WestGate Attack: The Economics..

westgate 2The terror attack at the Westgate shopping mall in Nairobi on 21st September 2013 was one unfortunate unfolding that caught everyone unawares. Such acts of cowardice should be condemned strongly and the perpetrators brought to book and justice be done to the victims. However there is another angle of looking at the whole scenario; just what is the financial and economic implication of this unfortunate attack?

Micro-effects:

One direct loss is to the business owners in the mall. With the kind of shootings and explosions that were in the mall, it’s obvious that property of undoubtedly high value has been destroyed in the process. This leaves the business owners with huge unprecedented expenses to factor into their books of account for this financial year.

Talking about insurance, the insurers of the mall and the businesses therein have a heavy task ahead. Insurance against terror attacks having been introduced to Kenya recently, probably most firms had not subscribed to it thus making it difficult for them to get compensation. If on the other hand they had taken the terror cover, the burden lies with the insurance companies to compensate them fully.

Many other businesses around the area have been closed down throughout the period when these attacks were continuing. This results to loss of business to the other firms, and a loss to be factored into their books of account too. Casual workers who rely on their wages from the businesses closed also might be suffering due to loss of their only source of income.

People have been killed with the death toll at 69 confirmed deaths and 175 casualties in hospitals as on Monday 23rd September 2013. Most of those injured are adults some of whom were bread winners in their families. With their passing-away or for the injured for as long as they remain incapacitated to work, the sources of income for their families have been cut. This brings about a dependency situation that was not planned for into the lives of their relatives and friends.

Macro-effects:westgate 1

On matters international trade, the terror attack was swiftly followed by a travel advisory by the US government to its citizens. UK have not issued one yet, but with a rugby team from the country that was meant to participate in the Safaricom 7s packing and going back without playing, the stand of the country can be read in between the lines. The unfortunate result of such negative moves is that our tourism industry may be affected which is a key source of foreign income to Kenya.

NSE is still open but again the foreign investors would be keen on the developments of the terror attack. The most expected move would be reduced activity at the bourse with majority of foreign speculators at the bourse selling-off their stakes. That would eventually pull down the indices, an indication of falling share prices.

The effect on the Kenyan shilling would be also expected to be a depreciation, though marginally and on a temporary basis. This would emanate from the forex traders perceiving Kenya as a more risky country following the terror attack. They would buy more of the foreign currencies thus driving down the value of our local Kenyan currency.

Depending on how the situation is handled, Kenya could emerge as a big winner and restore confidence on the foreign investors about its capabilities to deal with terror. This would secure Kenya’s position as the best investment destination in Africa and increase our foreign direct investments (FDIs). This would then have a long-term and strategic positive economic impact on our economy in the future.

The flip side of it could be a tainted reputation with regard to investment security and withdrawal by foreign investors and a reduction in investment rate by local investors.

Terror remains to be a thorn in the flesh that must be dealt with decisively and conclusively; if at all our business environment is to be secured to boost more investments and economic development at large. And after all is said and done, let “Peace be Still!”

 

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