Post-election violence causes regional fallout: post-election violence in Kenya has already left its mark on East African business--far and wide.

THE HOPE NOW is that President Mwai Kibaki and his new Executive Prime Minister Ralia Odinga can keep to the spirit of their power-sharing deal in a way that averts further bloodshed and unifies rather than factionalises Kenya's first real coalition cabinet.

Finance Minister Amos Kimunya is optimistic that the country can maintain its seven per cent projected growth in GDP for 2008 as January revenue collection of US$139.8mn was only just over US$1mn short of the US$141.2mn target. "The shilling is getting back its strength," Kimunya says. "I think the speculators realised they can't gain on speculation. It has stabilised, all the fundamentals are right." The Kenyan shilling reached its highest level in 45 days once the power-sharing deal was signed.

The challenge now is making up for lost time, lost revenue, and lost prestige, especially in the highly-competitive tourism sector which is regularly Kenya's top foreign exchange earner. About 20,000 Kenyan tourism workers lost their jobs with additional drops in related businesses such as taxi drivers, restaurant workers, and souvenir sellers at what should have been the start of the high season. Post-election violence that killed more than 1,000 people and displaced more than 250,000 others brought travel warnings from the US and UK which slashed occupancy rates at some premier resorts to as low as five per cent.

Tourism, agriculture, and transport were particularly hard hit with Kenya Revenue Authority receipts for January of US$2.6mn more than 40 per cent below projections. Damage in Kisumu Town alone are estimated at more than KSh3bn with regional economists estimating the total impact so far is about five per cent of Kenya's GDP. A 20 per cent reduction in tourist flights cut the export capacity of fresh produce as 65 per cent of Kenyan flowers and vegetables reach Europe onreturning flights.

The Tea Board of Kenya has predicted a production drop of at least ten per cent with as many as 20,000 workers displaced in Kisii, Kericho, Bomet, Nandi, and Nyamira. The Tea Board says volume may drop to about 320mn kilogrammes with factories at Tombe, Sasisni, Nyansiongo, and Kebirigo Itumbe operating below capacity. Unilever Tea Co is already projecting losses topping KSh60 million with further production declines expected at James Finlay Tea, George Williamsons, Lelsa, and Sotik Tea.

At least 10,000 hectares of sugarcane fields were set ablaze by protestors in Mumias, Butere, and Matungu. Deliveries to the National Cereals and Produce Board are down.

Fruit and dairy down

Fruit growers estimate losses of KSh20mn with milk and fruit going bad on the farm because of a shortage of transport after 75 commercial trucks were torched. Kenya Dairy Board managing director Machira Gichohi says the violence has caused a 15 per cent drop in profits for a sector that fears losing recent gains in the export market to South African milk producers. Kenya exported 14 million litres of milk to the Middle East last year. That is a sharp increase from just six million in 2006, and Gichohi says dairy farmers still hope to export 16 million litres this year by targeting new markets in Asia and North Africa. Kenya Cooperative Creameries chairman Matu Wamae says some banks have agreed to one-time concessionary lending terms for farmers who lost cattle and property in the violence.

Chief Executive of General Motors East Africa Bill Lay told African Union mediator Kofi Annan that 49,000 jobs were lost to the post-election violence. "We have manufacturing, tourism and agriculture sectors impacted seriously," Lay says. "We are talking about 40 per cent in agriculture."

Safaricom chief Michael Joseph and 300 business leaders calculate the violence could cost Kenya US$3.6bn by the end of the year and as many as 500,000 people could lose their jobs. "The right of all Kenyans to live, work and own property anywhere in the country must be upheld," Joseph says.

While Annan welcomes the hard-fought political compromise, he is encouraging business leaders to keep up the pressure on politicians. "This is an issue for us all, to strengthen the capacity of civilians and the need to protect their property," Annan says. "If we are able to bring violence down, there is no doubt the economy would be up."

While Kenya's Central Bank has no plans to ease the money supply, Barclays Bank Kenya managing director Adan Mohamed told reporters that interest rates are likely to rise unless politicians demonstrate their ability to work together. "The international banks that lend money to use are taking a negative view of the situation in Kenya," Mohamed says. "If they stop lending to us, then key economic sectors we lend to will also be affected."

South African micro-lender Blue Financial Services froze further investment in Kenya after one of its managers was killed in the violence. The move is likely to accelerate the firm's planned expansion in Tanzania where it currently has 11 branches and expects to have 17 by year's end, with a projected loan total of R80mn.

Knock-on effect

Kenya's central position in the economy of East Africa means the violence there has been felt far beyond its borders. Uganda Revenue Authority growth for January was at its lowest rate in eight years as border crossings at Malaba and Busia recorded record lows. There is at least a three-month backlog of containers at Mombasa, including boxes of South African packaging materials. Trucks carrying merchandise to Uganda were burnt.

British American Tobacco Uganda's exports through Mombasa were disrupted by the closing of the Rift Valley Rail line. The head of RVR operations and business Robert Louw says the concession has lost nearly Ksh400mn to the violence. RVR Managing Director Roy Puffett says the firm is responding by putting on 12 new shuttles between Kilindini and Embakasi to get cargo closer to Uganda before it is loaded onto trucks.

Uganda, Rwanda, Burundi, and Eastern DR Congo get most of their fuel from a refinery in Eldoret. Rwandan brewer Bralirwa is switching from furnace oil to diesel to fire its boilers because this fuel can be loaded from pipeline terminals in Kisumu or Eldoret. Heavy fuel oil must be trucked from Mombasa. And the added cost of armed escorts and the shortage of transport have more than doubled the price of HFO in Kigali.

Speaking to the East African Legislative Assembly in Arusha, Ugandan President Yoweri Museveni related the pre-colonial story of a man who built a house without a door as an example of "short-sighted political architecture." He says Kenya's post-election violence has caused shortages in Uganda, Rwanda, Burundi, Southern Sudan, Northern Tanzania and Kivu, that all show the irreversible interdependence of East African business.

"Kenya and the concomitant difficulties throughout the whole region have shown that the head cannot be independent of the neck; the neck cannot be independent of the chest; the chest cannot be independent of the abdomen; the abdomen cannot be independent of the limbs; and vice versa," Museveni says. "Of course, you can have amputees and cripples. They, however, do not lead a full life. Their potential is diminished to the extent of the loss of parts of their bodies."