Kenya was Thursday left walking into an uncertain future after opposition National Super Alliance (Nasa) made good its threat not to take part in a repeat presidential election and promised to use its political muscle to inflict economic pain on businesses they consider hostile to their cause through boycott of their products.
The boycott warning, made during an opposition rally on the eve of the election, coupled with threat of sustained demonstrations risk dealing a blow to the economy, whose performance is already subdued by prolonged drought and months of intense political campaigns.
Raila Odinga, the Nasa presidential candidate, on Wednesday announced the transformation of his political alliance into a national resistance movement that would embark on a campaign of defiance to press for reforms.
“After October 27, when we declare do not purchase a particular product you shall comply, when we say do not consume particular media and do not use a particular phone, you should also oblige,” Mr Odinga told his supporters.
President Uhuru Kenyatta, who is Mr Odinga’s political arch-rival, has rubbished Nasa’s calls for a fresh poll in 90 days, setting the stage for a prolonged political fight.
This looming standoff between Nasa and Jubilee after the repeat election has frightened investors and slowed down economic activity, depressing tax collections at a time of increasing obligations such as payment of public debt.
The slowdown in economic activity has also held back credit growth, leading to factory closures and job losses among other pressures.
Long-term economic impact
Business leaders have warned that any continuation of political infighting will have long-lasting impact on the economy.
Phyllis Wakiaga, the chief executive of the Kenya Association of Manufacturers (KAM), said the extended electioneering coupled with double taxation, delayed payments and, more recently, the plastic bag ban had slowed down economic activity and forced some businesses to shut down.
“Our manufacturing barometer has shown that compared to the second quarter in 2016 when manufacturing grew by 5.3 per cent, it only grew by 2.3 per cent this year,” Ms Wakiaga said.
“The barometer also shows that industry has expressed concern over the time it will take to achieve normalcy, 64 per cent of our members forecast zero or negative growth in the six months ahead.”
Ms Wakiaga added that decision making, including release of cash to government units, will most likely “stall” until a new government is inaugurated, delaying any prospects of recovery.
Things could get murkier if the result of the election is contested in court as happened with the August 8 poll. That would mean the country remains without clarity on the poll until mid-November when the Supreme Court will be expected to determine any challenges to the outcome.
Revenue collection below target
One agency of government that is definitely feeling the fiscal pinch due to the business slump is the Kenya Revenue Authority (KRA).
In the financial year to June 2017, the KRA’s revenue collections stood at Sh1.365 trillion, falling short of the Sh1.376 trillion target by a marginal 0.8 per cent.
The taxman attributed this performance to increased inflows from consumption levies such as value added tax (VAT) and excise tax, collections which, given the prevailing trading conditions, are likely to fall this year.
Custom collections are also expected to fall short of target, as they did during the 2013 General Election, following a slowdown in international trade.
“It is clear that KRA is not likely to meet its targets going by trends we have seen in the private sector,” Jaindi Kisero, an economics commentator, said in a recent opinion piece.
“This includes declining profitability by firms, an upsurge in the number that have issued profit warnings, and widespread distress in the retail sector.”
The lower revenue collections are happening in a setting where, as of March 2017, Kenya’s gross public debt stood at Sh4.04 trillion — equivalent to 52.6 per cent of GDP, according to data from the Treasury.
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The Kenya Institute of Public Policy Research and Analysis (Kippra) has warned that insatiable appetite for loans to fund mega projects poses a risk to the economy and is increasingly narrowing the window for future borrowing in the event of emergencies.
Pressure to collect more
Kenya’s public wage bill, including national and county governments, stands at Sh627 billion a year, gobbling up half of government tax receipts and employing 700,000 civil servants who account for only two per cent of the population.
These expenses, including unexpected bills such as those arising from renegotiated collective bargaining agreements, will therefore continue to exert pressure on the public finance and the country’s ability to service its expensive debt.
The Treasury will therefore continue to pile pressure on the KRA to collect more, a relentless and laborious task that has been made even harder by a poisonous political environment.
Aly-Khan Satchu, an independent investment analyst who runs data vendor Rich Management, described the economy as “soft” and “on the ropes”, one that is badly in need of “renewed optimism and growth.”
“Anecdotal evidence suggests corporate revenues and profits are down big year on year and therefore given the super-sized election spend something will have to give,” Mr Satchu said.
“The government could look at the Eurobond market to bridge the gap because yields remain very attractive for borrowers on a historical basis. However, we are going to have to slim down fast.”
Carole Kariuki, the chief executive of the Kenya Private Sector Alliance (Kepsa), said the ongoing impasse was not only having local impact, but also bearing negatively on regional landlocked countries that depend on Kenya for their imports.
“Kenya’s growth prospects remain hostage to the current political environment, and the economy is increasingly growing less immune to a potential recession if the current uncertainty is not addressed,” she said. “The prolonged political uncertainty is likely to affect the economy for the rest of the year.”