Kenya risk outlook improves after election

By:
Matthew Turner
Published on:

Political tensions ease amid election result

Kenya’s ECR score advanced by 0.4 points to 35.6 last week, after the outcome of the country’s general election on March 4.

Pre-election tensions were a source concern in the last quarter. The sovereign’s high political and institutional risk meant the economy failed to improve its risk ranking for the past 20 years.

Excluding Zimbabwe, Kenya was the worst performer in Sub-Saharan Africa last year, with ECR contributors shedding 3.9 points off the country’s overall risk assessment score. The sovereign’s score decline meant Kenya slipped into ECR’s tier five, after falling 12 positions in the global rankings last year.

The strains on economic activity in the run-up to this year’s election were highlighted in a recent report by Samir Gadio, ECR analyst and emerging markets strategist at Standard Bank.

“Election-related anxiety has held back economic activity in the run-up to the elections,” he says. “Certainly, anecdotal evidence during the week of March 4 to 8, in which seemingly most employees stayed home, suggests that weakness in economic activity may have persisted well before the elections.”

However, a calmer political environment, after this year’s general elections, appears to have boosted confidence in the country’s economy, with the sovereign’s economic outlook indicator increasing by 0.2 points to 4.7 (out of 10) last week.

The sovereign’s improved economic outlook score is in line with growth forecasts. The African Economic Outlook forecasts the Kenyan economy to expand by 5.5% of real GDP, up from 5.2% last year.

 

This would be a remarkable turnaround from the last election in 2007, when sweeping political violence had a devastating impact on the economy. Economic growth plummeted to its lowest levels in 10 years, falling from 7% in 2007 to just 1.5% in 2008.

Peace after the election is expected to remain, reckon analysts, as the political parties are using more democratic avenues, such as the court process, for resolving electoral disputes.

James Wahome, analyst at Pamoja Capital and one of ECR’s expert contributors for Kenya, is optimistic about Kenya’s post-election growth prospects.

“We expect relative stable macroeconomic indicators following the peaceful elections,” he says. “This should translate into better economic performance and increasing FDI activities in 2013, targeting specifically Kenya as the major economic hub in East Africa.”
The incumbent administration is expected to pursue economic policies consistent with the last government.

“They are going to engage more with the private sector,” says Wahome. “We are hoping they will enhance more public private partnerships for infrastructure projects which were put in place by the last administration.”