Index trend
Previous quarterly editions
Expropriation risk: 54 54 54 54 ► Political violence risk:51 51 60 60 ►Terrorism risk:70 70 70 70 ►Exchange transfer and trade sanction risk: 63 63 63 63 ►Sovereign default risk:74 74 74 74 ►
Overall Risk Temperature: 67 (Medium high) TREND ►
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
2
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
Kenya is not generally a country that experiences, or seeks to utilize, gray zone aggression. Instead, Kenya has sought to be a constructive member of the East African Community and has tended to enjoy reasonably cordial relations with neighboring states. There are a number of sources of regional tension — including a dispute between Kenya and Uganda over fuel imports, controversy regarding Kenya’s decision to close the border with Somalia and Tanzania during the COVID-19 crisis, and disputed control of Migingo Island by Kenya and Uganda — but such disputes are typically handled through official channels. In the case of the fuel dispute, for example, Kenya ultimately agreed to convey a license on the Uganda National Oil Company (UNOC) after the Ugandan government had taken its neighbor to the East African Court of Justice to compel it to allow UNOC to operate and handle fuel imports destined for Kampala.
There are two cases that could be considered to be exceptions to this general rule. First, Kenyan troops entered Somalia in 2011 as part of Operation Linda Nchi (“Protect the Country”), after a wave of terrorist attacks committed by the Al-Shabaab group that operates across the Kenya/Somalia border. However, it is unclear that this constitutes gray zone aggression for two reasons. First, the Kenyan troops ultimately integrated into the African Union’s Mission in Somalia and then the Union’s Transitional Mission. This mission was mandated to protect the Somali transitional government and deliver humanitarian aid while preventing the growth of non-state forces. Moreover, the last Kenyan troops are scheduled to be withdrawn by the end of 2024. Second, if it was an act of aggression, this was closer to full-scale war given the size of the force deployed, the number of battles and the lives lost — which are believed to be in the thousands.
The other possible case of gray zone aggression relates to Kenya’s involvement in the Democratic Republic of Congo (DRC). In 2022, Kenya deployed around 900 military personnel to tackle armed groups in the eastern DRC. This was in support of the Congolese government. But there have been rumors for some time that Kenyan forces are involved in smuggling operations and efforts to strengthen the business holdings of Kenyan political leaders in the DRC.
This has led to some tensions with the DRC government, although these have rarely become public. A public rift did occur in June 2024, however, when DRC leaders were angered at Kenyan President William Ruto’s suggestion that the M23 rebel group was not controlled by the Rwandan government and at Kenya’s alleged failure to take action when M23 leader Bertrand Bisiimwa was on Kenyan soil. It is unclear that this constitutes gray zone aggression, though, not least because in early September 2024 Kenyan troops were again deployed to the DRC, this time as part of a joint East African Community force. The main aim of the task force is to protect the government of the DRC and aid workers from rebels operating in the east of the country. According to a statement by Ruto, Kenya’s troops are “on a mission to protect humanity.”
There is also little evidence that Kenya is the subject of gray zone aggression. Most of the main threats to the country come in the form of terrorist movements rather than the deliberate actions of state governments. The decision of Ethiopia to build the Gilgel Gibe III Dam on the Omo River could be considered to fall into this category, however, in that it has significantly affected Kenya’s Lake Turkana, which gets 90% of its water from the river.
This has intensified tensions between the Ethiopian government and political representatives from the area, while water shortages have resulted in an uptick in violence between Ethiopian and Kenyan communities. The Kenyan and Ethiopian executives have historically committed themselves to resolving these incidents and related border conflicts peacefully, however, and disadvantaging Nairobi was not the primary aim of the Ethiopian government when it decided to construct the dam.
TREND ►
There is limited expropriation risk in Kenya. Ruto’s government is committed to working with the International Monetary Fund (IMF), and the Finance Bill 2024 was largely designed to meet IMF requirements. The new alliance between Ruto and former Prime Minister Raila Odinga is also unlikely to cause any major threats where expropriation risk is concerned, in part because Odinga is very much a junior partner in the coalition, and in part because for all of his populist rhetoric Odinga has not put forward concrete plans to nationalize industry.
It is true that the government is likely to come under greater economic pressure due to low levels of foreign direct investment and an increasingly unsustainable debt burden, but the warm relationship between Ruto, the IMF and the U.S. — where he conducted a much-publicized state visit in May — means that it is unlikely that the government will respond to these pressures by targeting foreign investors.
Rising government fees and taxes triggered a youth-led protest movement against the Finance Bill 2024. The intensity of the protests, their breadth — occurring in urban areas in the vast majority of the country’s 47 counties — and the fact that they were not organized by a political party took the government by surprise.
That the protestors managed to sustain their campaign in the face of considerable government repression — with at least 39 fatalities and hundreds more injured — forced Ruto to “withdraw” the Finance Bill, sack his cabinet and move to form a “broad based” government. These steps, along with growing fear regarding government reprisals, have curtailed the protests.
They have also, however, further exacerbated popular frustration with the political system. In particular, the willingness of prominent opposition leaders to join Ruto’s cabinet has led to accusations that the political elite is once again colluding to protect its own interests ahead of those of the Kenyan people. Given this, Ruto’s low popularity and the growing confidence among the country’s young people that they can force change by taking to the streets, further protests may occur if the government seeks to increase taxes over the next 12 months.
Terrorism attacks committed by the Al-Shabaab group have continued but have been largely restricted to Garissa, Mandera and Lamu counties, with no major attacks on Nairobi or the country’s key economic centers. A successful attack on Nairobi remains a significant risk, however.
The insecurity around the Kenya/Somali border has significant implications for trade, and for the ability of the government to ever deliver on major infrastructural programs planned for the region, such as the Lamu Port-South Sudan-Ethiopia-Transport Corridor and the port at Lamu.
The central bank cut interest rates from 13% to 12.75% in August 2024, having increased them at the end of last year in a bid to constrain inflation. This reflected a more stable inflation outlook, with the annual rate falling to a four-year low of 4.3% in July 2024.
One of the main reasons for the decline in inflation — which had stood at over 6% year-on-year — was falling transport and food and drink prices. The central bank is expected to keep interest rates at 12.75% in the coming months, although a sudden increase in inflation could force its hand.
Kenya’s debt situation remains perilous, especially after mass protests forced the withdrawal of the Finance Bill. Ruto had justified the increased taxes included in the budget on the basis that they were necessary to meet the service on the country’s growing debt burden.
After being forced to withdraw the bill, his government announced that it would need to borrow an additional 1 trillion shillings (around $7.6 billion) to finance the budget — a 67% increase. Debt has already increased from around 41% of GDP in 2014 to around 78% today and is projected to break the 80% barrier before the end of the year.
Constrained by both public opinion and in some cases the courts — which have ruled some of the government’s previous efforts to introduce new taxes and levies to be unconstitutional — when it comes both to cutting public services and increasing government revenue, a debt crisis is becoming increasingly likely.
