Kenyan businesses brace for impact of escalating DRC conflict

A palpable wave of anxiety is sweeping through Kenyan business circles as the conflict in the Democratic Republic of Congo (DRC) - billed as the region’s last and most lucrative investment frontier - escalates, jeopardising trade, investment, and regional stability.

The resurgence of the M23 rebel group, particularly following their recent capture of Goma, the capital of North Kivu province, has sent shockwaves throughout the region, raising fears of a broader conflict that could severely affect Kenya’s economic landscape. 

The DRC, rich in mineral wealth and home to a burgeoning market of over 90 million people, has become a significant trading partner for Kenya.

From small and medium enterprises to large conglomerates, Kenyan businesses have in recent years increasingly turned their sights to the DRC as a lucrative market.

However, the intensifying conflict threatens to disrupt this promising economic relationship businesses and analysts warned. 

Key concerns include disruptions to trade routes and business operations, heightened insecurity, and the looming potential for a mass influx of refugees.

As a landlocked nation, the DRC heavily relies on regional trade routes, many of which connect to Kenya.

Any disruptions to these routes could severely impact the movement of goods, elevating costs and potentially crippling supply chains for Kenyan enterprises. 

“The situation in the DRC is deeply concerning,” says independent economist Ian Njoroge.

“The potential for regional instability poses a significant worry for Kenyan businesses operating in the DRC or those engaged in regional trade. Disruptions to trade routes, increased insecurity, and the possibility of a refugee crisis could all adversely affect the Kenyan economy.”

Major Kenyan banks, including KCB and Equity Bank, which have a considerable presence in the DRC, are said to be closely monitoring the situation.

With extensive customer bases and a network of branches in the country, the conflict poses significant risks to their operations and investments.

The DRC is a vital source of minerals critical for global industries, including cobalt, copper, and coltan. These resources are essential for producing electric vehicles, smartphones, and other key technologies.

Global manufacturers depend on these materials for their production processes, and any disruptions to the supply chain could have far-reaching consequences for their operations. 

Beyond the immediate economic effects, the DRC conflict may also lead to significant humanitarian and social challenges for Kenya. A potential influx of refugees could strain local resources and exacerbate existing social and economic issues. 

The Kenyan government has called for a peaceful resolution to the conflict, emphasizing the necessity of regional stability.

Yet, the ongoing violence highlights the precariousness of peace in the area and the potential for unforeseen repercussions. 

The M23 rebels entered Goma last month, seizing control of the city’s airport after encountering pockets of resistance.

Reports indicate the involvement of Burundian and Rwandan troops, further intensifying fears that the conflict could escalate into a regional crisis similar to the two devastating wars that ravaged the area between 1996 and 2003, resulting in millions of casualties. 

M23, named after the March 23, 2009 peace accord that ended a prior Tutsi-led revolt, is the latest iteration of ethnic Tutsi-led insurgents rebelling against Congolese forces.

The group claims the Congolese government has failed to adhere to the peace deal and integrate Congolese Tutsis into the army and administration.

They also assert their commitment to defending Tutsi interests against ethnic Hutu militias like the Democratic Forces for the Liberation of Rwanda (FDLR), formed by Hutus who fled Rwanda after the 1994 genocide. 

As the Rwandan-backed M23 rebels aim southward towards Bukavu, the capital of South Kivu province, the current fighting represents a significant escalation in a decades-old conflict rooted in power, identity, and resource struggles that have killed hundreds of thousands and displaced over a million people since its recent resurgence. 

Investment in the DRC remains appealing due to the potential for high financial returns. Despite the risks, a 2014 DRC country mining guide by KPMG highlights the mining sector as a “high-risk high-return opportunity,” attracting investors from around the globe.

The Great Lakes countries emphasise the region’s economic potential, citing “seven key drivers for economic growth”: abundant natural resources, arable land, water and food demand, a youthful and growing population, an increasingly educated middle class, expanding export markets, and improving governance and infrastructure. 

The DRC is a major supplier of cobalt, copper, diamonds, coltan, and tin to global markets. Although minerals like copper and diamonds are well-known, cobalt and coltan have become increasingly critical in the modern economy. Cobalt is essential for high-temperature applications, while coltan is vital for electronics.

The conflict has plagued the DRC for decades, with recent hostilities exacerbating instability. Known for its rich mineral resources, including 60 per cent of the world’s coltan, the DRC has emerged as a magnet for investment, particularly in the context of the global push for renewable energy.

The DRC’s cobalt reserves are expected to be highly sought after as electric vehicle production surges. 

With the DRC joining the East African Community (EAC) as the largest and most populous member, its potential market of 90 million people promises to elevate the region’s GDP significantly.  

A growing number of Kenyan firms are seeking investment opportunities in the DRC, shifting focus from the East African Community amid a recognition of the DRC’s mineral-rich economy as a fertile ground for business.

Endorsements from the World Bank and African Development Bank as a frontier for growth have spurred this interest. 

Trade missions sponsored by Equity Group, Kenya’s largest lender by customer base have attracted hundreds of Kenyan firms to key DRC cities, demonstrating the country’s economic allure despite its challenges.  

For Kenyan manufacturers, the DRC’s minerals like copper, cobalt, and coltan present raw material opportunities, while the mining sector provides a market for electrical and electronic products.

“The demand for electric car batteries and electronics has surged, driving up the need for raw materials such as cobalt and coltan,” noted the Kenya Association of Manufacturers (KAM). 

As the situation unfolds, analysts said the normalisation of political conditions and a renewed commitment to reform in the DRC could foster a climate conducive to private investment, driving economic growth in both the DRC and Kenya.