Kenyan trade at risk over Sudan row

• Analysts say all-out war would be a blow to bilateral trade and a letdown for Kenyan companies and entrepreneurs in South Sudan

Strained relations between South Sudan and its northern neighbour may have serious economic implications for Kenya if the situation degenerates into all-out war, analysts have warned.

Specifically, they point to the possible negative impact on bilateral trade relations between Kenya and both countries and the recent increased uptake of investment opportunities by Kenyan companies and entrepreneurs in South Sudan.

“There is an economic war already. and should this go on, there is a possibility of an economic shutdown in both countries which then places Kenya’s interests at risk,” said economic analyst Robert Shaw in an interview with the Sunday Nation.

Oil pipeline

The issue comes barely a month after the multi-trillion Lamu port project was commissioned. Among other projects, the ambitious undertaking would see South Sudan construct a 2,240-kilometre pipeline to connect oil fields in the country to the proposed Lamu port.

The condition is that South Sudan can convince Kenya of future political stability.

But the current situation puts in question the construction of the pipeline, initially estimated to take about two years to complete. Kenya had high hopes of earning millions of shillings in oil export transit fees.

“We need stability for the Lamu port project to proceed as planned. The project is heavily tied to South Sudan, and without political stability in the country, there is a chance of not achieving much progress,” said Kariithi Murimi, a policy and risk consultant who also chairs the Local Authorities Trust Investment Fund.

Kenya has been a key partner of both countries in regional trade with recent statistics from the Central Bank of Kenya (CBK) indicating that trade volumes between the countries have been on the rise for the last three years.

According to CBK’s November 2011 monthly economic review report, Sudan (North and South) accounted for 3.6 per cent of Kenya’s total exports in 2009 with a revenue of $162 million while in 2010 exports to Sudan accounted for 4.5 per cent of Kenya’s total exports attracting export income of $229 million.

Last year, although the volume of Kenya’s total exports to Sudan dropped to 4.3 per cent, the export income rose to $251 million.

“It is definitely not going to be rosy for Kenya in terms of its trade with South Sudan should the stalemate between the two countries stretch further,” said Mr Kariithi.

Kenya has traditionally exported cement, building materials and food items to South Sudan, while the Republic of Sudan has provided a market for Kenya’s unprocessed tea.

Since the signing of the Comprehensive Peace Agreement in 2005, investments by the Kenyan private sector in South Sudan have been on the increase.

So far, two Kenyan banks – Equity and KCB – have on average more than five branches in South Sudan while CFC Stanbic and Co-operative Bank have said they intend to explore the market later this year.

Recently, CFC Stanbic disclosed that it planned to set up a corporate banking branch in Juba by the third quarter of this financial year, while Co-operative Bank said it intended to open a branch in the country in the next six months.

South Sudan stopped oil exports that accounted for 98 per cent of its foreign revenue following a row with Khartoum over pipeline fees. Coupled with the conflict, this, analysts predict, could lead to serious bank losses.

“Failure to export oil has a negative bearing on the business of banks operating in South Sudan given that it was the country’s strongest foreign exchange earner and the main source of government revenue,” said Gitau Githongo, an economic consultant.

Reported losses

Last year, KCB earned Sh580 million from its subsidiaries in South Sudan. The bank reported losses during the same period in markets where it operates with Uganda, topping the list at a Sh409 million loss followed by Rwanda with Sh317 million loss and Tanzania with a Sh110 million loss.

The possible outbreak of war between the two Sudans could also mean the closing off of Kenya’s market in the Republic of Sudan, leadingto a decline in trade with the north.

“If a full war breaks out, it can be challenging for Kenya to overfly South Sudan to reach Sudan which, even if it accounts for lesser value of exports than the south, still adds value to Kenyan exports,” said Mr Githongo.

Among Kenyan companies that operate in South Sudan are Nairobi-based airlines that have been doing good business on the Nairobi-Juba route.

Early last week, the government of South Sudan approached Kenya to mediate in the conflict, expressing its disappointment with the African Union which it accused of remaining silent on the issue.