Many investors believe that the underlying strength of Kenya’s economy still makes the country an attractive bet in the long term. However, the country’s reputation as a stable climate for investment in Africa has taken a hit recently, as violence surrounding the disputed presidential elections of December 27 left hundreds of people dead.

The violence has left foreign investors wondering whether they need to reconsider their options. Alongside the loss of life, looting caused the closure of the Convention of Biological Diversity in Nairobi and the closure of the Port of Mombasa. The port acts as the trade hub for all the countries in east Africa and its closure has caused serious disruptions in imports and exports to and from Kenya and surrounding countries.

Local businesses, particularly in the agricultural and tourism sectors, have been hardest hit by the disruptions. However, up to now foreign businesses and foreigners have remained largely unaffected by the violence. Analysts have pointed to this as proof that the violence is less an issue of politics than a conflict between ethnic groups.

A spokesperson for British American Tobacco, which has agricultural investments in Kenya, says: “Disruptions in the first week of January made it difficult to move around and affected distribution and supply.”

Although the company says the situation has eased off in the past weeks, it is still monitoring the situation by the hour. Concerns for staff safety in the opening weeks of January led to the temporary closure of the head office and a factory. Yet, while the immediate situation remains tense, analysts believe it is too soon to call it quits on Kenya, particularly as the long-term outlook of the economy remains positive.

Timothy Armitage, an economist at risk consultancy Global Insight, says the current impasse between the government and the opposition may act as a catalyst for much needed political reform.

“In the long term it’s a positive thing,” says Mr Armitage. “This issue makes it imperative to write a new constitution and puts pressure on all sides to address the redistribution of power.”

Waiting game

For foreign investors this means waiting for a political solution to the crisis. While investment is not yet being pulled out, it is certainly on hold for the first quarter of 2008.

At least two major investment opportunities due for the first quarter of 2008 have been put off. The largest initial public offering (IPO) in east Africa’s history – of Kenya’s leading mobile phone company, Safaricom – was expected to generate significant revenue for the government. However, the IPO, along with the issuance of Kenya’s first Eurobond, has been shunted to later in the year.

Yet, assuming the political crisis is resolved, there is reason to believe that Kenya will bounce back. While the stock market lost 5% in the days following the election as hot money left the country, it has since recovered.

Adrian Lewers, head of political analysis at underwriters Beazley Group, says: “Overall the long-term prognosis is quite positive. It is a healthy thing that Kenya is focusing on some of the issues that it has ignored.”

However, Mr Lewers points out that the final assessment will depend on what happens over the next few weeks. “It comes back to the prolongation of the unrest,” he says. “If there was continuous violence for a month or so, then you would get investors reconsidering their options.”

In the meantime, both citizens and foreign investors alike are sitting tight and hoping that Kenya’s leaders can soon resolve the country’s crisis.