The recent terrorist attack in Westgate mall in Nairobi has detrimental effects on Kenya’s tourism economy, but the sector is expected to recover quickly.
The Kenyan economy relies heavily on tourism. The sector accounts for around 10% of its GDP, generating $1 billion a year and attracting about 1.8 million holidaymakers according to the government. Concerns that the Nairobi attack might have negative effects on Kenya’s economy are thus legitimate.
The country was already struggling to rebound from recent hardships, from the fire at Nairobi’s airport this summer to concerns regarding the outcome of the presidential elections in March, including speculation on whether there might be post-electoral violence similar to 2008. Therefore, the mall attack, in which French and Canadian citizens were killed, could deter even more travellers from Europe and the US, who account for 55% of visitors to Kenya.
Kenya’s economy has frequently suffered following violent events. After the US embassy bombing in 1998, there was a 7% fall in tourism. In 2008, after the post-electoral violence combined with the global financial crisis, there was a 27% fall in tourist numbers and the first three quarters of 2008 saw year-on-year declines in holiday arrivals of 22-36%. Furthermore, tourism receipts, which look at consumption expenditures or payments for goods and services made by international visitors out of foreign currency resources, dropped by 18% at that time.
Following the Westgate mall attack, the same tourism receipts are expected to fall by US $160 million in 2013 and will only increase by US $80 million in 2014 and US $165 million in 2015. Tourism numbers should decrease by 18% over 2013 and only rise 7% in 2014 before probably rebounding with 25% growth in 2015. There should also be an effect on transportation, as passengers on Kenya Airways flights will be reduced in the coming months. In addition, Kenya will probably have to postpone a $1.5 billion note that will mark Africa’s largest maiden sovereign bond.
Still, most analysts and bankers remain quite optimistic about Kenya’s ability to recover from this set of terrible events. In fact, according to Shilan Shah, an economist at Capital Economics in London, “While tourism may suffer, the economy is resilient and investors taking a long-term view won’t be deterred.” This echoes a Citigroup Africa analyst in London who stated that he will be “surprised if this event has a major long-lasting impact”.
A few concerns came from Christine Lagarde, the head of the International Monetary Fund, who hoped that the attack was not going to be a break for Kenyan economic growth, and from Kenya’s central bank governor who thinks that it will probably damage the country’s effort to improve its credit rating.
Nevertheless, Kenya, which is Eastern Africa regional hub, and Nairobi, which accounts for at least half of Kenya’s $44bn economy and has been buoyed by multinationals setting up pan-African and regional hubs and billions of dollars in foreign direct investment in sectors from consumer industries to oil, should recover quickly. The attack will have a limited impact on the country’s economy.
