The Wall Street Journal reports today on the economic aftermath of the Westgate shopping mall attack. In total, Moody’s estimates that the Westgate attack alone could shave .5 percentage points off Kenya’s economic growth this year.
In the wake of the attack, there’s been a lot of focus on what effect al Shabab’s terrorism will have on Kenya’s critical tourism industry. But as the Journal article notes, there’s also a concern that the security situation could scare away foreign investors.
Kenya, one of Africa’s more dynamic economies, has set an ambitious target of $8 billion in foreign direct investment over the next five years. The country has recently-discovered oil and gas deposits as well as a growing tech industry. But past experience has shown that terrorist activity often scares investors away.
In a paper published earlier this summer, Subhayu Bandyopadhyay of the Federal Reserve Bank of St. Louis, Todd Sandler of the University of Texas at Dallas and Javed Younas of the American University of Sharjah looked how terrorist activity had impacted FDI to 78 developing countries between 1984 and 2008. The results were not very encouraging:
“A one standard deviation increase in domestic terrorist incidents per 100,000 persons reduces net FDI between $323.60 and $512.94 million for an average country, whereas a one standard deviation increase in transnational terrorist incidents per 100,000 persons reduces net FDI between $296.49 and $735.65 million for an average country.”
They found that foreign aid can sometimes mitigate the impact of this loss in investment, although aid specifically tied to counterterrorism efforts can bring new complications.