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Terrorism has hurt the Kenyan image. Moreover, Terrorism has caused a sense of panic through various sectors of the economy. Kenyans lost their lives during the American embassy attacks, Westgate Mall attacks, and even the most recent Dusit D2 hotel attacks. Furthermore, businesses lost their belonging and the country lost billions of shillings from fears caused by the attacks. Investors refused to invest in such uncertainty and thousands of Kenyans lost their jobs. The Nairobi stock exchange was losing heaps. The international forums were looking at Kenyans. Though, the country did recoup strategies to bring back the economy- like capping the interest rates- It did suffer an economic slump. Therefore, terrorism affected the tourism industry and caused market uncertainty, foreigners refusing to invest, made Kenya with funds to fight terrorism, and lastly the physical damage to infrastructure.
Tourism Industry
Tourism is one sector that plays a crucial part in the Kenyan economy which took a direct hit from terrorist attacks. These attacks could date back from the Paradise Hotel attack to the most recent Dusit D2 attack. According to Amankona (2016), claims that Kenyas tourism sector contributes about 25% to the countrys GDP. Kenya depends heavily on tourism because thousands of Kenyan jobs in the industry are on the line and its also one source of Kenyas income. Countries such as Germany, Italy, The United Kingdom, etc. go ahead to issue travel advisories to visit Kenya and charter flights withdrawing from the Market. Kenyas Tourism board saw a slump in visitors; For example, 2015 yielded 1,183,847 visitors compared to 1,465,627 visitors in 2014. These advisories have proven to damage the tourism sector. Moreover, the country also loses out on a source of income- like landing and departure taxes, and park entrance fees- the tourist pay. Kuto. & Groves (2004) claimed that The country was losing an estimated amount of over 1 billion Kenya shillings ($128 million) per week.
Closure to these hotels also renders the workers of the sector jobless. According to Sanga (2014), He reported that 7,000 workers were rendered jobless due to these advisories. He goes ahead to account that about twenty hotels were shut on the northern coast while five were shut on the southern coast. This shows just a simple aspect of how terrorism could cause a slump in a crucial sector of a countrys economy.
Physical Damage
Terrorists not only cause harm to the public but also cause physical damage to the countrys infrastructure. These infrastructures could be private or public-owned. For example, the Dusit D2 Hotel and West Gate Mall are privately owned structures. The terrorists caused a lot of damage to the buildings during the attacks and caused businesses to close down or even shift operations elsewhere. We could also relate to the damage to the building of the American Embassy in Nairobi. The attacks on the buildings stop businesses from productivity. These businesses pay taxes which the country could lose on taxes that could have been earned. The general public could lose jobs as well putting the unemployment rate on the rise.
The Broken Window Fallacy
This is the fallacy created by French economist Fredric Bastiat. This entails that one event could change destroy or stimulate the outcome of something else. This comes in reality that Kenya has to spend a lot of money to guard its nations borders and be at constant war with the Al-Shabab. Those funds take a lot out of the Kenyan treasury because they could fund other sectors of the public like public infrastructure, education or housing. Sunday F. (2018) suggested that Kenyas defense budget has crossed the $1 billion (Sh100 billion) mark as the country ramps up spending on military and intelligence resources.
This comes to show how much Kenya is just spending to keep itself from danger way. However, that money is also crucial to the economy as it could pay for its standard gauge railway (SGR) project debt with China. Wafula P. (2014) states that Financially, the war has also cost the country significantly. Figures in the public domain show that Kenya has spent over Sh26 billion and this will rise after the cost of equipment is fully factored in. Therefore, it is safe to say that terrorism is eating away funds that the country could do other things with.
Market uncertainty
Even if a person does not be a part of the terrorist attack or even close by, they will still be affected by it because once a threat has occurred, tourism goes down. Fluctuation in interest rates differs according to demand, after an attack, loans are needed to rebuild which causes banks to increase the rates because of high demand. Such issues also cause market uncertainty globally because an investor would not like to risk their money in an unstable economy.
Foreign direct investment
A study by Kinyanjui (2014) using FDI and comparing Net Foreign Direct Investment in US$ and terrorism calculated by several terrorist attacks in Kenya during 2010-2012 found that terrorism activities negatively affected FDI in Kenya through a negative effect on confidence. Indeed, the results showed that the mere presence of terrorist risk corresponded to a decrease in the net FDI of 14% of GDP. A recent report shows that about 70% of investors perceive security to have deteriorated in the past 2 years. This indicates the worsening security situation in 2013 and 2014, although the security situation has improved since 2016.
A study by Wesley and Lumumba (2013) showed that the Nairobi Securities Exchange (NSE) significantly decreased its stock returns on the occurrence of terrorist activity. The authors found short-term negative returns as evident in the NSE share index, abnormal returns, and cumulative abnormal returns after a terrorist act.
Conclusion
A terrorist attack will affect the economy internally and externally. Tourism is reduced causing most of the businesses to deteriorate which causes price fluctuations as well and the damages caused by the attacks have to be repaired meaning the country’s money has to be used for the damage expenses rather than paying the back loans taken from other countries. The economy is disrupted as the locals and foreigners are not willing to risk investing in the businesses as not sure of stability.
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