Kenya, as a regional economic powerhouse, has long played a role in mediating conflicts within the East African Community (EAC) and the broader Great Lakes region. However, the ongoing conflict between the Democratic Republic of Congo (DRC) and Rwanda is not just a distant geopolitical issue—it is a complex web of historical grievances, ethnic tensions, and economic struggles that threaten regional stability. As Kenyans, we must critically evaluate whether our interest in these conflicts serves our national development goals or hinders them. More importantly, we must ask ourselves: How does this war affect our taxation policies and slow our economic growth?
The Economic Burden of Regional Conflicts
Kenya’s economy thrives on stability. The disruption of trade routes, the reallocation of national resources to peacekeeping missions, and the uncertainty created by regional wars directly impact our economic growth. The DRC-Rwanda conflict, if left to escalate, presents several direct and indirect economic threats to Kenya:
- Trade Disruptions Kenya’s trade with the DRC has grown significantly since the latter joined the EAC in 2022. The port of Mombasa is a key gateway for goods entering the DRC, and instability in the region means fewer goods are transported, leading to reduced revenue for Kenyan businesses, ports, and transporters. The longer this war persists, the greater the economic loss.
- Increased Security Expenditure Kenya has been actively involved in peacekeeping efforts in the DRC through the East African Community Regional Force (EACRF). While peace missions are commendable, they divert crucial government funds that could be used for infrastructure, healthcare, and social services. Military deployments increase government spending, which ultimately translates to higher taxation and budget deficits.
- Investor Confidence and Capital Flight Foreign investors closely monitor regional stability before committing to long-term investments. Continued conflict in neighboring countries creates an atmosphere of uncertainty, making Kenya less attractive to investors. Capital flight, reduced foreign direct investment (FDI), and fluctuating stock markets are inevitable consequences of prolonged instability in the region.
- Inflation and Food Security Risks The Great Lakes region is an important trade partner for Kenya, particularly in agricultural exports. War disrupts agricultural production and supply chains, leading to food shortages and increased food prices. Inflation disproportionately affects the lower-income population, exacerbating economic inequality and putting additional strain on social services.
The Taxation Implications of Regional Instability
A nation’s tax policy is a direct reflection of its economic health. War in the DRC and Rwanda places unnecessary burdens on Kenya’s taxation framework in the following ways:
- Increased Tax Burden on Citizens When the government allocates more resources to security and military operations, it must find ways to generate additional revenue. This often translates to increased taxes on income, goods, and services. The average Kenyan already grapples with a high tax burden—rising costs due to war-induced inflation only worsen the situation. In 2023, Kenya Revenue Authority (KRA) reported an increase in income tax collections by 12%, partially due to adjustments in tax rates necessitated by government expenditure.
- Loss of Customs and Trade Revenue Kenya Revenue Authority (KRA) relies heavily on customs and trade taxes from goods passing through Mombasa to the DRC. In 2023, customs revenue contributed approximately Ksh 700 billion to Kenya’s budget. Conflict disrupts trade routes, reducing the volume of taxable goods and leading to lower customs revenue. This creates a budget deficit, forcing the government to either increase taxes elsewhere or cut essential services.
- Reduced Business Activity and VAT Collections Value Added Tax (VAT) is one of Kenya’s largest sources of tax revenue. However, with economic uncertainty, businesses slow down, reducing VAT collections. The KRA reported a VAT shortfall of Ksh 60 billion in 2023, attributed to slowed trade activities and lower consumer spending due to inflationary pressures caused by external economic shocks. With declining corporate profitability, corporate tax revenues also take a hit, weakening Kenya’s fiscal position and making it harder to fund development projects.
- Withholding Tax Challenges Withholding tax is a key revenue source derived from services and contractual payments. As trade disruptions occur, service contracts between Kenyan and DRC-based businesses decline, leading to a significant drop in withholding tax collections. In recent years, withholding tax from cross-border trade has accounted for nearly 5% of Kenya’s total tax revenue, meaning any reduction poses a challenge to revenue sustainability.
The Social and Political Risks of Ignoring Domestic Priorities
While Kenya’s foreign policy has always been inclined towards peace and regional cooperation, we must ask ourselves whether continued entanglement in conflicts that do not directly serve our national interests is beneficial. Here are the domestic risks associated with shifting our focus away from internal development:
- Neglecting Domestic Economic Challenges Kenya faces pressing economic issues, including unemployment, high cost of living, and public debt. The government should focus its efforts on improving infrastructure, education, and health services rather than diverting funds and attention to regional conflicts.
- Risk of Domestic Radicalization and Insecurity Prolonged conflicts in neighboring countries often spill over into Kenya in the form of refugee crises and increased security threats. Porous borders make it easier for arms and conflict ideologies to infiltrate our communities, exacerbating domestic insecurity.
- Public Dissatisfaction and Governance Challenges When citizens feel that their government prioritizes external conflicts over domestic well-being, it erodes public trust in leadership. The perception that resources are being misallocated could fuel protests, political instability, and reduced compliance with tax policies.
The Path Forward: Silencing the Guns and Strengthening Our Economy
Kenya must adopt a pragmatic approach to regional stability—one that prioritizes diplomacy while safeguarding our economic and taxation interests. Here’s what we should focus on:
- Diplomatic Neutrality and Mediation Kenya should continue its role as a peace broker without overcommitting military resources. Diplomacy, rather than direct involvement, should guide our engagements with the DRC and Rwanda.
- Strengthening Economic Resilience We must diversify trade partners and strengthen internal economic policies to reduce dependence on volatile regions. Investing in local industries, enhancing agricultural productivity, and improving tax efficiency can buffer us against external shocks.
- Enhancing Tax Efficiency Instead of Increasing Tax Rates Rather than increasing the tax burden, the government should focus on closing tax loopholes, improving compliance, and reducing wastage in public spending.
- Regional Cooperation for Economic Growth Instead of military interventions, Kenya should lead efforts to establish economic partnerships that benefit all EAC member states. Encouraging trade agreements, infrastructure development, and collaborative economic policies can create sustainable peace and prosperity.
In Conclusion
While it is crucial for Kenya to support regional stability, we must do so with our economic well-being in mind. The war between the DRC and Rwanda does not serve Kenya’s immediate interests; rather, it drains our financial resources, destabilizes trade, and imposes an unnecessary tax burden on our citizens. Our focus should be on economic growth, sustainable development, and tax efficiency. By prioritizing peace through diplomacy and economic cooperation rather than military engagement, Kenya can solidify its role as a regional leader while safeguarding its long-term prosperity. It is time to silence the guns and turn our attention inward—to building a stronger, more resilient Kenya.