This is the huge advertisement I see every day outside the University of Nairobi. It’s a constant reminder that elections are only a few weeks away and that the risk of political violence is still unacceptably high, as the International Crisis Group wrote a few days ago. Does the business community in Kenya fear the upcoming elections?
Looking at some numbers, it definitely looks like it. Insurance against political risk has increased by 50%, in the last 12 months, and it has gone up by over 30 times since 2008, from KSh 1.3 billion in 2008, to KSh 41 billion in 2013. The demand is so high that Kenyan insurance companies have decided to form a pool offering services also to small enterprises. From the Business Daily newspaper:
The intention is to have a facility that offers affordable political risk insurance services even to small and medium-scale businesses that may not afford premiums charged by bigger insurers like ATI [Africa Trade Insurance Agency].
The idea of the pool was mooted in 2009, a year after the post-election violence. In addition to business process disruption that happened during the violence, the premises were damaged and looted.
At that time, Kenya insurers did not offer political risk insurance products meaning that many of the businesses were not compensated bringing an end to many companies.
Apparently the demand for political risk insurance started growing already a few months ago, when Kenya invaded Somalia and the business community started fearing retaliatory attacks by Al-Shabaab. It has grown exponentially in the last few months as the presidential elections are approaching. I heard rumors that some companies even plan to move their inventories out of the country for a few weeks in order to better manage their risk during the elections. This is not a matter of “fearing” the elections, however. Let’s just say that Kenyan firms are aware of the risk and started mastering the art of risk management. Hopefully this will turn out to be completely unnecessary.