Index Trend Previous Quarterly Editions
Expropriation Risk: 55 ► Political Violence Risk: 51 ► Terrorism Risk: 62 ► Exchange Transfer and Trade Sanction Risk: 64 ► Sovereign Default Risk: 74 ►
Overall Risk Temperature 64 (Significant) TREND ►
Special topic: Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Low High Low Low
Cost-of-living protest risk in 2023* Medium High
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Inflation has not generally been a major problem in Kenya, with 5% inflation in 2020 and 2021 which is below the regional average. However, the combination of rising oil and food prices as a result of Russia/Ukraine crisis from February 2022, poor rains, and regional disruption due to the conflict in Ethiopia, have increased the price of both food and fuel.
This led to an increase in inflation to 6.11% in 2021, with the government struggling to reverse this trend. In February 2023, the country’s statistics office announced year-on-year inflation had risen to 9.2%, having been 9% in January. This is outside the target range of 2.5-7.5%. The Central Bank has responded to this trend by increasing interest rates, from 7% in 2020 and 2021 to 7.5% in May 2022, the 8.25% in September 2022, and 8.75% in November 2022. However, while rate increases initially dampened inflation, this effect has not been sustained.
The impact of inflation and the rising cost of living have been prominent political issues over the last two years. In particular, former Deputy President William Ruto harnessed popular anger at the cost of living, and growing public awareness of grand corruption and the country’s deep inequality (Oxfam estimates “less than 0.1% of the population (8,300 people) own more wealth than the bottom 99.9% , or more than 44 million people) to mobilise support against the country’s political ‘dynasties’ in the 2022 general elections. This included now-former President Uhuru Kenyatta.
As part of this campaign, Ruto depicted himself as a “hustler”, who was on the side of Kenya’s hardworking ordinary wananchi (people), who would make the system work for them. In doing so, he implicitly contrasted his leadership with other sections of the political elite, depicted as being out of touch and unwilling to share the country’s wealth.
Aided by the perception President Kenyatta has not done enough to protect Kenyans from the economic impact of the COVID-19 pandemic and the economic downturn, this campaign helped Ruto to win power. In government, however, he has struggled to make the immediate impact on living standards that many Kenyans had hoped for, in part because inflation is being driven by a range
of factors, many of which are beyond his direct control.
The government’s main attempt to show that it has been true to its election promises has been the Hustler Fund, which provides instant small loans to citizens who might not otherwise be able to access them for example, because they have no capital or credit rating. It is unclear, however, how much of an effect this has had. The total value of the fund is modest, at USD410 million, and some of the loans have been extremely small at under USD10. The scheme has also been criticised for expecting the loans to be repaid with a flat interest rate of 8%. More than 800,000 people have defaulted so far. Ruto claims the scheme has been a success, shelping
18 million people, though this figure has not been verified.
The cost of living is likely to remain high on the political agenda because it is being used by long-time opposition leader Raila Odinga – and some of his new allies, which include many of the individuals who had been close to Kenyatta during his presidency – to mobilize support against Ruto. The cost of food has often been an issue that Odinga has sought to campaign around, and it is particularly useful now because his claims that the 2022 election was rigged in favour of Ruto were rejected by the Supreme Court and are not believed by most Kenyans.
By fusing economic discontent with claims of electoral injustice and ethnic distrust (many Kenyans who do not share Ruto’s Kalenjin ethnicity are concerned their communities are not being fairly represented in the distribution of senior government positions) Odinga may be able to build a potent rallying cry. He has promised to hold protests every Monday, after an initial protest led to widespread disruption in downtown Nairobi, with more than 200 people arrested and at least one person killed.
Ironically, by causing instability and disruption in the capital city – including forcing schools and businesses in the vicinity to close, leading many Nairobi residents
to stay at home – Odinga’s protests are likely to generate further economic hardships, slowing growth and deterring investment.
Expropriation Risk 55 (Significant) TREND ►
Between 2022 and 2021, Kenya suffered a further decline in foreign direct investment, with a fall of USD269 million to a total of USD448 million. Although confirmed figures are not yet available for 2022, the Kenyan Investment Authority (KenInvest) has said there has been a significant uptick, with foreign direct investment hitting pre-pandemic levels.
This has been driven by interest in green energy, agriculture, oil and gas, and Information Technology. There is a risk, however, that political violence will deter investors, especially in those sectors operating in Nairobi. It’s likely this pattern will exclude oil and gas but could affect areas such as IT.
Political Violence Risk 51 (Medium) TREND ►
Having receded following the largely peaceful resolution of the 2022 general elections, the announcement of regular protests by Odinga will significantly increase the political violence risk. In addition to committed supporters, and those paid by political leaders to attend, the protest on March 20 appears to have attracted individuals angry with the high cost of living and the growing sense within the country that Ruto is favouring members of his own ethnic group when distributing government jobs.
The fusion of ethnic, economic, and electoral concerns increases the risk the protests scale from localized unrest into a broader national-level conflict. Although this remains unlikely, certain incidents, such as an injury to Odinga, could serve as a trigger for wider unrest.
Odinga’s spokesperson claims during the protest his convoy was teargassed and hit by a bullet. A heavy handed approach to managing the protests could have a similar effect: on March 23, four Kenyan legislators were charged with unlawful assembly for their part in the protests, which will only serve to exacerbate further the process of political polarization and inflame tensions.
Terrorism Risk 64 (Significant) TREND ►
Greater restrictions on travel appear to have made it more difficult for terrorist groups to operate, and there has been a significant reduction in the number of high-level terrorist attacks. However, peripheral attacks on Kenyan citizens and security forces continue, most notably in counties near the Somali border such as Mandera, Wajir, Garissa, and Lamu.
There are some fears efforts to reduce al-Shabaab’s capacity in Somalia will force or encourage some of its fighters to move towards the Kenyan border. If so, this could increase the risk of attacks on Kenyan soil.
Exchange Transfer and Trade Sanctions Risk 64 (Significant) TREND ►
The Central Bank has continued to increase interest rates in a bid to restrain inflation, with increases in September 2022 and November 2022 resulting in the current rate of 8.75%. Given inflation remains high, further rate increases may be required if the government is determined to try and respond to high fuel and food prices.
Sovereign Default Risk 74 (Medium-High) TREND ►
Despite the rhetorical commitment of the Kenyan government to reducing the country’s debt burden, that burden continues to rise. The debt stock rose grew by KES762.7 billion in the year to September 2022, resulting in a total debt stock of KES8.7 trillion – some of 62% GDP – according to figures released by the Central Bank. In turn, this has moved Kenya perilously close to the KES10 trillion borrowing limit set by the National Assembly in June 2022.
There is some evidence the new government is adopting a tighter monetary policy, however, as the rate of increase of the debt stock was lower over the year to September than at any point in the previous four years. Further increases are likely, however, especially as President Ruto comes under pressure to avoid austerity politics and to spend more to offset the impact of high prices on Kenyan citizens.
