Will the Upcoming Elections Slow Down Economic Growth this Year?
This has been a question on the minds of many investors both local and international considering it’s only a few months to the general elections. Electioneering period in Kenya has often been characterized by high level politicking. As a consequence, greater focus during this period has mostly been on politics and this may have an effect on economic progress in the country. Should Kenyans be concerned about a slowing economy as election campaigns intensify?
This comes as the government maintains it has put in place enough contingencies to shield the country from the negative effects of political campaigns and election politics. With just five months to the polls, the cyclic effects that elections have on Kenya’s economy have begun to show especially with the increase in cost of foodstuffs etc.
In an article on the Daily Nation, Paul Gachanja, Chairman of the Department of Economic Theory at Kenyatta University (KU) mentioned that unless the government figures out how to resuscitate the stagnant agriculture sector this year it can only get worse because fewer jobs will be created in the current environment.
Historic figures have it that the Kenyan economy slows down in an election year by about 1.2-1.4%. Typically folks become cautious and adopt a wait and see attitude but as long as the political rhetoric stays below the radar, then we should be ok.
Different analysis notes that sectors key to the economy including tourism, agriculture, manufacturing, transport, retail and finance are at a risk of experiencing slowdown in investments as investors wait for the high-octane charged elections to pass. There is, however, a level of optimism with many players saying the economy will sustain growth momentum owing to investments in infrastructure by the government. On the other hand leaders in different industries are, however, issuing cautionary statements noting that this year might be rough for their businesses, with the elections being a major concern.
Related:
- CIC Insurance Group Issues Profit Warning
- Unga Group issues Profit Warning for its Full Year 2016 Results
Global Risk insights, a think tank that looks into political risks around the world, advises multinationals with operations in Kenya to be cautious and be ready to protect their investments this year. It further warns investors looking at Kenya to wait until after the elections.
It’s a generally accepted view that the economy slows down ahead of elections; there is a slowdown in investments and economic activity even as government spending goes up. Politicians are funded to enable them to sustain their election campaigns with expenditures which include; posters, banners, gifts, food and clothes especially reflector jackets for motorists, renting crowds and candidates to cut out rivals, commuting cost, fuel, temporary offices as well as part time and full time workers.
Does democracy increase economic growth? Yes. The democratization is however accompanied by endogeneity problems. Elections might build better institutions and may improve governance, which in turn increases economic growth but while this is evidently true in the developed world, it is the reverse in the case of Kenya. The period