Court ruling impacts economy
F riday was a day of unprecedented and high drama. The Supreme Court of Kenya’s 4-2 decision to annul the election was an unprecedented move in Africa and the first time on the continent that a court ruled against the electoral victory of an incumbent. The Chief Justice David Maraga declared Kenyatta’s victory “invalid, null and void”. This is only the fourth occasion world-wide when this has happened (Ukraine, Maldives and Austria). The judges ordered a new vote to be held within 60 days. Given the damning nature of the verdict with respect to the IEBC (The court ruled that it had “failed, neglected or refused to conduct the presidential election in a manner consistent with the dictates of the constitution”), its unclear to me how the 60 day deadline is met. I would recommend that we look at the Marble solution a la Gambia. The court’s decision was unprecedented because in such cases, courts have weighed the level of malfeasance and infraction in the balance and typically where the margin of victory is so wide, courts have taken the view that the level of infraction has not risen to a threshold which would have altered the result. Here the Supreme Court ruled on a literal and narrow constitutional basis. The President’s lawyers were outplayed and slow to appreciate that the ground had shifted. Interestingly, the immediate media response to the decision spoke of a ‘’coming of age’’ of Kenya’s institutions and Renaissance Capital’s Charlie Robertson tweeted;
‘’Elections are costly in Kenya and disruptive to the economy; but there are hard-to-quantify benefits from independent judiciary/rule of law.’’
‘’Markets hate uncertainty’’ is a refrain that reverberates through the markets and on Friday, we saw a big outsize bearish reaction. The Stock Exchange’s circuit breakers kicked in and the Stock Exchange was halted for 30 minutes when shares fell by 10%. Subsequently, Trading resumed and the Nairobi All Share Index closed -3.69% [+22.18% in 2017] and the NSE20 Index -3.47% [+22.00% in 2017]. I am afraid we are going to see further selling pressure this week. The Shilling which was at a 4 month High before the Ruling closed -0.4% and our average yield over treasuries blew out 25 basis points (bps) on the EMBI Global Diversified index to 411 bps. Kenya’s $2 billion sovereign bond maturing in 2024 fell 1.33 cents, according to Tradeweb data, its lowest since mid-August.
“The historic Supreme Court ruling pours uncertainty on the Kenyan economy,” said Emma Gordon, an analyst at Verisk Maplecroft told Bloomberg “Investors will be concerned about the financial implications and the high risk of violence. With the possibility of the new election going to a second round and the result being contested again, political uncertainty could easily last the rest of the year.”
“Today we’re throwing songs not stones.” opposition supporters told the FT’s John Aglionby. We need to all make sure we keep it that way. Q1 GDP expanded at the slowest pace since 2014 and clearly another 60 days of electioneering is hardly going to be a growth ignition.
The two principals need to deconflict their language because otherwise there will be more blood in the Water.
“Clear evidence shows that the commission was taken over by criminals who ran the general elections using the technology system and inserted a computergenerated leadership,” Raila Odinga told reporters on Friday.
“We shall revisit this thing. We clearly have a problem,” The President said, referring to the judiciary.