Peaceful vote lifts investor confidence in the economy

Kenyans on Wednesday went to the polls to determine the fate of a document that could drastically change the way the country is governed, lift investor confidence and intensify the pace of economic growth.

Final results of the vote are expected to be known today with many analysts predicting that a positive outcome will boost confidence and cheer local currency and the stock market, giving the economy a fresh impetus to full recovery.

It promises a drastic shift in the management of the country’s finances, land and politics laying a strong foundation for future growth.

Key planks of the proposed law include its aim to crush Kenya’s imperial presidency, devolve power, reform land tenure and affirm citizens’ basic rights.

Polling stations opened early and were marked by long queues showing high voter turnout.

No major incidents were reported during the exercise, which was under heavy police presence, especially in hotspots such as Nairobi slums and Rift Valley province.

The Interim Independent Electoral Commission (IIEC) started tallying the votes at the Bomas of Kenya late in the evening –– using its technology driven relay system that is based on mobile phones and laptops.

Today, the Kenya shilling and the stock market — two key indicators of the health of the economy — are expected to show renewed strength riding on the momentum that began on Monday as optimism rose over the expected positive outcome of the vote.

Business leaders have endorsed the proposed laws, saying they have the potential to put the country on a more stable foundation that is needed for long term growth.

“The proposed laws will create strong institutions that are needed for proper functioning of markets and anchor a legal framework that is key for growth,” Prof Njuguna Ndungu, the Central Bank Governor said on Monday.

In recent months, key sectors of the economy including agriculture, finance, commodities export, have shown signs of recovery.

The economy grew by 4.4 per cent in the first quarter of the year compared to 5.6 per cent in the same period a year earlier.

Treasury is projecting a growth rate of 4.5 per cent in 2010 and analysts have raised their forecast from four to five per cent.

“What happens after the referendum will greatly determine the economic outlook and investor confidence,” said Peter Wachira, an investment analyst PineBridge Investment — formerly AIG Investment. “A positive outcome will clear uncertainty over Kenya’s future and win the confidence of foreigners who want to invest in the country,” he said.

Equities and currency markets were closed yesterday but will be watched keenly this morning for reaction to the outcome of the vote.

The shilling strengthened against the dollar on Tuesday, buoyed by growing optimism, and dealers said they expect politics to be the main driver of movements in the next few days.

Commercial banks quoted the unit at Sh79 to the dollar compared to Monday’s close of 80.15/25.

At the Nairobi Stock Exchange, most counters continued to record a rise in share prices.

The index closed Tuesday’s session at 4,591.04 points, from 4,494.78 on Monday.

“Irrespective of the results, it has become clear that the vote is devoid of any disruptive activities making it a confidence booster for both local and foreign investors,” said Robert Bunyi, an investment analyst with Mavuno Capital.

The proposed Constitution carries a raft of provisions with the potential of significantly changing Kenya’s social, economic and political landscape, including a rise in the tax burden.

It, for example, introduces wide ranging public financial management reforms that will also take away MPs’ powers to increase their salaries and bring them under the tax net.

That could give Kenyans a crucial victory over an institution that has lately attracted public outrage for repeatedly dipping its fingers into the public purse even during hard economic times.

However, parliament, under the proposed legal regime has grabbed nearly all public finance powers from Treasury to become the principal determinant of sources of government revenues and how high ordinary Kenyans and businesses should be taxed.

Supporters of the proposed Constitution see it a crucial tool for correcting the flawed political dynamics that exploded after the disputed 2007 presidential election

Dr David Ndii, an economist reckons growth prospects must hinged on good governance that can only come from a good constitution.

“We have under-invested in promoting governance and this has turned out to be very costly. The money we have invested elsewhere has been lost through bad governance,” said Dr Ndii.

A positive outcome of yesterday’s vote will see President Kibaki, Prime Minister Raila Odinga, Cabinet Ministers, their assistants and Diplomatic office holders swear a fresh Oath of Office–– and committing to implement the proposed law.

It will also see Chief Justice Evan Gicheru and Attorney General Amos Wako be without a job within six and 12 months respectively after it comes into force.

“Kenya needs a foundation of dealing with some of the risks especially political instability which is key in ensuring a stable economic environment,” said Ade Ayeyemi, the chief executive officer at Citibank NA Kenya.

“To thrive, businesses need a situation where the judicial systems are effectively working and the credit environment is certain and political risks are minimal,” said Mr Ayeyemi.

Kenya’s new constitution would also introduce a second chamber of parliament — 47 counties under a decentralised administration run by elected grassroots leaders — and a judiciary where judges are not appointed at the whims of the head of state.

Proponents of a new constitution argue that for the first time it introduces a sensible approach to land reform by stating that land acquired illegally can be repossessed.

But those against it say this will increase ethnic divisions and trigger chaos.