Policies that favour private sector growth critical, says ICEA Lion

Favourable fiscal policies for the private sector growth, support to farmers and jobs for the youth are some of the key priorities the next government should prioritise, ICEA Lion Asset Management has said.

The asset managers said there are negative effects of election years globally, which are marked by higher debt levels, reduced revenues, slowdown in business capital expenditure, postponement of regulatory decisions and decreased lending activity.

“Kenya’s GDP (gross domestic product) growth in the years 2002, 2008, 2013 and 2017 declined to 0.2 per cent, 0.5 per cent, 3.8 per cent and 3.8 per cent respectively,” said ICEA Lion Asset Management Senior Portfolio Manager Esther Muchai yesterday during a forum by the firm on the elections and their effect on the economy and financial markets. “This trend is likely to continue in the period around the 2022 elections, with the decline likely to be exacerbated by base effects and the pandemic.” She said 2022 is a unique election year compared to the past years because GDP has grown significantly, driven largely by public sector investment.

The country has increased its physical capital stock through a wide network of rail, road and ICT infrastructure. “However, the economy is heavily laden with debt because of the huge infrastructure spending over the last eight years; it is still reeling from the effect of the Covid-19 pandemic; the cost of living is quite high due to both internal and external factors, and corruption is rife,” Ms Muchai said.

She urged the next administration to enhance corporate governance policies in both the private and public sectors to boost confidence in the financial markets and help deepen capital markets. 

Ms Muchai further noted that financial markets have recorded mixed performance in past election years with no particular trend attributed entirely to the election process.

“Research analysis has shown that the performance of the stock and debt markets has been subject to the prevailing market conditions,” she said.

“In the past five years, the highest performance recorded in the stock market was in 2017 when we had two elections in the same year, while the debt market over the same period had mixed results attributed to the effects of the interest capping law that was enacted in 2016.”

ICEA Lion recommended that the business community continue to participate in policy formulation and support initiatives that increase internal consumption of manufactured goods and value addition such as Buy Kenya, Build Kenya.

They should also enhance corporate governance and ethical business practices to boost confidence in companies and attract new capital.