What the Nairobi terror attacks mean for business

Biggest hit will be in the tourist sector.

The recent terrorist attack on an up-market shopping mall in Nairobi represents a backlash against African Union military operations targeting al-Shabaab in Somalia. Kenya’s participation in these operations has made it a target for Islamic terrorist groups operating in the region and the risk of reprisals has long been known to security authorities.

Political violence is not new to Kenya. The last large scale attack was the US embassy bombings in 1998 and there have been several small incidents since then. The 2007 presidential elections were punctuated by political violence and small protests and grenade attacks occurred in the run up to the 2013 elections.

While an al-Shabaab attack was anticipated, the nature of the attack is demonstrative of the evolution in terror tactics. Rather than a large-scale bombing, the attack was of the nature of "urban siege" and exceeded the 72 hours usually stipulated to constitute an "occurrence" in political violence insurance policies in relation to the application of the deductible. In response, we expect to see policy wordings evolve to reflect the changing nature of the terrorism threat, which highlights the importance of bespoke wordings.

Investors in Kenya and the insurance market had already factored in the risk of a terrorist attack. As such the market response has been limited and we expect to see political violence premiums for Kenya rise by a modest 10-15 percent.

The incident demonstrates the importance of effective intelligence services and well trained security forces. It would currently appear that the terrorists themselves caused limited physical damage and most of the destruction to Westgate was inflicted by Kenya’s security forces.  Hence it would be important for any wording to have coverage for loss caused by security forces trying to resolve any terrorism situation.

The attacks will not alter the position of Kenya’s government on military operations in Somalia and to that extent the terrorism threat remains unchanged. In the short term they will enhance national unity and strengthen President Kenyatta’s political agenda. As leadership of the security forces is dominated by Kenyatta's political allies, much needed reform is unlikely despite pressure from legislators and widespread media coverage of army misconduct.

Externally, the Kenyatta administration's relationship with the US and other Western powers will strengthen over common security interests. This has already been demonstrated by the US Special Forces' strike on an al-Shabaab base in Barawe, Somalia in an attempt to seize Abdikadar Mohamed Abdikadar "Ikrima" who is thought to act as the key link between al-Shabaab leadership and Kenyan groups. The attacks will also refocus international attention away from the trials of Kenyatta and his deputy William Ruto at the International Criminal Court.

Tensions will rise in Mombasa and in other Muslim dominated communities. These have long been present and subject to heavy police suppression. Security resources will be substantially increased along the coast, particularly the port city of Mombasa, the regions dominant commercial hub.

The biggest hit will be felt in the tourist sector, worth USD1.3bn in 2012, as many holiday makers opt for alternative destinations.  Violence in 2007-08 saw tourist numbers drop by 30 percent. Those conducting business in Kenya had, like the insurance market, already factored in the risk of a terrorist attack and the events at Westgate are unlikely to impact the perception of Kenya as an attractive investment destination. To that extent Kenya is unlikely to experience a significant downturn in foreign direct investment (FDI). The stock market has not fallen and the Kenyan currency has remained unaffected.

Financing of shopping malls will continue, albeit with more effective security. One of the largest shopping mall construction projects underway is the Garden City, a 130,000m2 mixed use complex which will be the largest retail centre in East Africa. The USD311 million project is funded by London-based private equity firm Actis and continues unabated. Private equity investors take a medium term view of five to ten years and with a sizeable middle class emerging in Kenya and the economy growing by around 6 percent a year, the prospects remain bright.

Nor does the attack undermine the prospects for Kenya to become an oil producing country. Oil is located in Turkana, the northern most region and is a battlefield where two Nilotic cultures have been involved in conflict for decades. Proximity to Ethiopia and South Sudan compounds the political violence factor and is demonstrative of the ability and appetite of business to confront those challenges.

If the intention of the al-Shabaab terrorists was to garner attention for their cause in attacking Westgate they succeeded, primarily because of the relentless coverage provided by the western media. If they intended to derail the Kenyan economy they failed as due to the resilience of international investors.

Photograph: Getty Images

JLT Head of Credit & Political Risk Advisory

Photo: Getty
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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.