Kenya’s real Gross Domestic Product (GDP) growth has a history of slackening during election years. During this period, fund managers and individuals put investment decisions on hold pending a return to normalcy in the political scene.
The extremity of the December 2007 elections, which sunk growth to 0.23 per cent in 2008 from 6.85 per cent a year earlier, stretched the speculation on political risk for subsequent years.
In 2013, GDP decelerated to 3.80 per cent from 4.57 per cent while in 2017, during which Kenya had a double presidential election, economic growth slowed to 3.82 per cent from 4.21 per cent in the previous year, according to figures by the Central Bank of Kenya (CBK).
During election years, investors are quick to offload their holding from the Nairobi Securities Exchange (NSE) and fund managers take a conservative approach, tucking their clients’ cash in safe assets particularly government securities. This year, however, the growth outlook is positive.
A consensus outlook by 14 world-leading banks, including Goldman Sachs and UK’s HSBC, have predicted a 5.4 per cent growth in GDP, which will be supported by increased expenditure. While this projected growth signals a slowdown from last year’s performance, it is the highest growth rate in an election year since Kenya became a multi-party State.
Since the announcement of the “Big Four” development agenda, which prioritises food security, housing, universal health coverage and manufacturing, Kenya has made progress in instituting policies that crowd-in private sector engagement, particularly within the affordable housing pillar.
The legal and regulatory framework for the Kenya Mortgage Refinance Company (KMRC) has been completed, the Stamp Duty Act providing an exemption for first-time home buyers and Mortgage Loans Act which allows for pension-backed mortgages have been signed into law.
Of keen interest will be to see if the incoming government will follow through with this homeownership agenda. In addition to policies, we have seen major developments started and ongoing in infrastructure.
Another eventful period of the last five years was the enormous shock of the Covid pandemic since 2020. Though we have tentative hopes of witnessing the end of Covid soon, the challenges encountered may continue to shape activity especially in the pension industry. Given that approximately two million Kenyans fell into poverty during the pandemic, they will have to work harder to catch up with their pension contributions.
In addition, the elderly had their retirement savings thrown off balance. A report by Enwealth Financial Services Indicates that 60 per cent of them turned to mobile loans to meet their needs and support their children. Hence, they may be forced to continue working past their retirement age to boost their incomes as their retirement savings may be inadequate.
Although the past five years since the last general election have been turbulent for the economy and subsequently the pension sector, the Economic Recovery Strategy put in place after the Covid-19 pandemic signals some light at the end of the tunnel. Full reopening of the economy and vaccine rollout continue to boost economic recovery and growth. This pick-up in Kenya’s economy is well reflected in improved household incomes, consumption and a developing recovery in private investment.
Usually characterised by ceaseless bickering, events like these have often caused socio-economic disruptions to businesses and investments. During this period, the country loses focus of the national development agenda, investors are driven away and essential resources are sidetracked. However, readiness over what may come is already in place. Even the global community has expressed confidence in Kenya’s political stability this time.
Regardless of the outcome of the August presidential election, we are looking forward to a ramp up in spending (as promised by leading candidates), political stability and a stable macroeconomic environment.
Even though downside risks could emanate from a slowdown in global growth such as the current global inflationary pressures, the pension industry is primed to capitalise on the gains amid a changing environment and growth in member contributions.
Mr Wafubwa is the Managing Director, Enwealth Financial Services Ltd