The deadliest attack by Islamist militants in 15 years in Kenya is threatening tourism, the nation’s second-biggest source of foreign income, as the industry battles to rebound from a series of setbacks this year.
The four-day raid by militants linked to al-Qaeda at an upmarket shopping complex in the capital, Nairobi, left at least 67 civilians and security personnel dead. Armed with automatic machine guns, as many as 15 gunmen of the Somali Islamist group, al-Shabaab, rushed into the mall on Sept. 21, spraying bullets and lobbing grenades as they moved through the building.
“Some of the images that have come out of Kenya are really harrowing and it’s going to affect the perceptions in quite a negative way,” Shilan Shah, an economist at Capital Economics in London, said in a phone interview yesterday. “The length of time it went on, the live coverage, the severity of the attack; it’s definitely affecting perceptions.”
Tourism is the biggest foreign-currency earner in East Africa’s largest economy after tea exports, with visitors flocking to Kenya’s wildlife reserves, such as the Masaai Mara park where millions of wildebeest can be viewed in an annual migration, and Indian Ocean beach resorts at Mombasa, the country’s second-biggest city. The industry accounts for about 10 percent of gross domestic product, generating more than $1 billion a year and attracting about 1.8 million holidaymakers, according to the government.
Favored by affluent Kenyans and foreigners working in Nairobi, the Westgate Mall also drew many tourists, hosting a weekly market offering African souvenirs and trendy coffee shops with Internet access. Victims of the attack, which was the deadliest since al-Qaeda bombed the U.S. embassy in Nairobi in 1998, included 57 Kenyans and citizens from France, Canada, South Africa, China and Ghana, the government said.
The violence will probably reduce tourism revenue by $160 million this year, restricting economic growth in the $41 billion economy to 5 percent, compared with an earlier estimate of 5.6 percent, Charles Robertson, global chief economist at Renaissance Capital in London, said in an e-mailed report on Oct. 2.
Shares of TPS Eastern Africa, the Kenyan holding company of the Serena Hotel chain, have dropped 5.7 percent since the violence to 45.25 shillings ($0.53) at today’s close in Nairobi.
The U.S. State Department on Sept. 28 reissued an earlier advisory telling American tourists to be wary of the “threats from terrorism” in Kenya. The move was “unnecessary and unfriendly,” Kenyan Interior Secretary Joseph Ole Lenku said two days later.
Tourism has already been dented this year as visitors held back on trips before elections in March and after a fire at the country’s main airport in Nairobi in August gutted the international arrivals hall. The number of tourists dropped 12 percent in the first half to 495,978, compared with a year earlier, according to the government, which has delayed its target to attract 3 million visitors to 2017 from 2015.
The attack occurred at a time when Kenya’s government is seeking to accelerate investment in roads and railways to boost economic growth. The International Monetary Fund hosted a conference on Kenya’s rising economic prospects last month, in which Treasury Secretary Henry Rotich forecast 5.6 percent expansion this year, compared with 4.6 percent in 2012. The target is to reach at least 10 percent annual growth by 2017.
While tourism may suffer, the economy is resilient and investors taking a long-term view won’t be deterred, Shah said.
“The country has shown it has the capacity to bounce back previously,” he said.
Clashes between ethnic groups after disputed elections in December 2007 led to the deaths of more than 1,100 people and displaced thousands, causing economic growth to slow to 1.5 percent in 2008. A year later, the economy expanded 2.6 percent, while tourist arrivals surged 24 percent, according to the Kenya National Bureau of Statistics.
The al-Shabaab attack won’t dissuade Marriott International Inc. (MAR) from proceeding with the construction of two new hotels in Nairobi, Alex Kyriakidis, the hotel chain’s president for Middle East and Africa, said in an interview on Sept. 25. This was an “isolated incident” and it’s unlikely to have a long-term effect on Kenya’s tourism industry, he said.
The Kenyan shilling has strengthened 1.6 percent against the dollar since the shopping mall attack and was trading as high as 85.60 in Nairobi today. The FTSE Kenya NSE 25 Index has climbed 4.6 percent to 172.26 in the same period.
“We were immediately worried but we’re seeing now, happily, that the impact may not be as big as we thought,” Mohammed Hersi, chief executive officer of Nairobi-based Heritage Hotels Kenya, a chain of seven hotels and safari lodges, said in a phone interview yesterday.
The government is sticking to plans it made before the shopping-mall attack to sell a debut Eurobond of at least $1.5 billion by December after several delays since since 2007.
Moody’s said on Sept. 26 the terrorist attack may curb government revenue, mostly from tourism, and is negative for the country’s B1 credit rating. That’s four levels below investment grade and on par with Zambia and Cape Verde.
Nairobi, which accounts for about 60 percent of Kenya’s economic output, is the regional headquarters for companies including Google Inc. and Toyota Motor Corp. (7203) The nation is set to start pumping its first oil next year and may export crude as early as 2016.
Al-Shabaab had threatened attacks in Kenya after the country sent troops to Somalia in October 2011 to oust the militia group. Kenya deployed its army to the neighboring country after blaming al-Shabaab for kidnapping at least four foreigners and murdering a British tourist at a luxury coastal resort.
“Terrorism is a very global problem and it’s not just something that happens to Kenya or a developing country,” Hersi said. “As long as high commissions and embassies haven’t told their citizens specifically not to travel here, people will come.”
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