Kenya Election: A Risk Analysis of the Economy and Markets

President Kenyatta and former prime minister Raila Odinga Photo By: Pambazuka

Kenya’s presidential and parliamentary election, set for August 8, is shaping up to be a repeat of the 2013 vote where President Uhuru Kenyatta, who was facing criminal charges at the Hague-based ICC court at the time, squared off with former Prime Minister Raila Odinga.

This would be the first time since the disputed 2007 election where a sitting president ran for re-election, which provoked ethnic clashes across East Africa’s largest economy killing more than 1200 people and displacing thousands more.

There are already questions has to whether this election could turn violent. Several hotspots have been identified by security forces and are being closely monitored. Some of these hotspots like Laikipia and Turkana are already witnessing political tensions with attacks on private ranches and oil facilities being witnessed.

The political rivalries that fuelled the dispute over the 2007 result are also still there and tribal links remain one of the main deciding factors behind voters’ political allegiances within the country.

Some of the key risk factors to watch out for include:

A slowdown in the economy

Like many other African elections, Kenya’s economic growth is widely expected to slow down in 2017. The International Monetary Fund (IMF), expecting the polls to “heighten political instability”, cut its growth forecast for the country to 5.3 percent from an earlier 6 percent projection. The government also cut its economic growth to 5.7 percent from an earlier estimate of 5.9 to 6 percent. Historically, the East African economy has had its slowest growth periods around election years.

Maasai Market in Nairobi

Business and transport disruptions

A flare-up of violence could affect tourism, investment, trade and transport in the east African economic powerhouse and its land-locked neighbors which rely on Kenya's Mombasa port for imports of food and fuel. Traders from neighboring Uganda and Rwanda have been relocating from Kenya’s Mombasa port to Tanzania’s Dar-es-Salaam port as an alternative route to import and export their products during the election period. Politically instigated violence is already being reported in Laikipia, where herders attacked foreign-owned ranches. Also in Turkana, bandits have made it impossible for the government to make its first oil export by road.

Mombasa port

A lull in stocks, forex and debt markets

Kenyan markets have entered a lull as foreign investors take a back seat ahead of the August poll. The local currency, the shilling, has remained stable at 103.7 per US dollar, amid rising inflation occasioned by a severe drought late last year. Demand for stocks and debt has however subsided after a 29.2 percent bull-run since March 8 mainly due to lack of foreign interests. This is, however, expected to recover if the elections pass peacefully.

Geopolitical shift in the Trump and post-Brexit era

Global geopolitical shifts like the increased likelihood that U.S. President Donald Trump will cut back trade and security aid to Africa could also impact businesses in Kenya. While the East African nation does not relay much on aid for development projects, it does need foreign funding for some of its recurrent expenditure in sectors such as security and health. There are also possibilities that Kenya’s trade relations with the United Kingdom could change in the post-Brexit era. During a visit to the country in March, UK’s Foreign Minister Boris Johnson hinted to changes in trade agreements and development assistance.

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