President Obama’s recent trip to East Africa raised the profile of the region’s economic powerhouse. Kenya, the continent’s tech-hub, is now seen as Africa’s answer to Silicon Valley. Even so, the benefits from business growth and innovation have not reached the large majority of the population. Consequently, social, political and economic grievances are intensifying, giving way to disaffection and growing radicalisation among young Muslims.
In 2007 the telecoms group Safaricom launched M-Pesa, a mobile payments scheme. The current value of M-Pesa transactions roughly equates to 40% of GDP.
Expanding into savings and loans company M-Shwari, deposits of $1.6 billion have been taken since its launch in 2013. Other Kenyan success stories include BRCK, a portable internet provider, the clean energy company Sanergy and the crowd-sourcing platform Ushahidi.
Open for Business
Resulting from this level of innovation, this year’s Global Entrepreneur Summit was held in Nairobi, co-hosted by President Obama and his Kenyan counterpart. The summit aimed to promote businesses with potential to reduce African poverty and insulate communities against radicalisation.
The summit and the reopening of Westgate in Nairobi make clear Kenya’s business ambitions and resilience against a pervasive terrorist threat. The country is open for business, and the opportunities for investment are manifold.
However, so are the risks. Investors must seriously consider both operational and security risks, whilst taking into account how a crisis in the country can have significant ripple effects for their business.
Threat of Terrorism
Al-Shabab, the Somali militant group affiliated with al-Qaeda, has been recruiting among marginalised Kenyan communities and escalating its operations.
The 2013 attack of Nairobi’s Westgate shopping mall and April’s Garissa University massacre resulting in 147 deaths are both tragic proof of the terrorist organisation’s expansion into Kenya. Since 2011 the group has killed over 400 people in the country.
Earlier this month al-Shabab released a message calling for new recruits across East Africa. Their call to arms is proving effective in Kenya, where terrorism is increasingly home-grown.
The socio-political challenges currently faced by President Uhuru Kenyatta’s government need to be addressed. By expanding the benefits of business growth and development to the wider population would promote sustainable growth, and help tackle the security problem at its root.
International investors are not fully dissuaded from bringing their money into Kenya. The last 10 years have seen overseas investment grow from under $20 million to around $500 million. This is in spite of the publicised instability, concerns over high levels of institutional corruption and challenges surrounding the Kenyan tech industry, from unreliable power supplies to limited awareness of cyber security.
The violent clashes following the 2007 elections revealed the level of disruption and potential financial loss.
Consequently, in 2008 the Kenya-based Africa Trade Insurance (ATI) launched a new product in the market: political violence and terrorism insurance. In the wake of the Kenyan military invasion of Somalia in 2011, and in advance of the 2013 elections, demand for this type of insurance by both local and international companies rose by 50%. This demonstrated an increased awareness of the threat posed by political instability.
Indeed, the global political risk insurance market is on the ascent with 55 underwriters and a market capacity in the excess of US$ 1bn. (Willis has been creating innovative products to manage the risks inherent in dealing with emerging markets like Kenya.)
With risk transfer and mitigation on the rise, those thinking of investing in the Kenyan tech boom may find that the opportunities outweigh the risks.
This blog was written by guest bloggers Maria Castellanos and Paul L. Davidson.
Maria Castellanos studied modern languages at Bristol University and completed a Masters Degree in International Security from the University of Westminster with a Distinction. She joined Willis Capital, Science and Policy Practice in 2015.
Paul L. Davidson is Chairman & CEO of Financial Lines, Financial Solutions Division and Willis Global Political Risk Leader. He is an Associate of the Chartered Institute for Securities and Investment (ACSI). Paul joined Willis in 1975.