Kenyan Boosts Security Spending After Tourism Hit by Attacks

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Kenya will increase spending in 2015-16 on security to help the country’s tourism industry rebound after a wave of attacks by Islamist militants.

The 2-trillion-shilling ($21 billion) budget includes a 12 percent increase in security spending to 223.9 billion shillings for the year starting July 1, Treasury Secretary Henry Rotich said on Thursday in the capital, Nairobi.

“Tackling insecurity decisively remains the top priority of the government’s strategy to sustain the growth momentum of the economy while creating jobs,” he said.

Tourism in Kenya, East Africa’s biggest economy, generates about $1 billion of foreign revenue for the government, second only to tea exports. The industry has been hit by a series of attacks by Islamist militants over the past 2 1/2 years that left at least 516 people dead. Tourist arrivals fell 11 percent last year because of the killings.

Kenya serves as a regional hub for global companies such as Google Inc., Toyota Corp. and Coca-Cola Inc. The $55.2 billion economy is forecast to expand 7 percent in 2015 from 5.3 percent in 2014 on increased investment in infrastructure, lower energy prices and a rebound in tourism.

The extra money will help pay for more vehicles and equipment and more benefits for security forces. About 112.5 billion shillings will go to the army and intelligence gathering, while 102.4 billion shillings will be allocated to the interior ministry responsible for the police. In addition, Rotich proposed spending 5.2 billion shillings to boost tourism.

Lower Growth

The government has blamed unrest and the poor performance of food production for lower-than-projected economic growth.

“The Kenyan authorities are aware that further efforts need to be made to bolster security, particularly as the impact from increased insecurity has undermined the tourism sector that is a major generator of FX and employment,” said Angus Downie, London-based head of economic research at Ecobank Transnational Inc. “A sustained improvement in the level of security will help strengthen investor confidence.”

Revenue is forecast to increase 17 percent to 1.36 trillion shillings, reducing the budget deficit including grants to 8.7 percent of gross domestic product from 10.1 percent. The government plans to finance the deficit by borrowing 340.5 billion shillings offshore and 229.7 billion shillings in the domestic market.

Revenue Measures

Measures including an increase in the fuel levy by 3 shillings per liter of gasoline and raising import duties on sugar to $460 per metric ton from $200 were announced to boost revenue.

“The revenue collection target for the current budget year is unlikely to be met as new tax rules have faced delays in implementation –- particularly capital gains tax on transactions –- and efforts to broaden the tax base have had only limited results,” Clare Allenson, sub-Saharan Africa analyst at Eurasia Group, said in an e-mailed note.

Rotich announced that the 5 percent capital gains tax on share transactions introduced on Jan. 1 would be scrapped and replaced with a 0.3 percent withholding tax.

The reversal comes after stockbrokers objected to the higher levy. The move is welcomed by traders, said George Bodo, head of the financial desk at Nairobi-based Ecobank Capital Ltd.

Kenya’s expenditure on developing infrastructure includes 143.9 billion shillings going to a railroad under construction between the port city of Mombasa and Nairobi. About 132.2 billion shillings will be spent on the expansion and maintenance of the road network, and 55.2 billion shillings on developing the energy industry.

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