Retail thriving in the heart of Kenya as tourist economy suffers

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Getting into East Africa's biggest shopping mall is no easy matter. Guards block your car, fling open the doors, rummage through the trunk and glove compartment and check beneath your car with a bomb-detecting mirror before you are finally granted entry to the parking garage.

Visitors suffer a similar gauntlet at Nairobi's main airport, and its leading business and tourist hotels, ever since a wave of terrorist attacks on "soft targets" across Kenya, including coastal villages, a northern university and the upscale Westgate shopping mall in the capital.

The attacks have devastated Kenya's tourism industry, triggering the loss of an estimated 60,000 jobs in coastal resorts alone.

Yet the retail sector is thriving, despite Westgate and other attacks, showing the resilience that Kenya will need if it hopes to remain among Africa's economic powerhouses.

The Garden City mall, billing itself as the largest in East Africa with 33,000 square metres of shopping, opened its doors in late May and already has shoppers flocking through its doors, even though half of its shops aren't open yet.

Among the biggest advantages of the $250-million (U.S.) mall is its location on an eight-lane highway, one of the many road and railway projects that are fuelling Kenya's economic growth. "Super Deals on the Super Highway," say the sales tags on discount TV sets at the popular Nakumatt department store in the mall.

"The growing middle class is driving this," says Justin Melvin, general manager of Kuku Foods, which opened a KFC fast-food outlet in Garden City this month, its seventh in the country so far. "Expectations are higher these days. I think you'll see the top end of retail coming here, too."

Later this year, Garden City will lose its regional leadership to an even bigger mall, Two Rivers, with 62,000 square metres of shops, in an affluent district of Nairobi. The French hypermarket chain Carrefour is planning to open two outlets in Nairobi. And on July 1, the Westgate mall itself is scheduled to reopen, less than two years after the attack by al-Shabab gunmen that killed 67 people.

While most of its shops won't be ready for business by then, Westgate's reopening will be a rebirth for the trend-setter of Kenya's retail sector. Construction noise is audible behind a tall metal fence at Westgate these days as workers apply the final touches.

"Westgate will attract people – Kenyans have very short memories," says Aly-Khan Satchu, a Nairobi investment adviser. "There's an excitement around the retail sector. I can't tell you the number of big retail brands that have contacted me and asked how they can enter. It's sky-high."

In another sign of Kenya's economic vitality, U.S. President Barack Obama is due to visit Nairobi next month to attend an entrepreneurship summit. Kenya's economic potential is too big for the Americans and other foreign investors to ignore.

In a report this month, the World Bank forecast 6 per cent growth for Kenya this year, followed by 6.6 per cent next year. One of the biggest reasons is a $4-billion railway line, now under construction with Chinese financing and contractors, connecting the port of Mombasa to Nairobi and then to the Ugandan border.

Tourism slump

Yet the boom in retail and infrastructure is undermined by bad news in two of Kenya's most crucial sectors: the energy industry, jeopardized by low global oil prices and a delayed pipeline, and the tourism sector, severely damaged by the terrorist attacks and a series of travel warnings by Western governments, including Canada.

The terrorism issue, along with the closely linked issue of Kenya's military intervention in Somalia, has led to an identity crisis here. As the attacks continue, and as a wave of arrests and alleged extra-judicial killings by Kenyan security forces provokes its own grievances, Kenya's tradition of religious and ethnic tolerance is under new pressure.

This in turn could spur more violence and political tension, weakening the stability that the country needs for its growth. The security measures at the entrances of hotels and airports are an attempt to reassure foreign tourists, but so far they aren't sufficient to lure them back.

Tourism was already declining last year, but now the decline is gathering speed. Kenya's visitor numbers dropped by 25 per cent in the first five months of this year. British visitors, the biggest contingent of tourists here, have fallen by an even steeper 35 per cent this year.

Mombasa, the historic port and trading city at the heart of Kenya's coastal tourism sector, rarely sees any foreign tourists any more. Two dozen hotels around Mombasa have shut down because of slumping tourism. Those that remain open have laid off staff or cut salaries to cope with the low occupancy rates.

One of Mombasa's oldest hotels, the 177-room Nyali International, has managed to stay open by catering to a domestic business and conference clientele, but its staff say its occupancy rate is just 20 per cent and it has dismissed half of the 260 staff that it employs at its peak. Clocks in the lobby give the current time for cities from Tokyo to Zurich, but virtually no foreigners can be seen in the hotel these days. "Tourism is difficult in Mombasa now," a desk clerk says mournfully.

Mombasa is hurt not just by terrorism fears, but also by local factors, including the presence of radical Muslims and supporters of al-Shabab, the Somalia-based extremist militia. A Russian tourist and a German tourist were shot dead last year in the city centre. The killings were never solved, but many observers have blamed Muslim radicals. Travel warnings by foreign embassies have become more alarmist over the past year, scaring away more foreigners.

"Tourism on the coast is dead, completely dead," says Ahmed Shee Ahmed, a tour guide at Fort Jesus, the 420-year-old Portuguese fort in Mombasa's old town. A dozen guides sit idle at the fort, waiting for visitors who never come.

Mr. Ahmed said he hasn't seen any foreign tourists for months. "The economy of the whole region is flat on the ground," he said. "People like me are suffering a lot."

Sam Ikwaye, head of the coast branch of the Kenya Association of Hotelkeepers and Caterers, is worried that tourism won't recover for several more years. "If something isn't done soon, next year will be lost too," he said. "We don't have many other industries on the coast – it's mostly tourism. A multitude of young people don't have incomes now."

Pipeline uncertainty

Coupled with the tourism crisis are new questions about Kenya's nascent oil boom, in which Vancouver-based Africa Oil Corp. is a 50 per cent owner in the main project. The slump in global prices is making it harder to raise money for oil, and the uncertainty is compounded by a delayed decision on a crucial oil pipeline.

Before the oil can be developed, Kenya and Uganda must agree on the pipeline to a planned export terminal on the coast near Lamu – expected to be the world's longest buried and heated oil pipeline, with 800 kilometres in Kenya alone. Terrorism could pose a threat to the pipeline as it passes close to the Somali border near Lamu. The project, accompanied by a road and rail link, was first mooted nearly 15 years ago, yet its route is still undecided.

"We are hoping there will be a pipeline decision imminently," Africa Oil vice-president of external relations Alex Budden said in an interview in Nairobi.

"Every time we hear something is about to happen, it's 'within the next few days' – and that has happened for the last four months. Something happens, and the decision isn't made. Pipeline certainty is what's needed to keep our project moving forward."

Africa Oil and its partner, Tullow Oil, have cut their 2015 exploration budget to about $380-million, less than half of last year's budget, and they expect to have only one drilling rig in operation by the middle of this year, compared to six at the peak last year.

Mr. Satchu, the Nairobi-based investment adviser, says the Lamu pipeline and terminal project is unlikely to proceed if price of oil remains low. "Until we see a sustained recovery to $80 a barrel, I think all of this is dead in the water," he said.