

The figure has raised concern among businesses, leading Kepsa to issue a warning that the country cannot afford the prevailing political activities.

Back to the streets

Former prime minister Raila Odinga, leading the Azimio la Umoja One Kenya opposition coalition, called the protests, which have been largely fuelled by the skyrocketing cost of living. Many citizens are grappling with the burden of high prices of essential goods and services, making it difficult to make ends meet.

The return of weekly protests is going to hurt trade between Kenya and its landlocked neighbours as it will affect flow of cargo on the northern route.

With violent riots reported in Mombasa, Nairobi, parts of Rift Valley and Western Kenya, which form the Northern Corridor, the future seems bleak unless a solution is found.

Dar es Salaam port has been eating Mombasa’s lunch lately and now as Tanzania President Samia Hassan battles public opposition to efforts to revitalise the Dar port – with a deal with Dubai’s DP World – recent data from the Kenya Ports Authority shows the investment in infrastructure and institutional strengthening capacity has seen customers shift from Mombasa port.

Read: Dar port topples Mombasa with $357m upgrade

Notably, Burundi, enjoying concessions from Tanzania, has shifted to Dar. Records indicate a significant fall in business between Kenya and Burundi, with a paltry 1,000 tonnes reported to have been imported through Mombasa in the first seven months of 2022, compared with 21,000 tonnes in 2018.

But Kenya’s close diplomatic relations with Uganda and South Sudan has seen maintenance of business ties as well. For how long remains the question as uncertainty taints the future of the republic.

Kenya and Tanzania have been competing to position their ports as the preferred entry point into the region, targeting inland markets in Uganda, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo.

But transporters have started moving their goods through the Central Corridor from the Dar port.

Last year, Kenya lost 1.1 million metric tonnes of cargo to Tanzania, according to data collated by the Kenya National Bureau of Statistics.

Mombasa port’s total cargo throughput shrank to 33.74 million metric tonnes, from 34.76 MT in 2021, a 2.93 percent year-on-year drop, pushing the volumes to the lowest levels since 2018, when it stood at 30.92 million tonnes.

Compared with Dar es Salaam, in the same period, cargo throughput on the Central Corridor increased from 14.04 million MT in 2017 to 19.02 million MT in 2022, according to the Northern Corridor Observatory Report.

Shippers Council of Eastern Africa, the lobby representing importers and exporters of goods, says traders in Uganda and Rwanda have gradually increased volumes through Dar es Salaam.

Read: Dar reaps as Mombasa cargo volumes dip

Post-Covid, post-drought

An analysis by The EastAfrican based on the Kenya government’s economic productivity data for 2022 shows that a complete shutdown of the economy could cost the on average Ksh36 billion ($255 million) in a single day, with Nairobi losing Ksh22 billion ($156 million).

Prof Njuguna Ndung’u, Cabinet Secretary for the National Treasury, said if a survey of the losses of small businesses that remain closed and those that are looted, “even the deaf and selfish will understand the impact.”

The contentious Finance Act (2023), which among other things doubles value added tax on fuel to 16 percent and introduces a 1.5 percent housing levy on employees’ gross monthly income to be matched by the employer, is one of the issues causing riots. It is however, now a subject of a court case.

The High Court suspended implementation of the contentious tax law on June 30, a day before it was scheduled to come into force, amid public outcry over the punitive tax proposals. And on July 10, the court extended orders barring the Treasury CS from implementing it.

Despite the court order, the Energy and Petroleum Regulatory Authority (Epra) implemented the revised fuel tariffs on July 1 effectively collecting illegal revenues from the public.

Read: Kenya fuel costs remain high amid marginal drop in pricing

Kepsa said that for a struggling economy reeling from the effects of a prolonged drought, general election and economic slowdown last year “and compounded by general global economic challenges, Kenya can ill-afford the political activities currently at play.”

“Businesses provide goods and services to individuals from all backgrounds, regardless of their political affiliations, and must be protected from political machinations. By considerable measure these organisations are also a barometer of economic stability, and their closure is an affront to Kenya’s national economic aspirations,” Kepsa said in a statement.

Federation of Kenya Employers said the protests is not good for an economy grappling with high unemployment, food shortages and effects of climate change. Also, worker productivity is depressed due to anxiety and uncertainty.

“It is my hope that our leaders will rise to the occasion and begin working towards finding a lasting solution to the challenges we face. Kenya’s attractiveness to investors, tourists and businesses is diminishing by the day due to these actions. FKE condemns any destruction of property and endangering of life by any person,” said Jacqueline Mugo, FKE Chief Executive.