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Kenya’s economy feels pinch of prolonged political uncertainty

By Steve Mkawale | October 1st 2017
Youth escape from teargas during a demonstration by NASA in Nairobi. (Photo: Oliver Ananda/Standard)

Though Kenya underwent a peaceful General Election on August 8, the repeat presidential election has brought with it a lot of tension and thrown the country into a political circus.

The election fever has already spread across three-quarters of the year, and it is not clear when the tension will ease.

Already, Planning Principal Secretary Irungu Nyakera has warned that the country’s current political uncertainty is hurting the economy.

“There is a need to ensure stability, secure investor confidence and root for adequate supply of food,” says Nyakera.

The PS says the current wait-and-see attitude by prospectors is slowing down investment.

“The travel advisories, due to the perception of insecurity during the election period, negatively impact key sectors such as tourism, not forgetting that the stock market index is also adversely affected by negative market sentiments,” he said.

Nyakera cited hotel, transport, wholesale and retail sectors as among those hurt by the situation.

Paul Namayi, Economics lecturer at the University of Nairobi, says the standoff, if not nipped in the bud, will reverse the projected economic growth for this year.

“If a political settlement is not arrived at soon, the Gross Domestic Product (GDP) will fall just below the current five per cent as investors shy away, production drops and the shilling continues to depreciate,” says Namayi.

The Nairobi Securities Exchange (NSE) was shaken by the ruling of the Supreme Court nullifying President Uhuru Kenyatta’s re-election, shedding over Sh50 billion on the judgment day.

Analysts says more than Sh300 billion has, for the last three months, been shed due to the political grandstanding between the two political protagonists, the National Super Alliance (NASA) and Jubilee Party.

The shilling has also received a beating in the period, hitting an all-time low against the dollar.

“Following the uncertainty, there is an urgent need to conclude the 2017 presidential election,” says Philip Chebunet, a political science lecturer at a local university.

Chebunet says the 2013 General Election demonstrated that when a government is formed immediately, economic activity is not affected.

Changes in inflation

He says key indicators have already pointed to a slowdown in economic growth in 2017.

First Quarter estimates of GDP growth, as per data from the Kenya National Bureau of Statistics, indicate that the economy grew by only 4.7 per cent.

“The Consumer Price Index (CPI), which measures changes in inflation and the cost of living, has also risen from 6.3 per cent in August 2016 to eight per cent in August 2017,” says the KNBS report.

Chebunet warns things could get worse, following the demonstration by the Opposition to demand the removal of some Independent Electoral and Boundaries Commission (IEBC) officials for allegedly bungling the August 8 presidential election.

Top on the list of IEBC officials NASA wants out of office is Chief Executive Officer Ezra Cheloba.

The Opposition has also insisted that its “irreducible minimum” demands must be met before they can participate in the repeat presidential election.

Following these demands and the hardline stance taken by Jubilee against them, investors have now adopted a wait-and-see attitude.

Development projects by both national and county governments have stalled.

In Rift Valley, Uasin Gishu Governor  Jackson Mandago paints a grim picture of the situation, saying operation in most counties have halted due to lack of funds for development projects.

“There is no way counties will wait for the political situation to normalise to continue with development projects,” he says.

In the South Rift region, a number of roads commissioned by President Uhuru Kenyatta and his deputy William Ruto have stalled.

The Sh30 billion projects, which were launched early this year, are at various stages of implementation.

Scaled down operation

Some of the contractors have withdrawn their machinery from the sites while others have scaled down operations.

The National Treasury is in the process of releasing Sh10 billion to finance the repeat presidential election.

More money, which would have been used for development, is being channelled to consumption, as the government continues to provide subsidised maize flour now in its fourth month even as maize farmers have started harvesting.

Except for mass safari tourism, tourist arrivals in the coastal beaches have remained low during the current July-October peak season.

“Between July and early this month, bed occupancy in lodges and camps in Masai Mara was high, with exclusive ones recording above 80 per cent. At the Coast, the story is different. Occupancy has remained stagnant at below 70 per cent,” says Lily Waddington, the proprietor of Osero Lodges Ltd.

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