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Opinion & Analysis

Kenya’s political uncertainty to dent economic activity

There is need to remain vigilant amidst the current political developments to ensure that macroeconomic stability is maintained, investor confidence is secured and adequate supply of food is sustained.

Kenya has gone through a peaceful General Election despite the heated political environment.

However, the Supreme Court nullified the presidential results through the ruling made on September 1, 2017. The new date for presidential election has been set for October 17, 2017 and the country is in a campaign mood again.

This year the General Election spreads across two quarters and it is not clear when political tensions will ease. The prolonged uncertainty created by the elections is likely to slow down the growth of the economy in 2017 from various angles: (i) the wait and see attitude by investors slows down investment (ii) travel advisories due to perception of insecurity during the election period negatively impact key sectors such as tourism (iii) the stock market (NSE) index is also adversely affected by negative market sentiments and (iv) and disruptions to many other economic sectors such as hotels, transport, wholesale and retail as people stay away from work.

Some key indicators already point to a slowdown in economic growth in 2017. First Quarter estimates of GDP growth by Kenya National Bureau of Statistics (KNBS) indicate that the economy grew by a low 4.7 per cent.

Other leading indicators such as cement consumption indicate a downward trend in the consumption of cement from March to July, 2017 based on recently available data.

The Consumer Price Index (CPI) which measures the changes in inflation and the cost of living has also risen from 6.3 per cent in August 2016 to 8.0 percent in August 2017.

This increase is mostly explained by increases in the prices of food and non-alcoholic beverages which increased by 13.6 per cent over the period. The increase was mainly attributable to depressed food supply due to the prolonged drought.

Periods of low stock market performance are accompanied by slow economic performance.

In the recent period, turnover at the stock market has been dominated by foreign investors, and in May and June their trading was more on the sell side than on the buy side.

This could reflect dumping of shares in fear of the uncertain market situation and prospects of growth in the future.

Despite the negative shocks to the economy arising from the uncertainty and developments associated with their extended electioneering period, generally, macroeconomic stability has been maintained and the value of the Kenya shilling has remained stable viz-a-viz other major world currencies.

Official Reserves held by the Central Bank of Kenya have also increased from $7.5 billion in January 2016 to $8.1 billion in July 2017. Such reserves are adequate to support imports as well as ensure stability of the Kenya shilling.

It is important to note that prolonged periods of uncertainty surrounding elections are detrimental to economic growth hence the need and urgency to conclude the 2017 presidential elections.

Irungu Nyakera is the Principal Secretary, Planning and Statistics.

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