Key takeaways:
Protests in Kenya relating to proposed tax increases have continued into August despite Kenyan President William Ruto replacing his cabinet and abandoning the proposed tax hikes. These protests highlight a larger structural problem in the Kenyan economy that is likely to persist, causing economic contraction and presenting opportunities for Chinese expansion in the country.
Similar protests have stirred in Uganda, where protesters have embarked on an anti-corruption campaign. While protests in Kampala will likely affect business within the city, Kenyan protests combined with conflict in Sudan will likely put downward pressure on Ugandan exports.
In Nigeria, protests have erupted across various locations against soaring food inflation and fuel prices. Inspired by protests in Kenya, which is perceived to have gained some policy success, Nigerian protests are expected to also show longevity and cause immediate instability in major urban centres, notably Abuja and Lagos.
Kenyan escalation
At the end of June, 2024, proposed tax increases in Kenya sparked major protests in Nairobi. Despite the government walking back its tax proposals and Kenyan President William Ruto replacing his cabinet, protests have continued and are showing signs of potential escalation. These protests have largely been led by young Gen Z activists who have expressed their grievances on X, highlighting issues such as perceived corruption and a lack of job opportunities. That the protests are driven by youth is significant and can be tied to the dramatic increase in youth unemployment since 2016. While business in many parts of Nairobi has already been brought to a standstill, larger macroeconomic problems loom. Part of the rationale in increasing taxes has been to offset the equally dramatic rise in public debt, which has now reached an unsustainable $82 billion. Without increased revenue, the Kenyan government is likely to see increased fiscal pressure and will struggle maintaining or expanding large-scale initiatives aimed at addressing youth unemployment. Given the longevity of these protests, foreign investors will likely reassess their immediate risk exposure in Kenya, potentially leading to a slowdown in foreign investment, further decreasing government revenue. However, KSG assesses that the Kenyan government will likely look to China for increased investment and infrastructure development projects as a means of increasing revenue and finding short-term solutions to unemployment. Even so, KSG assesses that since these protests point to a larger, self-reinforcing structural problem in the Kenyan economy, economic contraction is inevitable alongside increased political instability and uncertainty, even with increased Chinese involvement.
Protests spreading to Uganda and Nigeria
The impact and continuation of the protests in Kenya has also inspired similar protests in Uganda and Nigeria. Ugandan President Yoweri Museveni, who has held power in Uganda since 1986, has criticised the protests as funded by foreign forces and has deployed the Ugandan military to maintain order. These protests, centred in Kampala, have mostly focused on frustrations with corruption in Uganda, which ranks 141st out of 180 countries in the global corruption perceptions index. While the Kenyan protests are perceived to have gained a political victory with the scrapping of proposed tax increases, such policy concessions are unlikely to be gained in Uganda given the lack of democratic accountability. However, even with protests likely being ineffectual at the policy level, Kenya is Uganda’s second-largest export partner, and reduced Kenyan demand may have an immediate impact on Ugandan agricultural exports. This is over and above the fact that Ugandan exports are lagging due to conflict in South Sudan, its third-largest trading partner. This is likely to exacerbate the Ugandan trade deficit and lead to reduced export revenue. Commodities exported from Uganda, such as unroasted coffee beans, may well see a reduction in price given constant supply.
Alongside these developments in East Africa, protests have also stirred in various parts of Nigeria, most notably in Lagos and Abuja. As with protests in Kenya, grievances have been widely shared on X and have focused on inflation of food prices and the eventual removal of the fuel subsidy which has long been in place in Nigeria. While the government has taken a cautious approach to addressing protesters and have sought to reiterate its intentions toward easing economic hardship, KSG assesses that Nigerian food inflation, which stands at an unsustainable 40%, will likely cause these protests to gain popular support and momentum. Even if the Nigerian government were to reverse its decision on the fuel subsidy, which is unlikely, there is no clear immediate solution available to the state to quell these protests. Symbolic gestures toward reform, such as Ruto’s changing of cabinet members, is highly unlikely to take place in Nigeria. Moreover, heavy-handed government crackdowns on protesters will become more likely the longer unrest continues. While no major policy reform is expected in Nigeria, instability in major urban centers, specifically Abuja and Lagos, is likely to continue well through August.
Looking forward:
KSG assesses that heavy-handed security responses to the protests in Kenya will likely lead to further immediate instability in Nairobi. However, even if the protests were to dissipate, KSG notes that these protests are a symptom of reinforcing structural problems in the Kenyan economy that will likely exacerbate Kenya’s public debt crisis and lead to economic contraction.
KSG assess that the Kenyan public debt crisis will likely provide an opportunity for further Chinese infrastructure development and investment. China will likely be more willing to invest and provide extended loans to Kenya under these conditions, which will help extend its economic embeddedness.
KSG anticipates that the protests in Uganda will not be a significant threat to the Museveni regime and will not lead to meaningful economic concessions or policy reform. However, decreased demand for imports due to Kenyan protests, alongside conflict in South Sudan, will likely exacerbate the Ugandan trade deficit and will impact the price of its export commodities.
KSG expects that protests in Nigeria will likely not lead to immediate major policy adjustments, but may lead to prolonged instability, especially in Abuja and Lagos. However, KSG assesses that Nigeria is at risk of stagflation, where increased inflation exists alongside slowing economic growth and high unemployment. Consumer demand is thus expected to decrease in Nigeria, leading to an increasingly difficult investment environment across various asset classes.