Economy shivers as politics takes main stage again

A political rally. All sectors of the economy are experiencing a lull, owing to election jitters. FILE PHOTO | NMG
A political rally. All sectors of the economy are experiencing a lull, owing to election jitters. FILE PHOTO | NMG 

The Supreme Court ruling that nullified President Uhuru Kenyatta’s re-election immediately hit headlines across the globe, with ripple effects on local and foreign investors.  

The decision has, however, come with a negative impact on businesses that were emerging from a slow down that is usually related to Kenya’s election cycle. The matatu industry was the first to claim making a Sh75 million loss everyday nationwide. The National Chamber of Commerce and Industry said the country was losing billions daily due to the uncertainty.

The Nairobi Securities Exchange #ticker:NSE reportedly plummeted Sh92 billion by close of that Friday as investors scampered to cover their positions. In comparison, the bourse lost Sh40 billion after violence erupted during the disputed 2007 General Election.

On Thursday, though, investor wealth at the exchange rose above the Sh2.4 trillion mark for the first time in a week as the NSE continued to recover from last week’s slide on the back of political bickering.

Bank stocks
The gains were mainly on bank stocks, where eight of the 11 listed financiers recorded a share price gain, with Safaricom adding 50 cents to close at Sh25.25 apiece.

“All benchmark indices closed in the green as demand by local investors across major large caps continued,” said Standard Investment Bank in a market note.

In a review of the market reaction, Stanbic Bank #ticker:CFC regional economist Jibran Qureishi told the Sunday Nation that investors’ initial reaction to the news was a clear indication of their fretting over re-emergance of election spending and what this would mean to fiscial consolidation highlighted in this year’s budget.

“On the other hand, the move by the court reflects a maturing democracy and strengthening independent institutions, and we should not discount this factor,” said Mr Qureishi.

A number of business players have weighed in on the impact of renewed political duels between Nasa and Jubilee, which have heightened tension in the country.

Addressing challenges

“We have faced challenges but, by and large, we are building institutions to address them,” Mr Kiprono Kittony, chairman of Kenya National Chamber of Commerce and Industry, said during a policy forum hosted by Strathmore Business School hours before the Supreme Court ruling on September 1.

Mr Kittony said businesses lost an estimated Sh300 billion due to the 2007/8 post-election violence and many, especially in the hospitality industry, transport and manufacturing sectors, would take longer to recover.

The thrust of Kenya’s elections are felt beyond the borders to neighbouring landlocked nations such as Uganda, Rwanda, Burundi and South Sudan that rely on Mombasa port for international trade.

“Elections in Kenya are important to these countries, such that every day of business lost is a huge loss to them,” said Mr Kittony, explaining why he rallied the public to go back to work soon after the election.

“We do have declining economic activity. That is why I have been advocating that we push the elections to December, although not everybody agrees with me. December is the time we usually go home anyway to relax; it’s the time when many people take vacations.”

Speaking at Strathmore’s policy forum, investment banker and Eagle Africa Capital Partners executive chairman John Ngumi sought to explain political and sovereign risk, as well as how foreign investors view Kenya.

He cited Kenya’s strategic importance in international business as a reason for global focus on its elections, saying occasional political disruptions deter foreigners keen on investing in the country.

“Foreign direct investors have a pretty long-term perspective. Political disruptions and mass action occur in many countries, but unless it is prolonged, they will stay,” he said. “That is a generality but if you go to individual sectors, of course, there will be differences. There are some sectors that local and foreign investors will look at with great wariness.”

Political disruption

On sovereign risk, the career banker said political disruption is not a major consideration in making financial investment decisions by foreigners.

Citing the June 2014 terror attack in Mpeketoni, Lamu County, that left at least 60 people dead, Mr Ngumi said foreign investors oversubscribed the Eurobond issue despite the negative press.

“Investors were bidding $8.8 billion yet all we had hoped for was $1.9 billion; we took $2 billion. Why did they do that? Because Kenya has a very good track record of repaying debt,” he said.
“Our Constitution prioritises debt service above all else.”

Mr Ngumi said all is not bleak because Kenya remains a top foreign direct investment hub despite political instability that elections trigger.

“The world has a restless need for growth and investment opportunities; Africa is that place today,” he said.

“One thing we can learn from foreign investors is the ability to think through the fog and noise, as well as look at what works and what is going to align itself to long term trends.”