Country risks for investors operating in Kenya

04 July 2019

Country risks for investors operating in Kenya Terrorism risks in Kenya will remain elevated in the one-year outlook following al-Shabaab’s attack on a hotel and office complex in Nairobi in January 2019. The Kenyan economy will also remain vulnerable to volatility in external financial markets. Economic deceleration in China, which is a major financier of Kenyan infrastructure projects, will weigh on private investment into the country.

Security Environment

Regional instability and political violence pose significant threats to investors seeking to enter Kenya. Firms operating in the country, particularly multinationals, are also exposed to terrorist attacks and violent crime.

Kenya is a prime target for the Somalia based Islamist militant group al-Shabaab, which has the intent and capacity to attack government and foreign assets and personnel in Nairobi. The latest attack occurred on 16 January 2019 when six militants of Kenyan origin conducted a suicide improvised explosive device and small arms assault on a hotel and office complex in the Westlands neighbourhood.

The attack resulted in 21 deaths and 28 non-fatal injuries. This follows previous small-arms attacks, including a 2013 attack on the Westgate shopping centre in Nairobi, which killed 68 people.

Country risks for investors operating in KenyaOn 4 June 2019, Kenya’s Anti-Terrorism Police Unit (ATPU) arrested two men suspected of conducting surveillance inside a further hotel in Nairobi. ATPU officers alleged that a phone seized from one of the suspects contained photographs of a purported al-Shabaab training camp.

Al-Shabaab capabilities are strongest when groups of insurgents in Somalia penetrate the porous border in Kenya’s northeastern Mandera County along the Kenya-Somalia border. The group’s modus operandi will continue to be small-arms and IED attacks targeting police stations, public transport and military convoys.

Notable hot spots include the route from Mandera town along the B9 Highway toward the towns of El Wak and Lafey on the Kenya-Somalia border.

Trading Environment

Real GDP growth will slow to 5.2% in 2019-2020, down from 5.8% in 2018 as economic headwinds weigh on private consumption, investment and exports. In March 2019 the Nairobi High Court annulled a banking law that has limited bank lending rates to 4 percentage points above the central bank policy rate since 2016.

However, the High Court suspended the implementation of the ruling for 12 months. In the 12-month outlook, the banking law will constrain foreign investment in the wholesale and retail trade sector (the largest recipient of private credit) and private consumption.

Inflation, which is set to increase to 6% in 2019, up from 4.7% in 2018, will weigh on private investment and consumption growth in 2019, by increasing firms’ input costs and weakening households’ purchasing power.

The medium term growth outlook will be more stable, driven by strong public investment in infrastructure projects. The project pipeline for the next 12 months includes a new Standard Gauge Railway and the development of Lamu Port, which are scheduled to reach completion in 2019 and 2020 respectively.

Growth in construction sector output will be robust at 8.6% in 2019, up from 7.5% in 2018. The Kenyan shilling remains resilient on international markets, reflecting foreign investor interest and a stable economic outlook. However, over the long-term, stability of the Kenyan shilling will hinge on how effectively the Central Bank defends the currency against external volatility.

At present, gross international reserves stand at around US$8.25 billion providing an adequate 5.3 months of import cover. However, growing public debt, at close to 60% of national output, and up from 40% in 2013 will provide downside risks to investors.

The outlook for exports is particularly vulnerable due to fluctuating global commodity prices. Economic headwinds from the Brexit decision will likely hurt Kenya’s largest commodity export, tea, as well as the horticultural industry – a quarter of the country’s GDP is generated by the cut flowers industry, and Kenya is the world’s third largest exporter.

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Investment Environment

Pricing Outlook KenyaDemands for facilitation payments in tenders for new development projects will remain a significant risk for foreign investors. Risks are especially elevated in hydropower, irrigation and road construction projects. However, corruption risks in the short-term outlook are tempered against the expanded project supervisory powers of the interior minister.

Interior Minister Fred Matiang’I, who in January 2019, was given powers to supervise all development projects, will coordinate quarterly meetings with approximately 500 domestic and foreign contractors to discuss allegations of tender irregularities.

Contract cancellation risks have increased in Kenya following the decision to halt construction at the country’s first coal-fired power plant on environmental grounds. On 27 June 2019, the National Environmental Tribunal in Kenya revoked the project license of the Chinese-backed, USD 2 billion dollar Lamu power-plant, citing an improper environmental assessment by the project owners.

Environmental scrutiny of projects is likely to be elevated in the coming months, raising project suspension risks for other Belt and Road Initiative (BRI) investment initiatives currently undergoing construction.

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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5 Key Takeaways

  • Terrorism risks will remain elevated in Kenya in the one-year outlook following Al-Shabaab’s attack on a hotel and office complex in Nairobi
  • High-end hotels and Christian churches will remain aspirational targets for Al-Shabaab
  • GDP growth will slow to 5.7% in 2019-2020, caused by economic headwinds to growth in private consumption, investment and exports
  • Infrastructure investment will support the medium term growth outlook. The construction sector alone will grow by 8.6% in 2019
  • Gross international reserves stand at around US$8.25billion (5.3 months of import cover).

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Gulf of Oman, Hong Kong, Bangladesh and Madagascar all of which have been the subject of recent enquiries from our client base.



  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.

    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)121 626 7837.

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