Kenya economy’s profile suffers from insecurity setback

Money Markets

Debris is removed from a section of the Westgate Shopping Mall after a terrorist attack last September. Photo/FILE 

By Herbling David, hdavid@ke.nationmedia.com

In Summary

• US-based rating agency A.M Best gives East African country the same score as volatile Libya, Nigeria and Egypt.
• A.M. Best says country risk factors affect all companies in a given market, but to differing degrees linking its assessment to Kenya’s overall business environment.
• The rating is based on Kenya’s economic, political and financial system risks that are linked to factors such as increased terrorist attacks, widespread corruption and money laundering.

Kenya has been rated among African countries with the highest risk for insurers, pointing yet to another challenge that East Africa’s largest economy faces in its quest to attract investment.

US-based rating agency A.M Best has, in its latest Africa insurance industry report, placed Kenya, alongside Egypt, Nigeria and Libya, in tier five (CRT-5) of country rating – the lowest score reserved for countries with massive risks for investors.

The firm, which mainly rates countries for insurance and re-insurance companies, said in the report published last month that the tier five rating is reserved for “countries that pose the most risk and the greatest challenge to an insurer’s financial stability, strength and performance.”

A.M. Best says country risk factors affect all companies in a given market, but to differing degrees linking its assessment to Kenya’s overall business environment.

The rating is based on Kenya’s economic, political and financial system risks that are linked to factors such as increased terrorist attacks, widespread corruption and money laundering.

The tier five score means foreign investors coming to Kenya must take additional measures to shield themselves against abnormal risks such as political instability, sabotage and terrorism to protect their businesses.

“Risk averse investors are likely to keep off. But given the high returns in Africa, most investors prefer to cover the risks,” said George Otieno, chief executive of African Trade Insurance (ATI) company .

South Africa is the continent’s most stable economy with a score of CRT-3 followed by Mauritius, Morocco and Tunisia who are a band lower at CRT-4.

The high risk rating is particularly significant because it comes as Kenya is preparing for the roll-out of a Sh132 billion ($1.5 billion) sovereign bond to be listed at the Irish Stock Exchange by the end of this month.

Kenya’s dependence on rain-fed agriculture and its reliance on price volatile agro-exports such as horticulture, tea and coffee coupled with lack of value addition in the chain, make the list of the country’s economic risk indicators.

Crimes against humanity charges facing President Uhuru Kenyatta and his deputy, William Ruto, at the International Criminal Court (ICC), Kenya’s ever charged political environment and high crime rates constitute another layer of risk.

A.M. Best warns that the risks present a great hazard to the credit quality of underwriters in Kenya – as witnessed by the huge exposure they faced last year with the surge in claims paid out in the wake of persistent terrorist attacks.

“Most firms suffered huge losses in claims last year. Thankfully, Westgate mall was largely insured in London leaving the Kenyan market with only a small fraction,” said Mr Otieno.

The upmarket shopping mall was insured to the tune of $100 million (Sh8.7 billion) by London-based Lloyd’s with Kenyan underwriters taking only a small portion of the deal that covered the building, loss of income and third party liabilities.

Mayfair Insurance paid a total of Sh1.01 billion to Nakumatt Supermarkets for losses suffered at one of its branches following the terrorist attack at the mall in September.