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Protest in Nairobi Reveals Kenya’s Weakness

The recent protest in Kenya has come out as deadly. The protest was triggered by the new taxation bill, which proposed new taxes on bread and cooking oil.

BYHAOYU "HENRY" HUANG
JULY 6, 2024
MODERN DIPLOMACY

People participate in anti-tax demonstrations in Nairobi, capital of Kenya, June 25, 2024. (Photo by Charles Onyango/Xinhua)

The recent protest in Kenya has come out as deadly. The protest was triggered by the new taxation bill, which proposed new taxes on bread and cooking oil. Thirty-nine people have lost their lives while parts of the Kenyan Parliament were set on fire. Although President Ruto has declared that he will not approve the new tax bill and will be withdrawn from Parliament, protests are still ongoing. Some even started to call for the president’s resignation.

Kenya is one of the biggest economies in Africa and a stable nation most of the time. Still, the new tax bill and the protest revealed the significant challenges that this East African nation faces. The Nairobi government is in a dire debt crisis. Kenya is also haunted by internal political instability and corruption. Externally, the international price hike and a shrinking Kenya export market in East Africa have worsened the situation.

Kenya’s Debt Crisis

On paper, Kenya’s economy is much stronger than expected. It is the third biggest in Africa and is considered a lower-middle-income country. The current government has also sustained a high level of economic growth. With the rapid economic growth, the Kenyan government has lowered the national poverty rate from 47% to 33%.

However, despite the tremendous growth, there are also great uncertainties. Kenya has accumulated a significant debt over the years. Kenyans’ domestic and international debt has reached 80 billion US dollars, almost 70% of its GDP. This level is far higher than the World Bank’s suggested 55%. The external debt makes up more than half of Kenya’s debt. Most external debt comes from international finance institutions such as the World Bank. Although international financial institutions have provided funds to support Kenya’s efforts to achieve financial stability, these institutions also attached harsh terms on financial reformations. The proposed Kenyan taxation bill was in response to this crisis.

A high level of debt comes with high interest. The interest payment alone accounts for 27% of the Nairobi government’s total expenditure. Earlier this year, the Kenyan government had to buy back its Eurobonds and significantly raise the interest rate to 9.75% to avoid default risk. The direct consequence is the higher cost of refinancing for the Kenyans. Yet, with a relatively lower international credit rating and the warning from the World Bank for future liquidation squeeze, the refinancing cost for the Kenyan government will remain high.

Meanwhile, the Kenyan Shilling is also experiencing a depreciation in the international financial market. Although the exchange rate has bounced back, it still lost 20% of its value in 2023. More than half of Kenya’s total debt is in foreign exchange. A depreciated shilling means it will cost more for the Nairobi government to cover the cost of interest and future payback. The higher cost of foreign exchange has further fueled Kenya’s debt crisis.

Political Challenges

Besides the rising taxes, the protesters voiced their grave dissatisfaction with the current situation. For the most part, Kenya is a stable country with a growing economy. However, political instability still looms in the country, while corruption remains a significant issue for the nation’s future. Kenya still sits on the powder keg that could be ignited at any moment.

Kenya is not unfamiliar with political unrest. The 2007-2008 protest after the presidential election left the country with high casualties and a divide among ethnic groups in the country. The 2022 election was still risky. Although international observers have recognized the legitimacy, the election result has been highly contested. Some members of the election commission chose to distance themselves from the final result as issues occurred in vote counting. Although the final result was verified, and there were no substantial incidents of political violence, the conflict surrounding the result still reveals the uncertainty of Kenyan democracy.

The massive dissatisfaction also reflects the endemic corruption in Kenya. Transparency International’s data shows that although Kenya’s score has improved over the years, the country still ranks 126 out of 180 countries in the Corruption Perceptions Index. Bribery is everywhere, from exiting and entering the country to conducting business there. Due to conflict of interest charges, the World Bank banned Ernst and Young’s Kenyan office from its programs and projects. The incident further proves the commonness of corruption in Kenya.

International Elements

The external element should also not be ignored when considering Kenya’s challenges. Kenya heavily relies on imports, while Kenya’s main exporting partners are within the East African Community. The tiniest shift in trade policy and international commodity prices could have an important impact on Kenya’s economy, further intensifying the current crisis.

The ongoing price hike worldwide significantly impacted Kenya. Due to the trade deficit and the rising international price fueled by the Russian-Ukraine war, Kenyans must spend more than before to make ends meet, from wheat to cooking oil. Last year’s gas price increase across Africa also impacted Kenya. Meanwhile, as Kenya imports food from its trade partners, the increasing food prices also took a toll on the nation’s food security.

Even trade disputes within East African countries have hindered Kenya’s trade. Kenya’s main export destinations are Uganda and Tanzania, which are parts of the East African Community. Rising tariffs and trade barriers have shrunk the trade. Kenya had prolonged trade friction with Tanzania. Kenya exports agricultural produce, directly competing with Tanzanian farmers. Although the two countries have been working together to lift these restrictions, new disputes and trade barriers still appear.

Meanwhile, trade between Kenya and Uganda has also experienced unpleasantry in the past year. From taxation to import bans, the friction has shrunk the bilateral trade. Trade frictions and rising trade barriers have made Kenya’s primary export market much more complicated to develop. As Kenya also faces a significant trade deficit, a shrinking export market means the Nairobi government has to borrow more from external partners to meet its budgetary needs.

Conclusion

Even with the debt crisis, Kenya had protests in 2023. However, the current protest is on a much bigger scale. On the surface, this protest is in response to the new taxation bill. Yet, the deep debt crisis that the Nairobi government faces and the massive political dissatisfaction rooted in corruption and political instability further exacerbate public discontent. The international turmoil since 2022 worsened the Nairobi government’s situation. The protest reveals Kenya’s weak spots behind its prosperity!

Haoyu "Henry" Huang is an independent international affairs observer. He graduated with a Bachelors's degree from the George Washington University Elliott School of International Affairs in May 2020. He is from China and has previously lived and worked in the United States and Kazakhstan. He is currently based in Tanzania.