Kenya’s growth prospects held hostage by political uncertainty

By Carole Kariuki

The Kenyan economy has always rebounded from challenging times and it is this resilience the country is banking on to rise from the current political volatility occasioned by the fresh presidential election on Thursday.

The nation has overcome the devastation of 2007/08 post-election clashes; the impact of Al-Shabaab terrorist attacks and impact of the drought that affects the agricultural sector.

Even with all these challenges, the economy has adapted well to these shocks. The current political situation has created uncertainty as investors adopt a wait-and-see attitude and prefer to hold back investment decisions.

Read: Nairobi’s property market remains subdued due to political uncertainty 

This has impacted all the key sectors of the economy, consequently leading to a slowdown in an economic slowdown.

The prevailing political situation has led to major events planned to be held in country canceled or postponed including UNAids Global Prevention Coalition meeting scheduled for this month, and this year’s Safari Sevens that had been planned for November bringing participation from across the world.

These are foregone business opportunities, especially for the hospitality industry.

The declining growth of the economy has been attributed to a number of factors including the slow credit uptake by the private sector due to interest rate capping; the growing fiscal deficit risk; disruption of business activities in a few areas of the country triggered by civic demonstrations following the August 8 General Election; prolonged drought which started in the last quarter of 2016.

The manufacturing sector has recorded reduced growth rate of 3.2 percent on year-to-year comparison.

The decline in the production of cement, assembly of motor vehicles, and manufacture of galvanised sheets as business activities in these segments slowed down due to uncertainties over the August 8 poll and presidential vote rerun and low credit access.

The construction sector has also declined in growth at 7.5 per cent in the second quarter of this year.

At the microeconomic level, the Matatu Owners Association has also reported losses in revenue of up to Sh700 million in the week following the August elections, and daily losses of up to Sh75 million (which is 25 per cent of the Sh300 million revenue generated daily by the sector) since September 1, when the Supreme is bearing the brunt of the political demonstrations with looting and destruction of property witnessed during the Anti-IEBC demonstrations and counter-demonstrations.

Most businesses have to remain closed for the better part of the days the demos are held.

The 2016 Micro, Small and Medium Enterprises (MSME) survey established that 60 per cent of all the 7.4 million MSMEs are engaged in wholesale and retail trade.

Read: Kenya’s SME Sector Being Choked to Death By Tough Political and Economic Environment 

This means that the effect of the political environment has serious implication considering MSMEs employ about 85 per cent of Kenya’s labour force.

The education sector has also been affected as there was disruption to the school calendar and the exams may be affected if the political situation is not properly managed. Kenya’s political anxiety is affecting other parts of East Africa, especially Court nullified the presidential vote.

Kenya’s growth prospects remain hostage to the current political environment and is increasingly growing less immune from a potential recession if the current political uncertainty is not addressed.

The prolonged political uncertainty is likely to affect economy for the rest of the year.

The wholesale and retail sector landlocked countries which depend on us for essential imports. Neighbouring Uganda, Rwanda, Burundi and even South Sudan and Congo largely rely on Kenyan network for supply of key economic stimuli such as oil.

As the most industrialised country in the region, it also provides many countries in East Africa with basic household goods such as cooking oil, salt and fl our, regional partners continue to face uncertainties over security of their cargo in freight.

The economy has strong fundamentals and as we have seen with Kenya Revenue Authority, defying the political uncertainties to post an increase in tax collection in September. Let this prolonged election season come to an end to give confidence to both local and foreign investors.

Carole Kariuki is the Kenya Private Sector Alliance Chief Executive Officer.