2017 polls political instability ‘medium’ risk for Kenyan firms

Businesses in Kenya will face a greater risk from political instability than geopolitics next year due to a hotly contested general election, global risk and strategic consulting firm Control Risks says.

Control Risks rates Kenya’s political risk going into 2017 as ‘medium’ while the country’s security risk is only seen as high in the northern part of the country, Nairobi and Mombasa.

Negative rhetoric by the political class would cause jitters among businesses, which draw on examples from the 2007 polls, which had an incumbent president contesting leading to widespread violence. Firms suffered losses worth billions.

“Internal political uncertainty across a number of key nations in the region will pose a much greater risk to businesses on the continent than the effect of international geopolitics,” says Control Risks in the Risk map 2017 report adding that incidents of politically inspired instability are likelier in closely contested constituencies across Kenya.

Other political risks on companies include negative government policy, judicial insecurity, exposure to corruption, reputational damage, expropriation and nationalisation and international sanctions.

Across the region, Tanzania’s business risk is seen to come from a growing nationalistic stance that has raised fiscal and regulatory risks to business. In Uganda, Control Risks says the country faces insecurity and economic hardship that pose challenges to the government.

Other than political risk, the firm says that businesses are facing a growing threat of cyber-attacks, which are a systemic threat, especially to the increasingly digitised financial sector.

“Cyber-attacks are advancing in nature. Businesses will become increasingly vulnerable until the impact of cyber risks on their operations and reputation is as well understood as the effects of political and security risk,” says Control Risks.

On their part, businesses are ending the year on a more positive note, with the Purchasing Managers Index survey done by Stanbic Bank and market research firm IHS Markit showing that growth rebounded in November driven by better business conditions.

Those surveyed said they saw higher orders coming in especially from regional markets, which drove growth of new business to a nine-month high.

This indicates the business community could be of the opinion that it is too early to start worrying about the implications of the general election, which is eight months away.

Economists say, however, that in spite of the optimism expressed by businesses, there is some lingering macroeconomic risk on the exchange rate, slow credit growth and food security.

“Looking ahead, cost for firms could start edging higher owing to the weaker exchange rate. However, more specifically we remain concerned around the sharp slowdown in private sector credit growth, which could eventually prove to be a stumbling block for activity within Kenya’s private sector.

Furthermore, erratic rainfall in quarter four 2016 also poses as a risk to agriculture production,” said Stanbic regional economist Jibran Qureishi.