Why businesses must monitor Kenya’s pulse
‘Kenya risks a long spell of political volatility that will divert from policy reforms and scare investors,’ writes William Attwell
Kenyans return to the polls on Thursday in what is proving to be the most contentious and unpredictable election since the 2007-08 crisis. Back then, a disputed result sparked nationwide instability that lasted months.
The vote is a rerun of the presidential contest held on August 8, which President Uhuru Kenyatta won, an outcome that was later annulled by the Supreme Court, citing "irregularities".
Opposition candidate Raila Odinga refused to participate in the repeat poll unless his demands for reforms to the electoral commission (including the dismissal of officials allegedly involved in irregularities) were met, saying reform measures implemented to date had been inadequate.
Kenyatta has been determined for the vote to go ahead, and his party has in recent weeks passed legislation making it harder for the courts to cancel the results — a move that has inflamed tensions.
The risk is that Kenya enters a prolonged spell of political volatility in which government attention is diverted from policy reforms and anxiety over the future dissuades businesses from expanding.
Given multinational company executives’ high hopes for the market — Kenya is seen by many as offering opportunities that can offset disappointing performance in other large sub-Saharan African markets — the prolonged political impasse raises serious business concerns.
Back in 2007, the economy ground to a halt. Domestic demand dried up as investment slumped and spiralling ethnic violence disrupted transport routes, upsetting distribution and supply chains.
This time, more than 100 people have already died in protests — usually clashes with police. Yet there are a few reasons why a national security crisis on the scale seen in 2007-8 is unlikely:
Odinga called off mass demonstrations two weeks ago, fearing further clashes between his supporters and police would result in more deaths.
Two of the main ethnic groups opposing each other in 2007-08 are now allied in the Jubilee Party of Kenyatta and former opponent-turned-deputy William Ruto.
The security services are better equipped and prepared than they were in 2007-08 to clamp down on, and contain, unrest when it emerges.
The highly fluid situation nevertheless poses challenges for businesses and investors planning for 2018. Particularly concerning is whether sustained volatility (and thus customer anxiety) will damp demand from local consumers and businesses, and how different political outcomes will shape the business environment in 2018.
Regular market monitoring in such a setting is crucial to ensure that companies are not blindsided by events and are — in conjunction with local partners — able to put contingency plans into action when necessary.
The vote going ahead without Odinga means a shoo-in for Kenyatta (there are other contenders, but they polled few votes in August). The president will be able to proceed with promised reforms, including several pro-business policies.
Kenyatta is also likely to tackle issues that are damping the availability of credit, resulting in increased demand from domestic businesses.
However, this scenario could also result in political violence escalating, especially in Odinga heartlands such as the western city of Kisumu.
Business executives would do well to work with their strategy teams and local partners to examine how the way events have unfolded shapes customer demand dynamics and the relative likelihood and severity of business risks.
• Attwell is senior analyst, sub-Saharan Africa, at Washington-based Frontier Strategy Group.