Kenya election re-run puts further damper on economy

by FT

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Uhuru Kenyatta and Raila Odinga

NAIROBI – For Hitesh Mediratta, the prospect of Kenya holding a repeat presidential election this month stirs mixed emotions. The managing partner of PG Bison, a supplier of materials to the furniture and construction industries, says his industry is suffering as projects are delayed as the east African nation is gripped by political uncertainty.

“‘It’s the election, let’s just wait and see’, is what I hear all the time,” he says of developers’ investment plans. “Most people are waiting until after the politics calms down.”

But despite the gloom, Mr Mediratta says many “business owners and friends” see a silver lining as Kenyans prepare for the October 26 presidential poll. The re-run is being held because the supreme court nullified incumbent President Uhuru Kenyatta’s victory over Raila Odinga in an August 8 election, citing “illegalities and irregularities” in the conduct of the poll.

The court’s surprise ruling was the first of its kind in Africa and restored many Kenyans’ faith in the independence of the judiciary.

“We are more confident, hopeful and somewhat relieved in the thought that future elections will not carry the [same] burden of uncertainty and the unknown,” Mr Mediratta says.

However, Kenya’s economy, until recently one of the fastest growing in sub-Saharan Africa, has caught a political cold.

With a few exceptions, such as tourism and horticulture, the uncertainty ahead of the re-run is damaging what was already a tough year because of drought and a government imposed cap on lending rates.

Kenya also has a history of troubled elections that damage the economy. The 2007 vote was so flawed it triggered violence that left 1,200 people dead and forced 600,000 to flee their homes. Six years later, the poll was also disputed.

Mr Mediratta says many Kenyan companies “budget optimistically for four years and then one year of little or no return . . . [because] . . . in the last two elections we have witnessed significant reduction in business volumes”.

The unprecedented political events of recent weeks means many businesses have taken an additional hit.

“We’d never seen a month as bad as July as people prepared for the [August] election and since the vote people have only been buying what they really needed,” says Hiran Bid, a director of Alpha Knits, a textile manufacturer. “Year on year since July the industry is down about 60 per cent, of which two-thirds is related to the election.”

Data support such anecdotal evidence. Stanbic Bank’s PMI survey, a measure of private sector activity, fell sharply in September to 42 from 48.1 in August, which was already its lowest ever figure since the index started in 2014. Any reading below 50 is a sign of contracting business.

Political rhetoric and tensions have fuelled businessmen’s concerns, with Mr Odinga threatening to boycott the re-run and Mr Kenyatta vowing to change the election laws.

“Politicians are playing with lighted matches in front of a fuel-soaked political pile of logs,” the Kenya Private Sector Alliance said this week. “It is time to row back. Please look beyond the immediate, and consider the long-term interests of our nation for generations to come.”

The government has already cut its economic growth forecast for 2017 from 5.7 per cent to 5.5 per cent. Growth last year was 5.9 per cent.

Yvonne Mhango, of Renaissance Capital, predicts the economy will expand by 4.9 per cent this year. She adds that it will only be this high because of “strong public investment that is masking a weak consumer”.

Anzetse Were, an independent economist, says a lack of clarity over the opposition’s economic policies is contributing to the unease. “Part of the problem is that we don’t know how any opposition leader would rule,” she says.

Mr Kenyatta has been pro-business as he sought to drive economic growth through investment-led policies.

Farida Abbas, the chief executive of the British Chambers of Commerce Kenya, says the economic outlook “depends on what happens now and how quickly we get over the second election process”.

Foreign investor interest in Kenya’s diversified $70bn economy remains robust, she says “pending the final results”.

Joanna Turner, the regional head of Control Risks, an advisory group, warns this patience will not last for ever. “If investors can’t see what’s going to happen they might just move on and look elsewhere.”

Still, Mr Mediratta is relatively upbeat over his country’s future.

“A foundation has now been laid, which over future elections I believe will be grown upon and improved until eventually Kenyans will one day be able to cast their vote and then immediately continue with their lives and business,” he says.

Few people, however, are contemplating what might happen, either economically or politically, if the result of the October election is nullified or, as appears increasingly possible, is not held on time.

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