Kenya's Unrest: Navigating Geopolitical Risks in East African Equity Markets

The streets of Nairobi have become a battleground between Kenya's youth-led protests and a government accused of authoritarian overreach. Sustained demonstrations since 2024, rooted in economic despair and systemic corruption, have exposed vulnerabilities in Kenya's economy and governance. For investors, this volatility presents both peril and opportunity in East Africa's largest equity market.

The Geopolitical Storm

Kenya's protests, now in their second year, are driven by Gen Z activists demanding accountability for police brutality, youth unemployment (at 40%), and broken promises of economic reform. The government's heavy-handed response—using live ammunition, banning live media coverage, and deploying "goons" to attack crowds—has killed over 30 protesters since 2024 and drawn international condemnation. This repression has fueled investor anxiety, with FDI inflows falling as the Kenyan shilling weakened 12% against the dollar in 2024.

The protests have also dented Kenya's sovereign creditworthiness. shows a downgrade to B- (August 2024), citing fiscal risks from abandoned tax reforms and rising debt (65% of GDP). Moody's Caa1 rating (positive outlook) and S&P's B- (stable outlook) reflect a fragile balance between IMF-backed reforms and political instability.

Sector-Specific Impacts

1. Banking Sector: Fragile Foundations
Kenya's banks face a perfect storm. Non-performing loans (NPLs) rose to 25.7% of total loans in Q4 2024, driven by defaults from informal businesses and over-leveraged borrowers. shows a 15% decline since mid-2024, as investors flee amid fears of systemic risk. Key lenders like KCB Group and Equity Bank remain exposed to government bonds, complicating balance sheets.

2. Tourism: A Delicate Recovery
Tourism, which contributes 5% of GDP, faces a double-edged sword. While international arrivals rose 13% year-on-year in June 2024 (to 149,922), ongoing protests risk deterring tourists. highlights a correlation between protest intensity and revenue dips. A stabilization of the shilling (KES) and reduced violence could unlock growth, but the sector remains vulnerable.

3. Telecoms: A Safe Haven in Chaos
Telecom stocks like Safaricom (NSE: SCOM) offer resilience. Despite trading at a 20% discount to regional peers, Safaricom's dominance in Kenya's digital economy (via M-Pesa) and 4G/5G infrastructure investments have shielded it from macro headwinds. shows it outperforming broader markets by 20% in 2024. Its defensive profile makes it a top pick for investors seeking stability.

Investment Strategies: Navigating Volatility

Short-Term Plays:
- Telecoms: Hold Safaricom for its inelastic demand and dividend yield (~5%).
- Currency Carry Trade: Short-term traders could bet on a shilling rebound if tourism stabilizes.

Long-Term Opportunities:
- ESG Plays: Firms like iXAfrica (telecom infrastructure) and fintech startups align with ESG trends, attracting impact investors.
- Banking Sector: Wait for NPLs to peak and stabilize before re-entering. Monitor reforms like the Anti-Corruption Bill (pending since 2023).

Avoid:
- Banking Equities: Until NPLs decline and loan growth resumes.
- Tourism Stocks: Unless protests subside and arrivals rebound.

Key Metrics to Watch

1. Sovereign Credit Upgrades: Track Fitch's next review (expected Q4 2025) for signs of fiscal progress.
2. Protest Intensity: A decline in casualties and arrests could signal a political thaw.
3. IMF Program Progress: Watch disbursements under the $3.1bn Extended Fund Facility (EFF) for signs of fiscal discipline.

Conclusion: A High-Reward, High-Risk Frontier

Kenya's equity markets are a test of investor resolve. While geopolitical risks dominate the near term, the country's strategic role as East Africa's financial hub and digital transformation offer long-term promise. Investors should prioritize defensive sectors, demand governance reforms, and remain agile as the protest cycle evolves. As the adage goes: in volatile markets, patience—and a keen eye on political risk—wins the day.

Final Note: The Nairobi Securities Exchange (NSE) has historically underperformed peers during political crises. Monitor the NSE 20-Share Index for signs of stabilization.