Kenya’s economy bearing brunt of political impasse
Investor and business uncertainty increase until the power vacuum matter is resolved
THE Supreme Court’s landmark decision to annul the results of the violence-laden outcome of the August presidential is hailed internationally as a step forward for democracy but is dealing a severe blow to one of East Africa’s biggest economies.
More than 15 million Kenyans (a turnout of about 80%) went to polls in an atmosphere characterised by ethnically charged violence and vote rigging claims, which culminated in an outcome opposition candidate Raila Odinga disputed. The results indicated that incumbent President Uhuru Kenyatta was re-elected with 54% of the vote ahead of Odinga, who garnered 44%.
Resultant clashes between state security forces and supporters in opposition strongholds left at least 20 people dead. On September 1, the Supreme Court nullified Kenyatta’s election victory and ordered that new presidential election held within 60 days.
Together with the worst drought in decades, political uncertainty has emerged as the biggest driver behind the government’s downward revision of growth in the country of over 48 million, whose challenges include poverty, inequality, unemployment of about 40% and climate change.
The government has revised growth projections downward to 5.5% for 2017 from 5.9%.
Poor rainfall earlier this year is affecting agriculture, one of the largest contributing sectors to gross domestic product.
Global markets watcher, Rand Merchant Bank (RMB), pointed out the political environment had caused a wait-and-see approach by most investors.
Early this month, the local Shilling currency fell by some 0.32% while trade at the Nairobi Securities Exchange was temporarily halted of alarmed transactions mostly by foreign investors after the Supreme Court ruling that annulled the presidential election.
The August reading of private sector activity (PMI) has slumped to an all-time low of 42.
According to experts, a figure above 50 indicates growth, while a reading below 50 indicates a contraction.
“The continued signs of contraction are hardly surprising given that market participants were concerned about the tense presidential election (held on August 8) whose results have been annulled,” RMB Africa analysts, Neville Mandimika and Celeste Fauconnier, said.
The analysts added “we are likely to see activity grind even lower” as Kenya gears up for yet another hotly-contested presidential election. “As such, we expect fairly soft third and fourth quarter economic growth readings given the wait-and-see attitude that a lot of the private sector would have adopted.” The analysts noted also that revenue collection was behind target while the annual inflation rate has risen to 8% in August from 7.5% in July.
“While we are fairly optimistic about the long-term economic growth prospects, we (like the government) are increasingly concerned by the trifecta of headwinds brewing: effects of the drought, deceleration in credit growth and a rising political risk premium.”
In the latest twist to the tensions in the anxious country, the Independent Electoral and Boundaries Commission (IEBC) postponed the repeat presidential election from October 17 to October 26, citing the need to “meet the standards set out by the Supreme Court in its judgment” that nullified the ballot.
By law, the new poll must be conducted by November 1 at the latest. Among key issues heading into the new poll is the financing of the exercise.
RMB said financially, the potential $117 million cost of the rerun would place additional strain on the fiscus, especially on the back of the already expensive August polls, which cost the country an estimated $480m.
Analyst Ronak Gopaldas pointed out populist rhetoric, polarisation and increasing tension were characterising the build-up to the poll.
“From an economic perspective, policy inertia will continue until the period of limbo ends,” he said.
The analyst raised concern that depending on the outcome, fresh elections could raise new petitions and the possibility of run-offs, stretching the electoral process into 2018.
There is also stand-off between Kenyatta and the opposition, led by Odinga, over the legitimacy of the IEBC to conduct a credible presidential poll.
Gopaldas said due to the power vacuum introduced until October 26, investor and business uncertainty would increase these matters were resolved.
“The economy is likely to continue on autopilot while we wait for the election results,” Gopaldas said.
Last week, Kenya Private Sector Alliance, Kenya Association of Manufacturers (Kam) and Kenya National Chamber of Commerce and Industry lamented that political anxiety was destabilising the economy.
A survey by Kam indicated about 60% of manufacturers were pessimistic of the prevailing atmosphere. – CAJ News
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ANOTHER VOTE: Supporters of Kenya’s opposition leader Raila Odinga, of the opposition National Super Alliance party, listen during his political rally in Kibera slum in Nairobi on September 12. Kenya will hold a new presidential vote on October 17, after the country’s Supreme Court overturned the result of last month’s poll won by President Uhuru Kenyatta.
A supporter of Raila Odinga listens during his political rally in Kibera, in Nairobi.